A Lieb School student recently took a final exam for our Conflicts of Interest ONLINE course and explained how commission rates are set by the Department of State.

They are NOT.

In fact, the Department of State says the following about commission rates:

Yesterday, Chris Matthews’ article “Real estate agents may be colluding to rip you off” was published by Fortune while citing to a paper published by the National Bureau of Economic Research and authored by Panle Jia Barwick, Parag A. Pathak, and Maisy Wong.

According to the authors of the cited article, Conflicts of Interest and the Realtor Commission Puzzle,

“[t]hese adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents.”

So, in English, it’s not that seller’s agents’ efforts are adversely affected by lower commissions, but instead, that buyer’s agents, who are generally compensated by seller’s agents, are less likely to bring buyers to properties where they are offered a lower percentage for procuring.

As an industry, we need to make sellers capable of gauging the quality of what they’re buying; to make informed decisions as to commission payments.

Seller’s agents need to explain that buyer’s agents and/or broker’s agents are money driven and will steer their buyers to the properties where they are compensated at a higher level (as stated in the study).


To illustrate, if a seller is paying a broker 6% one cannot deduce that the cooperating broker, who procures, will always get 3% for their efforts. Instead, the cooperating broker will get whatever percentage that is listed on the cooperating brokerage listing (i.e., Stratus) agreement by the seller’s agent (each region in New York has a different cooperating brokerage agreement and therefore this blog’s suggestion does not hold true everywhere).

1. The commission percentage to pay the seller’s agent for merely listing the property and negotiating for the seller;
2. The commission percentage to pay the seller’s agent if such agent individually lists and procures the purchaser (i.e., direct deal);
3. The commission percentage to pay the seller’s agent if such agent lists, and the commission percentage to pay a colleague within the same brokerage if such colleague procures the buyer  (i.e., in-house deal; this will be one total commission number for both the listing and procuring because the brokerage and not the salespersons is paid the commission);
4. The commission percentage to pay the cooperating broker where the seller’s agent lists only, but another brokerage procures the buyer while such cooperating broker is negotiating for the interests of the seller (i.e., broker’s agent);
5. The commission percentage to pay the cooperating broker where the seller’s agent lists only, but another brokerage procures the buyer while such cooperating broker is negotiating for the interests of the buyer (i.e., buyer’s agent)

The Appellate Court recently decided Harris v. Clancy, a case where the Court ruled that a seller had the burden to prove that a broker had "agreed to forgo a commission" or the Court stated that one would be implied by the Court regardless of the nonexistence of a brokerage agreement.

The Court found support in precedent that held "[a]bsent an agreement not to pay a commission, where a broker has performed as a broker and the seller has accepted the broker's services, an agreement to pay a commission will be implied even in the absence of an agreement regarding a commission ..., and the court will be charged with determining the amount of the commission".

So brokers, while you should always have a brokerage agreement with your client or co-broker to prove how much you are owed, its really your client or co-broker who benefits the most from the agreement, not you. Remember this case the next time that your client or co-broker resists signing your brokerage agreement; then, you may want to share this case with them and say that you are only asking them to sign your agreement to help them out.

Many look with envy at the good fortune of the broker, who reaps a large pot from simply introducing the parties to the deal, but to those who do not live in his shoes, think this:

"[A] broker is never entitled to commissions for unsuccessful efforts.

The risk of failure is wholly his.

The reward comes only with his success.

That is the plain contract and contemplation of the parties.

The broker may devote his time and labor, and expend his money with ever so much of devotion to the interests of his employer, and yet if he fails, if without effecting an agreement or accomplishing a bargain, he abandons the effort, or his authority is fairly and in good faith terminated, he gains no right to commissions.

He loses the labor and effort which was staked upon success.

And in such event it matters not that after his failure, and the termination of his agency, what he has done proves of use and benefit to the principal.

In a multitude of cases that must necessarily result.

He may have introduced to each other parties who otherwise would have never met; he may have created impressions which, under later and more favorable circumstances, naturally lead to and materially assist in the consummation of a sale; he may have planted the very seeds from which others reap the harvest; but all that gives him no claim.

It was part of his risk that failing himself, not successful in fulfilling his obligation, others might be left to some extent to avail themselves of the fruit of his labors."

This is the life of a broker as articulated by NY's Highest Court in the case of Sibbald v. Bethlehem Iron Co. in 1881, which remains true to this day. A broker deserves everything he gets as he must live in an all or nothing world. Here is to the broker who makes the deals happen!

