To Broker or Not: A Decision Framework for Small Brooklyn Landlords
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New York City’s FARE Act went into affect this year, which killed the broker fee as we know it, took effect and many on every side of the apartment-rental game — tenants, brokers, and landlords — are still playing catch-up when it comes to learning these new rules.
Designed to protect tenants, the act presents landlords with new challenges and ethical considerations, all while radically reshaping landlord-broker relationships. As property owners, landlords are now tasked with following the spirit and letter of this legislation while still protecting your investment and income.
If you haven’t already got a plan together, it’s time to get on that! Here are a few questions to ask yourself as you settle into this new reality.
Should You Continue To Work with Brokers?
This new legislation requires landlords to cover broker fees when a broker is hired by the landlord, shifting a cost previously paid by tenants. As brokers ourselves, we’re realistic – we know that this change necessitates a careful reevaluation of whether to work with a broker so we feel like it’s important to lay out our own value proposition so you can decide for yourself. Here are some things to consider:
- Your Time and Resources: Do you have the time and skills to market your property, screen tenants, and manage the leasing process effectively yourself? If not, a broker might still be worthwhile, even with the added cost.
- Calculate the Cost vs. Benefit: Compare the potential broker fee (typically 10-15% of the annual rent) against the benefits of a quicker, more efficient leasing process and well-matched tenants. Factor in the cost of your own time and marketing efforts if you were to handle these yourself.
Are You Following the Rules?
Not only do all parties want to be proactively transparent, it’s imperative that landlords don’t inadvertently run afoul of compliance standards. For one thing, failure to follow the rules can erode renter trust but, perhaps more tangible to a small-scale property owner, is that it can mean income lost through fines.
Violating the broker fee rule (e.g., passing the cost of the fee onto the renter as has been done in the past) can cost you $1,000 for a first violation and increase to $2,000 fees for additional incidents within a two-year period. Meanwhile, disclosure violations (e.g., failing to transparently lay out all fees) rack up $500 fines for a first offense, with multiples racking up $1,000 each. It all adds up and can significantly cut into your bottom line.
Yes, it’s true that the FARE Act demands a new kind of calculation – and your time, operational capacity, and financial bottom line are all critical parts of that equation. If you’d like to talk about what this means for your personal situation and goals, reach out, and we can help you find a solution that’s workable for you.
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