Monday, July 25, 2011

Brokerage / Attorney Fee Sharing

Pursuant to Formal Opinion 845 of the New York State Bar Association, while an attorney can act as a real estate broker and gain a commission in a transaction, that attorney cannot share his / her fee with a referring attorney who represents a party to the real estate transaction and suggested that the party utilize the broker.

The rationale for this rule is that the referral fee would work a conflict of interest for the attorney working on the transaction where he / she would be motivated personally to have the deal close to get a commission instead of blocking a deal if such action was in their client's best interest.

The opinion does have an exception though. The exception is that if the attorney's clients gives informed consent to the referral fee and the attorney transfers the referral fee to the client such an action would be acceptable.

Therefore, the takeaway is an attorney cannot benefit financially in any way from referring a broker in a deal in which the attorney is working in a transactional representative capacity. Instead, the attorney must have unabridged motivation to guard the real estate client's best interest.