In opposition, the online travel companies argued that the City was taxing “a service fee under the guise of a tax on hotel rent” and therefore the tax was improper. The Court explained that the online travel companies were incorrect. The Court stated: “[u]nder the statute, the City may tax a ‘rent or charge,’ and it may collect the tax from a hotel ‘owner . . . or . . . person entitled to be paid the rent or charge’".  Further, “the City may tax any service fee that is a ‘condition of occupancy.’”

Aren’t brokerage fees on landlord / tenant a condition of occupancy? Maybe, but maybe not. Doesn’t a condition mean that its failure prevents the result? Can a broker prevent the result? No, therein is the difference between brokerage companies and travel sites. Real estate brokers often are cut out of deals and cannot prevent occupancy in order to get paid, but instead have a claim for commission that is separate from occupancy. In fact, no Lis Pendens is available to brokers and a mechanic’s lien is only available for a lease with a term of more than 3 years for non-residential property.

However, doesn’t Airbnb do just the same as Expedia? So, will companies like Expedia try to level the playing field next by lobbying that this tax is imposed on Airbnb as well? Right now, the cost of doing business for Airbnb just got cheaper and they now have a strategic financial advantage in the City of New York. What happens next is tantalizing.  

Generally no.

Real Property Law 442-e(5) provides the Secretary of State with the power to enforce the provisions of Real Property Law Article 12-A, which is the statute applicable to Real Estate Agents in the State of New York. Section 442-e is the basis under which the Department of State hears Administrative Complaints.

With respect to commission disputes, Section 442-e(3) provides as follows:

Penalty recoverable by person aggrieved. In case the offender shall 
have received any sum of money as commission, compensation or profit by 
or in consequence of his violation of any provision of this article, he shall 
also be liable to a penalty of not less than the amount of the sum of money 
received by him as such commission, compensation or profit and not more 
than four times the sum so received by him, as may be determined by the 
court, which penalty may be sued for and recovered by any person aggrieved 
and for his use and benefit, in any court of competent jurisdiction.

Therefore, it appears that commission disputes could be heard by the Department of State, at first glance. Yet, the Courts have also spoken on this issue in Matter of Gouiran v. Department of State of State of N.Y., at 82 AD2d 832. 

In this case, the Appellate Division adopted the Dissent from Partridge v. Lomenzo when it states: "it is ”improper for the Secretary of State to interfere with pending civil actions relative to brokerage claims and such actions ought to be left to judicial determination "“. 

Consequently, while commission can be addressed by the Department of State, it should not serve as the primary basis for the complaint, but instead for violations of license law, whereas the Courts or arbitration are the best forum for commission disputes. 

To learn about this and other commission topics, register for Lieb School's continuing education course, Deal Killers, Don't Let Your Deal Die, this Friday at Chase Plaza in NYC by clicking here. 

According to Ad Age, the leading publication in the advertising industry, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are jointly investigating deceptive ads concerning mortgage modifications, short sales and workouts.

A brokerage commission is generally due when a real estate broker procures a ready, willing and able purchaser for a transaction. Nonetheless, it is often the case that real estate brokerages work very hard to procure a purchaser just to have their work-product utilized by a competitor to procure the purchaser and earn the commission. This is the situation that the NYS Court of Appeals recently faced when deciding Malone v. Ralph Rieder, which can be read here.

Its often said that real estate agents are engaging in the unauthorized practice of law, but what about CPAs, Financial Planners, Property Managers and the like engaging in the unauthorized practice of real estate brokerage. Better yet, what is real estate brokerage in the first place?

Lets start with the Department of State's take on the matter. On their website, the Department of State has a FAQ section for Real Estate Salespersons that reads as follows:


If I am a real estate management company, do I need a real estate broker's license?
That depends on what services you provide. If you collect rent or place tenants in vacant spaces on behalf of your landlord client, the answer is yes. If, on the other hand, your services are strictly maintenance, the answer is no. you are not acting as a fiduciary (not handling another person's money).

So, does this provide the answer? Some may think yes, but when you dig a little deeper you should think about the words utilized in the answer as they actually present more questions than just simple answers. The key word that comes to attention is the term "tenants". After all what is a tenant and what isn't?


