The NYSBA just released Ethics Opinion 1273 which opines that "[a] lawyer may accept real estate clients referred by an associate in the lawyer’s firm who is also a licensed real estate broker, provided the lawyer does not share legal fees or real estate commissions with the broker/associate and the lawyer obtains the client’s informed consent, confirmed in writing."

However, attorneys should remember that Rule 1.0(j) defines "informed consent" to "denote[] the agreement by a person to a proposed course of conduct after the lawyer has communicated information adequate for the person to make an informed decision, and after the lawyer has adequately explained to the person the material risks of the proposed course of conduct and reasonably available alternatives."

Consequently, simply alerting the client of the situation is not enough. There must be "adequate" explanation of the risks and other options - which theoretically includes hiring an attorney from another firm.

While this opinion will likely be well received by brokers and transactional attorneys alike, it's still filled with a litany of problems because any scorned client is going to claim that they did not receive an adequate explanation to make an informed choice. It's also important to note that the opinion is about the associate referring her client's to the attorney, but what about referring the other side of the deal? That's not addressed by the opinion and it's theorized that would be non-waivable because of the concurrent conflict of interest, but who knows.

The real estate industry is undergoing seismic changes, and the recent NAR Sitzer lawsuit has turned the world of real estate commissions on its head. Whether you’re a broker, an agent, or someone looking to buy or sell a home, understanding these changes is crucial to navigating the new landscape. 

The Landmark Sitzer Settlement: What Happened?

The NAR Sitzer lawsuit has fundamentally altered how real estate commissions are structured and negotiated. In essence, the lawsuit challenged the traditional cooperative compensation rule that caused sellers to pay commissions to both their own broker and the buyer’s broker through required fee sharing. This practice was deemed anti-competitive by a court, leading to a massive settlement and a shift in the industry.

What Does This Mean For Brokers and Agents:

The traditional model of commission splitting is no longer guaranteed. Brokers must now negotiate their compensation separately from the other side of the transaction. This change means that you need to be more strategic in how you structure your agreements and ensure that your clients understand the value you bring to the table.

What Does This Mean For Homebuyers and Sellers:

Navigating the New Rules:

With these changes, staying informed and adaptable is key. Brokers need to understand the new legal requirements and adjust their practices accordingly. Here’s what you need to know:

• Contractual Obligations: Understanding the nuances of buyer brokerage agreements is more important than ever. Ensure that your contracts are clear and that both parties understand their responsibilities.
• Negotiation Strategies: With the industry moving away from the traditional cooperative compensation rule, it’s essential to develop new strategies for negotiating commissions and concessions. This is where your expertise as a broker can really shine.

Dive Deeper with The Lieb Cast Podcast:

For an in-depth breakdown of these changes and how they will impact your business, don’t miss our latest episodes of The Lieb Cast:

•  Big Changes in Real Estate Commissions: What You Need to Know: Real Estate Brokerage Attorney Andrew Lieb discusses the NAR Sitzer lawsuit and its implications for both buying and selling brokers. Find out whether you’ll pay more or less in commissions and how to hire a broker in this new reality.
• The New Reality of Real Estate Negotiations: Factoring in Commissions for Net Numbers and Concessions: Attorney Andrew Lieb and his legal team explore how brokers must adapt to new commission structures and the importance of understanding contractual obligations in today’s market.

Broker Continue Education:

To stay ahead of the curve, we highly recommend enrolling in our Compensation Post-NAR Sitzer Lawsuit: This 2.5 credit CE course satisfies the recent legal matters topical requirement for NY real estate salespersons and brokers.

In this on-demand video course, Attorney Andrew Lieb will guide you through:

• The details of the Sitzer case and its implications for real estate commissions.
• Changes to the NAR Cooperative Compensation Rule.
• Best practices for structuring your client relationships and transactions within the new legal framework.

This Continuing Education course is an essential resource for any real estate professional serious about understanding and profiting from the post-Sitzer commission landscape.

Stay informed, stay compliant, and stay competitive with Lieb School and The Lieb Cast!