If you’re looking for a rental property in New York City, you may run into an agent who asks for what’s known as a good faith deposit. This is typically a fee of around $500 to hold your apartment while your application is processed. But state regulators say that request violates the law.
The New York Department of State, which regulates real estate agents in the state, confirmed that agents are not allowed to ask for money to reserve apartments while they review applications. Generally, unless you are renting in a condominium or co-op, you should not pay an application fee of more than $20 per person before signing a rental agreement.
“Brokers are not permitted to request or retain a deposit to ‘hold’ the property while the application is being reviewed,” State Department spokeswoman Mercedes Padilla told Brick Underground. said in an email. “With respect to fair market rental units, which are not subject to any specific prohibitions, the only funds/deposit that an agent may collect prior to signing a lease is a background check fee, which cannot exceed $20.”
State law, as amended by 2019’s sweeping rent reform, requires that a “landlord, lessor, sublessor, or grantor” “exclude background and credit checks, and make no other payments, fees, or charges prior to or at the beginning of a rental agreement.” ” (However, this law does not apply to condominiums and co-ops, which may be charged additional fees to process and review applications.)
When you sign a rental contract, you’ll likely pay a deposit, first month’s rent, and possibly a broker’s fee. But agents can’t ask for money to reserve an apartment, even if the money is refundable or applied to a security deposit, according to a spokesperson for the New York Real Estate Board.
“A licensed real estate salesperson may not collect payment from a prospective tenant to reserve or “hold” an apartment on behalf of the owner (regardless of whether such payment is refundable or non-refundable) ” writes REBNY broker attorney Neal. Garfinkel answered broker questions in REBNY’s February 2020 newsletter.
“less common” than before
Thanks to a landmark rent reform law called the Housing Stability and Tenant Protection Act (HSTPA) of 2019, agents are less likely to ask you to pay a good faith deposit these days. HSTPA sets limits on application fees and the amount agents and landlords can collect upon occupancy. Sign the lease, said Douglas Wagner, director of brokerage services at Bond New York.
HSTPA “put a shadow on the whole good faith deposit process, and at the time brokers and some landlords stopped accepting good faith deposits,” Wagner said.
Nico Gabrieli, rental manager and licensed real estate agent at Elegran, said it’s clear to most agents and landlords that collecting a bona fide deposit is illegal. . But some small landlords may still be unaware of the law five years after its passage, and renters may be willing to pay to rent an apartment in a competitive market. I don’t know.
“We are not collecting deposits in good faith,” Gabrieli said. “But eager renters who are afraid of losing their apartment may not care if it’s legal or not. They just want to get the process going and win the apartment.”
You may still be asked to pay
This was the case for a Brooklyn renter who was asked by her broker to post a $500 good faith deposit in September 2023 to put her apartment on “hold” while she and her roommate’s application was processed. The price “seemed sketchy” at the time, she said, but she wanted to secure a place.
“When someone tells me to jump, I don’t necessarily say, ‘How high?’ but if I don’t jump, I can’t live there, so I need a place to live,” said the renter, who requested anonymity. . “If someone says it’s an application process, I would never say ‘it’s not.’
“Rejection was not an option,” she added.
However, refusing is always an option if you are willing to leave the apartment. You can also report the broker to the State Department’s Division of Licensing Services, but it’s unclear whether renters commonly complain about good faith deposits. (DOS does not keep data on good faith deposit complaints, Padilla wrote in an email.)
If you decide to pay the fee, you should take some precautions. Wagner and Gabrieli recommended having your agent or landlord sign a deposit agreement that outlines “the terms of the deposit and how it will be refunded if the deal doesn’t close for any reason.” said Wagner. Otherwise, you risk losing your cash.