To illustrate with some questions:

• Is the NYC Park Commission granting a private corporation the right to operate an enterprise on a percentage rental basis for 20 years a tenancy? 
• What about a business broker affecting a lease of an operating hotel premises?
• How about renting a cooperative unit on an hourly basis?

So you find a purchaser who is ready, willing & able, but the seller (your client) nonetheless refuses to pay. What do you do?

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.

Lets start with some facts:

1. A duly licensed real estate broker earns a commission when he or she produces a person who was ready, able and willing to purchase or lease all or any part of a parcel of real property or any interest in a cooperative apartment pursuant to a written or oral contract of brokerage employment.
2. Failure to pay a commission gives rise to a cause of action for breach of contract
3. Breach of contract is not an action that seeks a judgment which would affect the title to, or possession, use or enjoyment of, real property as required as a basis for filing a notice of pendency pursuant to CPLR 6501
4. Wrongfully filing a Notice of Pendency is a tort whether it be called slander of title; tortious interference with the right of contract; or abuse of process - so don't do it!!!
5. No lien can generally attach pursuant to a breach of contract for a real estate commission, except in certain situations as defined under the lien law (this does not include a standard residential real estate transaction)

To get your commission you must follow Real Property Law 29-b, which states:

§ 294-b. Recording brokers affidavit of entitlement to commission for completed brokerage services


1. A duly licensed real estate broker who asserts that he or she has produced a person who was ready, able and willing to purchase or lease all or any part of a parcel of real property or any interest in a cooperative apartment pursuant to a written or oral contract of brokerage employment between the owner of said parcel of real property or interest in a cooperative apartment and such broker, and who asserts that such person or a party acting on his or her behalf subsequently contracted to purchase or lease, or did purchase or lease such real property or any part thereof, or any interest in a cooperative apartment and who asserts that he or she is entitled to a commission pursuant to such written or oral contract, may file an affidavit of entitlement to commission for completed brokerage services in the office of the recording officer of any county in which any of the real property is situated.

2. Such affidavit shall include: (i) the name and license number of the broker claiming the commission; (ii) the name of the seller or person responsible for commission; (iii) the name of the person authorizing the sale on behalf of the seller, if any, and the date of such authorization; (iv) a copy of the written agreement, if any; (v) a description of the real property or interest in the cooperative apartment involved; (vi) the amount of commission claimed; (vii) a description of the brokerage services performed; and (viii) the dates thereof. Recording such affidavit shall not invalidate any transfer of real property or lease thereof. Such affidavit shall not be deemed to create a lien and shall be discharged one year after filing.

3. Upon receipt by the county clerk of a broker's affidavit of entitlement to commission for completed brokerage services for the purpose of recording, entering and indexing, the clerk shall record such affidavit in the lien docket and shall note thereon that such notice does not constitute a lien nor shall it invalidate any transfer or lease. In payment for said services the county clerk shall be entitled to receive a fee equivalent to that received for recording a deed and pages thereof.

4.
(a) Within five business days after filing the affidavit of entitlement, the broker shall serve a copy of such affidavit, along with the fee required pursuant to paragraph (c) of subdivision five of this section, upon the seller by registered or certified mail, return receipt requested or by personal delivery, to the address set forth in the written contract of brokerage employment. If the delivery of the deed or delivery of the stock certificate and/or proprietary lease will occur in five business days or less from the filing of the affidavit of entitlement, then the broker shall personally deliver a copy of the affidavit of entitlement to the seller. Where there is more than one seller, service upon one seller shall be deemed sufficient to meet the requirements of this paragraph. Failure to serve the affidavit of entitlement upon the seller pursuant to this paragraph shall cause a forfeiture of the broker's rights under subdivision five of this section. In the event the seller fails to deposit any monies pursuant to paragraph (a) of subdivision five of this section, the seller shall immediately return the fee provided by the broker.

(b) If the seller is represented by an attorney and has provided the attorney's contact information to the broker prior to the filing of the affidavit of entitlement, the broker shall provide a copy of the affidavit of entitlement to the seller's attorney via mail, facsimile, e-mail, personal delivery or any other agreed upon method within five business days of the filing of the affidavit of entitlement. Failure to deliver a copy of the affidavit of entitlement to the seller's attorney pursuant to this paragraph shall not cause a forfeiture of the brokers rights under subdivision five of this section.

