By Sean Hathaway
The Commonwealth’s latest effort to address the high cost of housing comes in the form of reforming the system around broker fees for apartment leases. While we’re accustomed to seeing Boston on lists of “firsts,” the Hub had the dubious honors of being the last major city in the country to eliminate these payments (after New York City did away with them earlier this year).
As a long-time renter, it has felt like a rite of passage to break the news to first-time apartment seekers that they would be expected to pay an additional month’s rent (a typical broker fee) on top of first and last month’s rent and a security deposit to secure a lease. By eliminating this requirement, the hope is that the upfront costs associated with moving will make the process more affordable and feasible for renters.
Here’s what’s changed and what the potential impact could be.
New Broker Fee Rules
Under the soon-to-be-erstwhile system, the tenant was on the hook for a broker fee when signing an apartment lease. It didn’t matter if a broker was not requested by the tenant and it didn’t matter how much was required of the broker – a fee was mandatory. As a result, a hypothetical apartment with a monthly rent of $2,000 came with an upfront cost of $8,000, or four times the monthly rental fee. That upfront cost, and its ability to price a renter out of moving to another apartment, is at the heart of the legislation.
As of August 1st, the party that engages a broker (be that the landlord or the tenant) will be on the hook for a fee. If nothing else, the change brings greater transparency to the process.
I’ve had many conversations about apartment searches where someone laments having to pay a month’s worth of rent to someone who they interacted with for a matter of minutes – or not at all. In the face of that bewilderment, all I could offer was a shrug and a less-than-satisfactory reminder that it’s “just the way it goes around here.”
While this legislation does not target the cost of rent, it should enable tenants to more easily change apartments by reducing the cost of signing a lease. By knocking about 25 percent off the cost of signing a new lease, fewer people will feel compelled to stay in place because they cannot afford to move.
Potential Impact on Rent
With the landlord no longer able to pass the cost on to a tenant, the expectation is that the fee will get baked into the rent. In other words, that hypothetical $2,000 per month apartment may now be rented for $2,167. Although the tenant would ultimately still pay the same amount over the duration of the lease, having the broker fee spread out over 12 months offers a more palatable situation.
While this initiative has a clear benefit for finding a new apartment, it may not be a slam-dunk policy for renters. In that now-$2,167 per month apartment, what happens if the tenant chooses to renew their lease? Despite having paid the “enhanced” rate to get around a broker fee in year one, there’s little expectation that the rent would be reduced in subsequent years, meaning the floor on apartment costs will have gone up. A one-time fee is now baked into the standard rental rate.
Better-resourced companies that can leverage in-house leasing staff and robust marketing services may opt to forgo increasing rent to give themselves an advantage over smaller competitors.
With the policy going into effect on August 1st, it will likely take several months for the impact to be recognized. Leases on the “September 1” cycle, which includes 70-80 percent of Boston’s apartment stock, are largely spoken for at this stage. Although the policy does not directly address the cost or production of housing, it is bringing a new level of transparency to the occasionally confusing process of renting. And at the very least, reforming broker fees should make it easier for renters to move if they are dissatisfied with their current apartment situation.