What is the FARE Act and What Does It Mean for the Rental Market Now that It is In Effect?

The Weekly Recap

Good morning and happy Friday! Globally this week could’ve given Billy Joel enough material to write a ‘We Didn’t Start the Fire Part II’, the FARE Act went into effect in NYC jacking up rents across the city, CEO expectations for a recession decreased as the new US job reports eases concerns about the economy. We are due for another rate cut, you could buy the Equinox Hotel in Hudson Yards if you were in the market for such a thing and there is actually a list of restaurants that might be worth suffering through the hell that is Times Square for.

If you missed last weeks newsletter on Benefits of Buying Your Home in an LLC, you can read that through the link.

What is the FARE Act and What Does It Mean for the Rental Market Now that It is In Effect?

The Fairness in Apartment Rental Expenses or the FARE Act took effect this week after being passed by the NY City Council back in December. The FARE act prohibits landlords from passing on the broker fee for landlord representation to the tenant, meaning whoever hires the broker pays the broker. Which on its surface seems like a well intentioned and solid consumer protection law, but the road to hell is paved with good intentions and this is what we can expect to see as this law starts impacting the market.

In less than 24 hours, over 1,000 rental listings came off the market, while those that stayed on and switched to “No Fee” (meaning the landlord pays the listing agent), increased their pricing anywhere from $400 to over $750 per month, baking in the new fee they have to pay into the monthly rent. What this is going to do is make rentals even more expensive in the city by having less quality units at higher price points which will drive pricing up.

Now it’s important to understand that before this law took effect, an overwhelming majority of available listings on the market were listed as ‘No Fee’ (once again meaning that the landlord was paying their representation), so there was an abundance of consumer choice. Moving in NYC did not automatically mean a 15% broker fee for your apartment.

Depending on the building and the market, some landlords were offering what is known as an ‘OP’ or Owner Pays which meant they were paying their representative AND the tenants broker as an incentive to bring clients to a building. In other scenarios, tenants that had hired a broker to represent them were only paying 1 months rent as a fee for the majority of listings that were on the market for utilizing their brokers expertise. Finally, in a small number of instances, tenants had to pay 15% of the years rent as a commission that was split equally between the landlord side (7.5%) and the tenant side (7.5%). Instances where a 15% commission was paid, those units were priced lower than their ‘No Fee’ counterparts.

The misnomer about this law is that it “Eliminates Broker Fees”, it does not. If you are a tenant and solicit the expertise of a broker, you are still expected to pay that broker for their services. This bill eliminates paying the LANDLORDS broker a fee only and from the landlord passing that cost down to a new tenant.

What it also does is make getting an apartment harder. NYC is suffering from a huge lack of inventory and when 1,000 units come off in 24 hours, it makes competition for the remaining units increase because demand remains the same (which can also drive up prices through comps and bidding wars). In NYC, to be eligible to rent an apartment, you must show 40x the monthly rent in annual salary. So if the apartment is $4,000, you must show $160,000 in annual salary. Now that the FARE Act is in effect, that $4,000 is now $4,500 meaning you need to now show $180,000, which would price many New Yorkers out.

If you have any questions about the FARE Act, do not hesitate to reach out!

Market Performance

Here are how some other indexes and asset classes have performed as of this Mornings opening bell.

NYC Market Update

Here is a view of NYC market activity over the past week.

Mortgage Rate Update

Mortgage rates continued to move down in a narrow range that has been established over the last few months with this week being more of the same. Rate stability, improving inventory numbers and a decrease in house price growth are encouraging signs during June’s National Homeownership Month.

News You Can Use

• US Core Inflation Rises Less Than Forecast for Fourth Month Bloomberg

• Landlords Are Already Jacking Up Rents After Broker Fee Rule Wall Street Journal

• REBNY Appeals FARE Act Loss The Real Deal

• US and China Officials Reach Trade Agreement CNBC

• Republican Senators Consider $30,000 SALT Cap in Trump Tax Bill Bloomberg

• Here Are Three Reasons Why Tariffs Have Not Impacted Inflation CNBC

• US Jobs Report Eases Worries About Economy Bloomberg

• CEO Recession Expectations Decline from April Scare CNBC

• Bessent Emerging as a Contender to Succeed Fed’s Powell Bloomberg

• Here is How Much Wealthier Homeowners Are than Renters NY Post

• NYC’s Sprawling Equinox Gym, Hotel in Hudson Yards Eyed for Sale Bloomberg

• Where to Eat in Times Square and Why You Would Want To Gothamist

The Deep Insight

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