Key Takeaways

  • New York real estate brokers must be licensed to operate in the state.
  • Real estate agents and salespersons cannot sue for commission unless assigned by the broker.
  • Summary judgment is commonly used as a remedy in commission disputes.
  • Brokers earn commissions only when a transaction is successfully completed.
  • Written commission agreements are not mandatory but are recommended.
  • Recent legal updates impact commission structures and negotiations.
  • Sellers and buyers should understand how commissions work to make informed decisions.
  • Exclusive agreements can define commission entitlements clearly.

NY real estate commission law is an important legislation in the state's property market. Stakeholders in the real estate industry need to understand the provisions of this law and how it affects their activities.

Should a Real Estate Broker Be Licensed in the State of New York?

A real estate broker that wants to operate in New York must be licensed with the state.

What Are the Legal Requirements for Brokers?

New York requires all real estate brokers to obtain a license through the Department of State. Brokers must complete mandatory pre-licensing education, pass a state exam, and meet experience requirements. Additionally, they must operate under strict ethical guidelines and regulatory frameworks established by state laws.

Failure to comply with licensing requirements can lead to penalties, suspension, or revocation of a broker’s license. Brokers are also required to renew their licenses periodically and complete continuing education courses to stay informed about industry changes and legal updates.

Can a Real Estate Agent or Salesperson Sue for a Real Estate Commission?

Except in situations where the real estate broker assigns the real estate agent or salesperson the commission, the real estate agent or salesperson is not eligible to claim a real estate commission.

What Happens in Commission Disputes?

Real estate commission disputes typically arise when there is a misunderstanding about payment obligations. If a broker refuses to pay an agent or salesperson, the latter may file a claim against the broker. However, independent agents working under brokers generally cannot sue clients directly for commission.

Alternative dispute resolution (ADR), including mediation and arbitration, is sometimes used to settle commission disagreements outside of court. Some agents and brokers include arbitration clauses in their agreements to avoid costly litigation.

What Is the Appropriate Remedy for Real Estate Commission Motions?

The appropriate remedy used in real estate commission motions is the summary judgment. In summary judgment, the suing party has to provide legally sufficient proof of entitlement.

Legal Pathways for Claiming Unpaid Commissions

If a broker believes they are entitled to a commission but has not been paid, they can file a lawsuit seeking a summary judgment. To succeed, they must provide evidence of a valid employment contract and demonstrate that they procured a buyer or tenant according to the terms of the agreement.

New York courts require clear and convincing proof that the broker's efforts were instrumental in closing the transaction. If a dispute arises over commission payment, courts may enforce contracts based on performance.

When Is an Employment Contract Established?

An employment contract comes into effect when a property owner lists his/her building with the broker, and the latter goes about to find suitable buyers or tenants based on the owner's conditions. According to New York Law, if the service of a real estate broker is used without any agreement that limits the earning of a commission, the broker shall be entitled to a commission when he provides a lessee who is capable and ready to sign a lease agreement on the terms of the lessor. This provision can be applied to sales and lease transactions.

When Can a Broker Earn a Commission?

A broker can only earn a commission if he arranged a successful transaction. He can't earn a commission by simply introducing the prospects or showing them the property.

How Do Commission Structures Work in New York?

In New York, commission payments are traditionally based on the final sale price of a property. The standard commission rate is 5-6%, but this can vary based on negotiations between the broker and the seller.

Key factors influencing commission amounts:

  • The complexity of the transaction
  • Market conditions
  • The level of service provided by the broker
  • Whether the broker is representing both the buyer and the seller

Commissions are typically split between the listing broker and the buyer’s broker. However, under recent changes, commission transparency is a growing priority, requiring brokers to clearly outline their fees.

Is a Written Commission Agreement Required?

A written commission agreement is not required, but it is encouraged. Licensed real estate brokers and salespersons are exempted from having written commission agreements under General Obligations Law section 5-701 (10).

