Every week, REBNY sends its members a “Legal Line Question of the Week” email, which answers a legal question asked by one of REBNY’s members. This week’s topic dealt with the legality of the real estate brokerage commission rebate and the answer, copied below, was written by Neil Garfinkel, REBNY Broker Counsel.
This is nothing new, as per Section 442 of New York’s Real Property Law. More information can be found on an earlier blog I wrote:
Legal Line Question of the Week
Question: I am a New York real estate broker and will be closing a transaction in a few days. Am I allowed to share a portion of my commission with either the seller or the buyer in the transaction? I was informed that the law in New York on this issue was recently amended.
Answer: Yes. The New York State Department of State (the “DOS”) has consistently taken the position that New York real estate brokers may share a portion of their commission with a purchaser, seller, landlord or tenant in such transaction (a “Party to the Transaction”). For example, a real estate broker who is representing a purchaser may give the purchaser a $5,000 gift card.Recently, Section 442 (2) of Article 12-A of the Real Property Law was amended to reflect the position taken by the DOS. Section 442 (2) now states, in part:
- “…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 …. 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.”
Accordingly, New York State law is consistent with the DOS position regarding real estate brokers sharing their commissions with a Party to the Transaction.
(1) The commission may only be shared with a Party to the Transaction. The Party to the Transaction cannot direct that the commission be shared with a non-party (for example, a purchaser cannot direct that the commission be shared with a favorite charity of the purchaser).
(2) The real estate broker must make the decision to share the commission with a Party to the Transaction. The real estate salesperson or associate real estate broker cannot make such a decision. Similarly, the sharing of the commission must come from the real estate broker.
(3) The sharing of the commission could take many forms; for example it could be an incentive (i.e. “use my services and I will pay you $5,000 from my commission”), a gift (i.e. a vase) or a gift certificate (i.e. a $5,000 gift certificate to Home Depot).
(4) It is strongly recommended that if a real estate broker is representing one party and decides to share a commission with the other party, such decision should be disclosed to the party that the real estate broker is representing (i.e. a real estate broker who is representing a seller and who decides to share a commission with the purchaser, should disclose to the seller such decision). Such disclosure prevents any appearance of impropriety or conflict of interest.
(5) A Party to the Transaction cannot be acting in the transaction in any capacity that would require a real estate license (i.e. a seller holding themselves out as a real estate broker).