 What to Expect in New York City When the FARE Act TakesEffect on June 11 |
Source |
American Shipper |
Post Date |
06/18/2025 |
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Key takeaways:
? The FARE Act is expected to lower the averageupfront cost for rentals currently ging a broker fee by 41.8%, from $12,942to $7,537.
? Rent increases for properties ping brokerfees before the FARE Act have been broadly in line with market trs so far,suggesting property managers will continue to absorb much of the additionalcost, as they have in the past.
? The FARE Act is unlikely to howproperty managers set asking rents based on market demand. Asking rents areprimarily driven by market conditions, rather than solely by property managers?osts.
? A large share of property managers willcontinue to work with rental brokers. Even during the pandemic in 2021, 80.3%of rentals that did not ge the tenant a broker fee were represented byagents. This year, a still substantial 56.9% of all no-fee rentals wererepresented by agents.
1.
The FARE Act will substantially lower upfront costs whensigning a lease
The Fairness in Apartment Rental Expenses(FARE) Act ?expected to take effect June 11 ?requires that a rental broker inNew York City be paid by the hiring party, and that property managers or theirbrokers disclose and advertise any fees a tenant must pay in their rentallistings and rental agreements. The new law preserves renters?choice to hirean agent directly to represent them, in which case they would pay a broker feefor the agent? services.
The total upfront cost to sign a rentallease, including a broker fee, averaged $12,942 between January and April ofthis year, equivalent to 17% of the city? median household income of $76,577,according to the U.S. Census Bureau? most recent (2023) American Community Survey.This high burden has made it increasingly difficult forNew Yorkers to find their next home.
The broker fee, typically about 12% of theannual rent, is often the most substantial upfront cost. Once the FARE Acttakes effect, the average upfront cost for rentals currently ging a brokerfee will fall by 41.8% to $7,537. While property managers are allowed to geother miscellaneous fees, the new law will ensure that renters clearlyunderstand any fees they will be asked to pay ?with no surprises later on.
The FARE Act is a significant step toward amore equi and transparent rental market. Lowering the financial barrier tomoving will increase housing options for all New Yorkers and help locked-inrenters find their next home, whether it? to be closer to their workplace,accommodate a growing family, or even pay less in monthly rent.
2. The expected rent increases won? be far beyond broadermarket trs
The share of no-fee rentals has already beenrising as new developments, which do not ge broker fees because leasing ishandled in-house, continue to fill a large hole in the city? rental inventory.For the most part, other property managers have been waiting until the lawtakes effect on June 11 before they comply, relisting only 5.6% of units inApril without a fee.
Despite the slow transition to the new norm,the properties forgoing a broker fee ahead of the FARE Act? implementation didnot increase rents beyond the broader market tr. The average annual growthin asking rents of the properties that ped a broker fee was 5.3% in April,slightly above the 4.6% growth for the rest of the market in which broker feesremained in place.
The small difference compared to the rest ofthe market indicates that property managers switching to no-fee rentals havebeen absorbing much of the additional cost incurred by bringing leasingactivity in-house or covering rental brokers?commissions directly. In Januarythrough April this year, 56.9% of the no-fee rentals were still represented byrental agents instead of property managers. Had property managers fully passedthe broker fee, typically about 12% of the annual rent, onto tenants as a higherbase rent, the annual increases for the properties that switched to no-feerentals would have been 10.3% on average in April ?nearly double the actualaverage growth in asking rents for properties switching to no-fee.
3. Property managers will likely absorb much of theadditional cost, as they have in the past
Ultimately, market conditions ?not propertymanager expenses ?drive rents. After the FARE Act takes effect, propertymanagers switching to no-fee rentals will continue to absorb much of theadditional cost related to in-house leasing or directly compensating rentalbrokers, as they have in the past.
While no-fee rentals t to be pricier thanrentals with a broker fee, the premium that property managers can ge hasbeen much smaller than the 12-15% rate that tenants would have paid. Our recent analysis indicatesthat after accounting for location, size, and amenities, no-fee rentals weremore expensive than similar units by 4.2% on average in 2024.
Low vacancy rates amid steady renter demandfavor property managers as the FARE Act is poised to take effect. Whileinventory has been increasing gradually, there? still a big hole to fill. As aresult, rent is still rising faster than its average growth pace before thepandemic. In April, the StreetEasy Rent Index was up 4.5% year-over-year,compared to 2.0% on average for the month of April in 2015 through 2019.
When market conditions were challenging forproperty managers, no-fee rentals were cheaper than units that ged thetenant a fee, pointing to the property managers?ability to take on additionalcosts. During the pandemic, the no-fee premium collapsed to -3.8% in 2020 asproperty managers absorbed the cost of working with a broker to attractrenters. While it recovered to -1.7% in 2021, it remained negative, with 75.8%of the inventory being no-fee.