Understanding the Importance of Written Agreements

Although written agreements are not legally required, they provide security and clarity for all parties involved. A formal commission agreement should detail:

  • The commission rate
  • The services provided
  • The duration of the agreement
  • Conditions for earning the commission

Sellers and buyers are encouraged to review these agreements carefully to avoid misunderstandings.

How Can an Employment Contract Be Established?

A contract agreement can be established in the following circumstances:

  • Where an agreement does not exist, the establishment of an employment contract is achieved by evidence proving the broker's labor or acceptance of the broker's efforts towards the transaction. Regardless of the existence or absence of an agreement between the broker and the principal, the broker is entitled to some compensation if the principal benefits from the services of the real estate broker in situations where it's not justifiable to deny him payment.
  • The parties to a lease cannot assume that the broker is working for free, and they already understand that the broker is entitled to some relief by accepting his services. The broker has accomplished his task when he procures a lessee for the lessor, and both parties agree and sign a lease agreement. Thus, the broker is entitled to a commission.
  • Where a commission agreement has been signed between the principal and the broker as compensation for the latter's services, the broker can claim summary judgment for a commission as a third-party beneficiary of the lease or contract.

Exclusive vs. Non-Exclusive Agreements

An employment contract between a broker and a client can take different forms:

  • Exclusive Right-to-Sell Agreements: The broker is entitled to a commission even if the seller finds a buyer independently.
  • Exclusive Agency Agreements: The broker is only paid if they secure a buyer.
  • Open Listings: The seller can work with multiple brokers, and only the one who finalizes the deal gets paid.

Understanding these agreements helps both parties avoid disputes over commission payments.

How Can Real Estate Broker Commission Contract Be Implied?

The circumstances surrounding the transaction will determine whether a real estate broker commission will be implied. If an express commission agreement already exists, then the contract cannot be implied.

A broker cannot rely on the principle of ratification to claim commission simply because a seller accepted the result of an unsolicited service. Before a contract can be implied to allow the broker to claim compensation, the broker must have provided his services in such a way that the beneficiary understands that the services were being performed on their behalf.

Can a Broker Claim Commission Without a Formal Contract?

In certain cases, brokers can claim commission based on an implied contract. Courts may recognize an implied agreement if:

  • The broker provided significant services.
  • The property owner benefited from those services.
  • There was a reasonable expectation of payment.

However, without a formal agreement, proving entitlement to commission can be challenging.

Are You Entitled to a Reasonable Commission?

The seller is not obliged to compensate the broker if he voluntarily produced a buyer. The seller must understand that the real estate broker is working on their behalf in return for compensation. Also, the seller must have shown that he accepts the services of the broker.

If the agreement between the parties does not specify the amount to be paid as commission, the broker will receive fair and reasonable compensation for his labor. If a contract was not signed, the broker is entitled to a reasonable amount of compensation worth his effort for setting up the deal.

How Can Brokers Ensure Fair Compensation?

Brokers should document their efforts throughout the transaction. If the commission rate is not specified in an agreement, they may claim a reasonable amount based on industry standards.

Some brokers negotiate tiered commission structures, where they earn a higher percentage if they exceed a target sale price. These flexible structures benefit both brokers and sellers.

Frequently Asked Questions

  1. What is the average commission rate for real estate brokers in New York?
    The standard commission rate ranges from 5% to 6% but can vary based on market conditions and negotiations.
  2. Are real estate commissions negotiable in New York?
    Yes, commission rates are negotiable, and sellers can discuss different structures with brokers.
  3. Can a seller refuse to pay a broker’s commission?
    A seller cannot refuse to pay commission if a valid contract is in place and the broker fulfilled their duties.
  4. Do buyers have to pay a commission in New York?
    Typically, the seller covers commission costs, which are split between the listing broker and buyer’s broker.
  5. How do recent legal changes affect real estate commissions in New York?
    Recent regulations emphasize transparency and disclosure, ensuring that clients understand how commissions are structured and paid.

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