What New York's Broker Fee Reform Means for Korea [Kim Yongnam's Real Estate Asset Management]

A historic change has begun in the local rental market in New York with the implementation of the Fairness in Apartment Rental Expenses (FARE) Act on the 11th, which prohibits passing on broker fees to tenants. The long-standing practice of tenants bearing the cost of real estate agents hired by landlords has been effectively banned. As this old custom collapses, tenants have been significantly freed from the burden of initial moving costs that amounted to thousands of dollars. The average initial cost in New York City, which was $12,951, is expected to decrease by about 41.8% to $7,537. Until now, in high-demand areas including New York, it was common for broker fees to reach 10-15% of the rent, a structure where the tenant paid an amount equivalent to one month's rent. This has acted as a barrier to housing mobility, especially for the younger generation and low-income households. In fact, according to the online real estate platform StreetEasy, 47% of rental contracts in New York City last year had a tenant-pays structure. The FARE Act was an institutional measure to correct this imbalance.

This change is showing signs of spreading across the United States, beyond New York. In many states, it has already become common for landlords to pay broker fees. This reform has also sparked similar legislative discussions in major Massachusetts cities such as Boston, Cambridge, and Somerville. This shows that a policy change in a single city can have a real impact on other regions without direct legal precedent.

Tenants' reactions to the law's implementation have been generally positive. With the burden of moving costs eased, their range of housing choices has widened, and an improvement in mobility is expected. On the other hand, some landlords and brokerage firms responded by offering 'dual-priced' listings with rents increased by several hundred dollars just before the law took effect. The Real Estate Board of New York (REBNY) has filed a constitutional lawsuit, arguing that the law infringes on the freedom of private contracts, and some experts point to the possibility that the costs will eventually be passed on to the rent.

Nevertheless, the actual market reaction has been rather stable. Kenny Lee, a senior economist at StreetEasy, analyzes that the rent increase for apartments with waived broker fees was only 0.7 percentage points higher than the overall market average. This suggests that some of the costs are being absorbed within the market, and rather, as a result of the lowered barrier to moving, there may be positive effects such as increased tenant mobility and improved supply turnover.

The FARE Act has also triggered a fundamental change in the brokerage industry. This law is not just a change in the cost-sharing structure, but a demand for a re-evaluation of the essential value of brokerage services. Only brokers with expertise and consulting capabilities, going beyond the simple role of showing properties, will be able to secure sustainable competitiveness in the market.

This trend offers important implications for the Korean real estate market as well. In Korea, complaints about brokerage fees have been steadily raised, and the initial costs borne by tenants, in particular, have been a factor hindering the first step on the housing ladder. If discussions on institutional reform in the direction of landlords paying brokerage fees gain momentum in Korea, tenant mobility could improve and market turnover could also increase.

Of course, concerns about cost pass-through cannot be ignored. Especially in the Korean market, where the jeonse system is central, the possibility that fees will lead to an increase in jeonse deposits or monthly rent cannot be ruled out. Considering this reality, sufficient market analysis and a phased approach are essential when introducing the system.

Furthermore, the brokerage industry, like in the New York case, needs to justify its fees through service expertise and differentiation. It is necessary to deliver real value to consumers through advanced services such as housing consulting and legal/tax advice, beyond simple brokerage, and the institutional transparency to support this must also be strengthened.

In conclusion, New York's brokerage fee reform is seen as a trend that promotes changes in market structure and culture, beyond simple transaction cost adjustments. This change is a reference case for the Korean real estate market. It is necessary to seek development in a direction where institutional concerns and the industry's voluntary innovation are in harmony. We look forward to continued discussions for a more transparent and fair market environment.

<Korea Economic The Moneyist> Kim Yongnam, CEO and President of GlobalPMC Co., Ltd.