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When Jo Ellen Pellman and her roommate searched for an apartment in New York City this summer, the two women dug deep into their pockets: They paid brokers a total of $1,200 in nonrefundable application fees, or $400 for each apartment they applied for.
But the roommates may get most of their money back, a rare happy outcome in today’s costly real estate market, after state regulators declared last week that real estate brokers must abide by a recently enacted $20-limit on application fees.
“We got $800 back, which is very awesome,” said Ms. Pellman, 23, an actor who moved to a two-bedroom apartment in the Williamsburg neighborhood of Brooklyn this month.
Months after New York passed sweeping tenant protections, including the $20 ceiling on application fees, many real estate brokers across New York City continued to charge renters like Ms. Pellman hundreds of dollars to apply for an apartment.
The new laws said landlords could not charge more than $20, but it made no mention of brokers, who are often the go-betweens to secure an apartment in the city. The ambiguity led to months of confusion as renters forked over large fees, and lawmakers and real estate professionals blamed each other for the fiasco.
But on Friday, a state agency finally stepped in to provide some clarity: Brokers acting on behalf of landlords cannot charge tenants more than $20 in application fees, which can only be used to cover background or credit checks.
So said a two-page guidance memo from the New York Department of State. It was a source of good news for the countless renters who found an apartment after the new cap passed in mid-June and may have been overcharged.
The memo did not specify whether renters illegally charged were entitled to a refund, but Ms. Pellman recently contacted two brokerage firms, Corcoran and Nooklyn, informing them of the new laws — and got a rebate from each.
“I just think it’s ridiculous the way brokers and landlords profit on tenants not knowing their rights,” said Ms. Pellman, who shared on Instagram a template of the email she sent. “I don’t like getting scammed and I don’t want anyone else to get scammed.”
She said Rentopia, the firm through which they secured their apartment, had not answered her emails requesting a refund and she’s worried her landlord may penalize her for speaking up. Her broker at Rentopia did not respond to a request for comment.
But Ariel Dagan, a real estate broker for Compass, said that limiting application fees could be detrimental to agencies that relied heavily on them to make a profit.
“These fees are what keeps some brokerage firms in business,” said Mr. Dagan, who also runs PreApproved Renter, a software platform that helps landlords process rental applications.
Mr. Dagan said there were other unintended consequences that could place brokers in a bind.
Under the new laws, landlords and brokers are required to provide tenants with an invoice and copy of any background or credit checks they conducted. But Mr. Dagan said that provision may be at odds with credit-reporting agency rules, which typically bar clients who use their services from sharing credit reports with others.
Representatives for TransUnion and Experian, two of the largest credit-reporting agencies in the country, said their rules do not prohibit landlords from sharing reports with consumers.
A prospective tenant can also waive an application fee if they provide the broker or landlord with a copy of a background or credit check conducted within the past 30 days. That, Mr. Dagan said, could lead to the submission of phony documents.
Brokers are facing additional pressure this year from the City Council, which is considering a bill that would limit brokers’ fees to one month’s rent. That would lower housing costs for tenants, while curbing a broker’s earnings.
“I think it’s ridiculous,” Mr. Dagan said.
“It’s not a glamorous job. It’s a grind,” he added about real estate agents. “It would cap middle-class workers’ pay and this is a progressive city.”
The cap on application fees applies statewide, and enforcement issues have reverberated far beyond the five boroughs.
Susan Segal recently helped her son, a student at Syracuse University, apply for an off-campus apartment, for which the management company charged $300 in application fees. She emailed the company to ask for a refund after she learned of the new laws, but has yet to hear back.
“I would be willing to bet that apartment owners in areas with high student populations might be particularly prone to ignoring the law, given that college students may not know or have the wherewithal to protest illegal practices,” Ms. Segal said.
The memo from the state included additional guidance: It specified that a real estate agent paid by a renter to find an apartment is allowed to charge more than $20 in application fees and that brokers who violate the law may be disciplined by the Department of State, which regulates and licenses real estate brokers and agents.
But the memo left unanswered many other questions about the impact of the new rent laws, which were propelled by recently elected Democrats in the state Legislature to address skyrocketing housing costs.
It was not clear, for example, whether $20 is the maximum fee per application or per person. In response to questions from The New York Times, Department of State officials clarified on Wednesday that brokers were allowed to charge $20 per applicant, not application. For example, three roommates could each be charged $20, or a total of $60, to apply for an apartment.
Also in question is how the new limits on fees and security deposits (now capped at one month’s rent) might inadvertently apply to the rental and sale of co-ops and condominiums, which typically involve hundreds to thousands of dollars in application fees.
In a statement to The Times, the Department of State said it does not regulate or license co-op and condo boards, so it could only dictate rules for brokers and agents.
It said that a broker cannot not charge more than $20 on behalf of a co-op or condo board “when the particular apartment is owned by, and being leased by, that particular board.” If the board is not the owner or shareholder of the apartment, then a broker is free to charge more than $20.
It is unclear whether property-management companies, which often handle leases and applications on behalf of condo and co-op boards, are free to charge more than $20 in fees. In interviews, real estate attorneys gave conflicting accounts on their reading of the law.
Carl Hum, the general counsel for the Real Estate Board of New York, an influential trade group, said property managers could continue to charge more than $20 in fees.
But some lawyers, like Jeffrey Schwartz, who advises co-op and condo boards, said he is recommending his clients err on the side of caution and abide by the $20 cap as a result of the ambiguity in the new laws.
“I think the issuance of the guidance is actually creating more confusion than clarifying,” said Mr. Schwartz, who hopes the state will pass new legislation to exclude co-ops and condos from many of the new rent laws.
The lack of clarity has left some co-op applicants in limbo.
One co-op board in Manhattan recently charged an applicant an assortment of nonrefundable fees totaling about $1,350. The renter, Jeff, who preferred to use only his first name because he is still going through the co-op’s interview process, said the large fees appeared to be against the law.
“But I don’t want to argue fees with the co-op board because it’s already so competitive to get here in the first place,” he said. “I don’t want to rock the boat.”
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