Thursday, January 1, 2015

Real Estate Brokers are statutorily permitted to give rebates

A new line of negotiating brokerage commission is now available in the State of New York.

Buyers can now ask for a rebate of the seller's agent's brokerage commission in exchange for buying the property.

So, buyers should inquire of their prospective agents if the agent is offering a rebate on the transaction in consideration for being hired by the buyer. Alternatively, unrepresented buyers should inquire of the seller's agent if they offer a rebate in consideration of the buyer's offer to consummate a transaction.

At the least, it never hurts to ask.

Think about it ... a buyer's broker can now promote their services by incentivising prospective buyers to work with them by offering a rebate of the co-brokerage commission offered by the seller's agent.

To illustrate, a seller offers his seller's agent 6% on a deal whereby the seller's agent offers a buyer's agent a 3% share of that commission, in turn, for procuring a buyer, under a co-brokerage agreement. Now, that buyer's agent can motivate buyers to come to that deal by offering prospective buyers 1% of that 3%, or an alternative discount on the deal, for working with that buyer's agent.

Before the enactment of this statutory amendment, brokers did rebate commissions, but they have done so under a gray legal framework where there was no express authority for the practice (beyond a No Action Opinion Letter by the Department of State dated February 2008) and consequently it never became an overt marketing tactic by buyer's agents. Look for that to change.  


Real Property Law 442 was amended as 2014 came to a close. It now reads as follows (capitals represent additions to the statute):

Splitting commissions.
1. No real estate broker shall pay any part of a fee, commission or other compensation received by the broker to any person for any service, help or aid rendered in any place in which this article is applicable, by such person to the broker in buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate including the resale of a condominium OR COOPERATIVE APARTMENT unless such a person be a duly licensed real estate salesman regularly associated with such broker or a duly licensed real estate broker or a person regularly engaged in the real estate brokerage business in a state outside of New York; provided, however, that notwithstanding any other provision of this section, it shall be permissible for a real estate broker to pay any part of a fee, commission, or other compensation received to an unlicensed corporation or an unlicensed limited liability company if each of its shareholders or members, respectively, is associated as an individual with the broker as a duly licensed associate broker or salesman.

2. Furthermore, notwithstanding any other provision of law, it shall be permissible for a broker properly registered pursuant to the provisions of article twenty-three-A of the general business law who earns a commission on the original sale of a cooperative or homeowners association interest in real estate, including condominium units to pay any part of a fee, commission or other compensation received for bringing about such sale to a person whose [prinicipal] PRINCIPAL business is not  the sale or offering of cooperatives or homeowners association interests in real property, including condominium units in this state but who is either: (i) a real estate salesman duly licensed under this article who is regularly associated with such broker; (ii) a broker duly licensed under this article; or a person regularly engaged in  the  real estate brokerage business in a state outside of New York.
Except when permitted pursuant to the foregoing provisions of this section no real estate broker shall pay or agree to pay any part of a fee, commission, or other compensation received by the broker, or due, or to become due to the broker to any person, firm or corporation who or which is or is to be a party to the transaction in which such fee, commission or other compensation shall be or become due to the broker; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION SHALL PROHIBIT A REAL ESTATE BROKER FROM OFFERING ANY PART OF A FEE, COMMISSION, OR OTHER COMPENSATION RECEIVED BY THE BROKER TO THE SELLER, BUYER, LANDLORD OR TENANT WHO IS BUYING, SELLING, EXCHANGING, LEASING, RENTING OR NEGOTIATING A LOAN UPON ANY REAL ESTATE INCLUDING THE RESALE OF A CONDOMINIUM OR COOPERATIVE  APARTMENT. SUCH FEE, COMMISSION, OR OTHER COMPENSATION MUST NOT BE MADE TO THE SELLER, BUYER, LANDLORD OR TENANT FOR PERFORMING ANY ACTIVITY REQUIRING A LICENSE UNDER THIS ARTICLE.


Read NYSAR's Memorandum in Support of this legislation, which quotes a 2008 opinion letter of the Department of State speaking specifically about using these rebates "to attract a new customer or client".  

At the least, this legislation represents a job well done by Zeldin and Lavine, the sponsors of this legislation, to clarify a gray area of real estate brokerage license law.