When rental demand came roaring back in 2022,the no-fee premium jumped to 6.4%. By then, the share of no-fee rentals hadped to 49.8%, allowing property managers to ge more for no-fee rentals.The cyclicality of the no-fee premium indicates the property managers?abilityto change prices is limited by prevailing market conditions ?especially whensoaring rent burdens since the pandemic have made New Yorkers even more price-sensitive thanusual. The FARE Act won? change the way property managers set asking rents inresponse to demand.
4. Rental brokers will continue to provide valuableservices for property managers
Rental brokers offer highly valued servicesfor property managers, such as marketing the property to the broadest audiencepossible and facilitating tours with prospective renters. For many propertymanagers, the services brokers provide are essential, and they continued towork with brokers even during the pandemic. In 2021, a substantial 80.3% of alllistings that did not ge tenants a broker fee were still represented byagents rather than property managers.
Contrary to concerns in the industry, manyproperty managers will continue to work with rental brokers. Between Januaryand April this year, 56.9% of no-fee listings were represented by agents.
The FARE Act does not affect the value ofrental agents?work. Instead, it will minimize confusion among renters andagents regarding broker fees and who is responsible for paying them, creatingmuch-needed clarity. In addition, renters can still hire agents to representthem for a fee, providing an opportunity for agents to grow their ownbusinesses.
Disclosing all fees upfront will help rentersquickly understand what they can and can? afford, making it easier for agentsand property managers to connect with qualified prospective tenants.Ultimately, the FARE Act will help all New Yorkers see a more transparent,affordable, and efficient rental market.
StreetEasy?and Zillow?Are Advocating for a MoreAffordable and Efficient Housing Market
StreetEasy and Zillow believe the FARE Act isjust one step of many toward a more transparent, affordable, and efficienthousing market. Here are other efforts we?e supporting to address NYC?housing crisis:
Lowering upfront costs: In addition to broker fee reform, StreetEasy andZillow are collaborating with policymakers and advocates on policy and productsolutions to help mitigate upfront costs, including:
? Allowing tenants to pay their securitydeposit in installments over the full term of a lease rather than in fullupfront, which can significantly reduce the burden of upfront costs.
? Increasing transparency around fees to helprenters better understand what they can afford when searching for a new home.
? Making it easier for renters to reportpositive rental payment history to credit bureaus, helping them build creditthrough regular rent payments and unlock a path to homeownership.
? Supporting closing cost and down paymentassistance programs to reduce the upfront financial burden on buyers and helpmake homeownership more accessible.
Increasing housing supply: As we aim to lower upfront costs and reduce frictionin the process, there simply aren? enough homes to meet demand. To alleviatethe supply shortage, StreetEasy and Zillow are working with industry partnersand housing affordability advocates to push for policy solutions such as:
? Adopting tax incentive programs and zoninglaws that allow the creation of accessory dwelling units (ADUs),basement-apartment conversions, and commercial-to-residential conversions tobolster housing development across income brackets, especially in hard-to-developareas.
? Ensuring consumers have fair and transparentaccess to all real estate listings, enabling them to make informed decisionsand find the home that is their best option.
Additionally, we supported the City of Yeshousing plan ?a citywide zoning reform proposal expected to 82,000homes over 15 years ?passed by the New York City Council on December 5, 2024.The plan is a monumental step in the right direction to address the city? direhousing shortage.
Reducing friction in the process: Even if we?e successful in lowering upfront costsand building more housing, friction still holds consumers back. StreetEasy andZillow are pushing to remove or reduce this friction by:
? Strengthening the enforcement of fair housinglaws, as well as allocating resources to increase industry and renter educationand outreach. This would ensure property owners understand theirresponsibilities and renters their rights and the resources available to them,thereby enabling better enforcement and reporting of violations.
? Supporting additional funding for housingvouchers and rental assistance programs, ensuring renters have more access tohousing opportunities.
? Supporting requirements for consumers andreal estate agents to enter into written representation agreements in all realestate transactions, ensuring consumers know the services they?l receive fromagents, how much they?l pay for those services, and who will be paying forthose services.
Methodology
How we calculated average upfront costs
We calculated the upfront cost of each rentallisting that was on the NYC market. Following common industry practices, weassumed each rental requires a tenant to pay the first month? rent in advance,one month? rent as a security deposit, and 12% of the annual rent as a brokerfee unless a listing is marked as a no-fee rental. We then took the averageupfront cost of the listings that were on the market between January and April2025 and ged a broker fee to get $12,942. We excluded rentals with unusuallyhigh or low prices to estimate the average upfront costs New Yorkers are likelyto encounter. The methodology in this report is the same as our previous reporton upfront rental costs.
How we estimated the no-fee premium
We analyzed more than two million rentallistings that appeared on StreetEasy between 2017 and 2024. To calculate theaverage effect associated with no-fee listings (namely, the ?o-fee premium?,we used hedonic regression to account for the differences in physicalacteristics of housing such as the number of bedrooms and bathrooms,amenities, location, and building type. Please see the methodology section inour recent report foradditional details.
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