5.
(a) Whenever an affidavit of entitlement by a duly licensed real estate broker, which includes a written contract of brokerage employment containing the notices set forth in paragraph (j) of this subdivision, has been recorded pursuant to this section prior to the delivery of a deed in connection with a sale of all or any part of a parcel of real property, or delivery of the stock certificate and/or proprietary lease in connection with the sale of a cooperative apartment, and the broker does not receive the compensation called for under the terms of such written contract at or prior to the delivery of the deed or delivery of the stock certificate and/or proprietary lease, the lesser of the net proceeds of the sale or the amount of the unpaid portion of the compensation agreed to in such written contract shall be deposited by the seller, at the time of delivery of the deed or delivery of the stock certificate and/or proprietary lease, with the recording officer in whose office such affidavit of entitlement had been recorded.

(b) In the event multiple affidavits of entitlement are filed in connection with a sale of real property or any interest in a cooperative apartment pursuant to this section, the seller shall be obligated to deposit an amount equal to the lesser of the net proceeds of the sale or the greatest amount of the unpaid portion of the compensation agreed to in the written contracts of brokerage employment attached to the multiple affidavits of entitlement.

(c) Upon deposit of any monies pursuant to paragraph (a) of this subdivision, the recording officers shall be entitled to receive a fee of twenty-five dollars, which shall be paid by the real estate broker. The real estate broker shall make the twenty-five dollar fee payable to the recording officer in such form of payment that is accepted by the recording officer.

(d) The monies deposited with the recording officer pursuant to this subdivision shall be held pursuant to subdivision (b) of section twenty-six hundred one of the civil practice law and rules until the rights of the seller and broker to such monies have been determined by order of a court of competent jurisdiction as provided in this paragraph. All deposits of money pursuant to this subdivision shall be deemed paid into court and shall be subject to the provisions of article twenty-six of the civil practice law and rules, except as otherwise provided in this subdivision. An order for the payment of such monies to the broker or seller may be made in any action or proceeding determining or declaring the entitlement, if any, of the broker to compensation under the written contract of brokerage employment recorded with the affidavit of entitlement or as otherwise provided in rule twenty-six hundred six of the civil practice law and rules or, whether or not an action or proceeding has been commenced, may be based upon a stipulation signed by the seller and the broker. Any application for an order pursuant to this paragraph made by the broker or the seller shall be on motion with notice to the other party, except that an application based upon a stipulation signed by the seller and the broker may be submitted without notice if the stipulation so provides.

(e) If neither the broker nor the seller commences an action or proceeding described in paragraph (d) of this subdivision within sixty days from the day of deposit of monies pursuant to paragraph (a) of this subdivision, which time limit shall not be extended, the seller, upon petition, shall be entitled to an order directing the payment to the seller of such monies out of court, including any accrued interest thereon, less any fees to which any public officer may be entitled pursuant to law, but such an order shall not be deemed to determine the broker's claim for a commission.

(f) Notwithstanding any other provision of law to the contrary, upon the seller making the deposit required by paragraph (a) of this subdivision, any action or proceeding based upon the contractual obligation to pay a commission under the contract of brokerage of employment shall be commenced by the broker within six months of the deposit of the monies pursuant to paragraph (a) of this subdivision.

(g) The obligation to deposit monies pursuant to this subdivision or the seller's failure to do so shall not constitute or be deemed to create a lien or encumbrance against any real property. Any violation of this subdivision shall not invalidate any transfer of real property.

(h) In any action or proceeding commenced pursuant to this subdivision when the seller has not made the deposit required by this subdivision, and it is determined by a court that the broker is entitled to compensation pursuant to the written contract of brokerage employment, the broker shall be awarded costs, including the fee paid pursuant to paragraph (c) of this subdivision, and reasonable attorneys' fees.

(i) Nothing in this subdivision shall be construed to prohibit a broker from waiving a seller's obligation to deposit money under this subdivision, provided such waiver is set forth in an instrument signed by or on behalf of the broker. Such instrument may be a written contract of brokerage employment or any other instrument.

(j) The provisions of this subdivision shall only apply when the written contract of brokerage employment contains the following statement to the seller in clear and conspicuous bold face type:

"At the time of closing, you may be required to deposit the broker's commission with the county clerk in the event that you do not pay the broker his or her commission as set forth herein. Your obligation to deposit the broker's commission with the county clerk may be waived by the broker."

(k) The provisions of this subdivision shall only apply to real property improved by a one to four family dwelling and to individual condominium units and individual cooperative apartments where the one to four family dwelling, condominium unit or cooperative apartment is used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons.