Here are some snippets from today’s REBNY Legal Line Question of the Week regarding buyer representation, answered by Neil Garfinkel, the head of the real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP, and General Counsel of REBNY.
This is extremely important because buyers often ask me whether they should use a buyer’s agent and if they will be prejudiced for doing so. Just last week, a new client had previously seen an apartment and was interested in making an offer. She reached out to me for advice on the unit, the neighborhood, the building and the pricing asked for the unit, which was significantly higher than building and neighborhood comps. I reached out to the broker to indicate that my client was interested in moving forward with an offer on the unit, but that she did not want to do so without representation from her own broker, and that I would be representing the buyer moving forward. Although the unit ended up selling to another buyer, my client was able to designate me and work with me after having previously seen a unit on their own.
Question: Is a buyer always entitled to be represented in a transaction?
Answer: Yes, the New York State Department of State (“DOS”) has consistently stated that a buyer always has a right to be represented in a real estate transaction and the listing broker must always honor this right. The DOS has stated that any such denial will be construed as a violation of the listing broker’s duty to deal honestly, fairly and in good faith with the buyer.
Question: May a listing broker refuse to work with a buyer’s broker if the seller has specifically asked the listing broker not to do so?
Answer: No, doing so would still amount to a violation of the listing broker’s duty to deal honestly, fairly and in good faith with the buyer even though the listing broker was following the seller’s instructions. According to the DOS, If a seller chooses to use the services of a real estate broker, the seller must do so with the understanding that the broker cannot refuse to cooperate with real estate brokers who represent buyers.
Question: Is a buyer’s broker entitled to a commission by virtue of introducing the buyer to the property?
Answer: No, simply showing a buyer a property does not necessarily entitle a REBNY member to a commission. A broker is only entitled to a share of the commission if he or she is considered the “procuring cause” of the transaction.
Question: What is “procuring cause?”
Answer: There is no specific definition of “procuring cause.” However, case law suggests that in order to be considered the procuring cause, a real estate broker must show a “direct and proximate link between the bare introduction of the buyer and seller and the consummation [of a sale].” In other words, a REBNY member must bring together a meeting of the minds between the buyer and seller and show that he or she generated a chain of circumstances which led to the sale. The ultimate determination of whether or not the REBNY member procured the buyer, and thus can be considered the procuring cause, is a fact-sensitive inquiry that turns on the specific facts and circumstances of each case.
Question: May a buyer switch real estate brokers at any time during a transaction?
Answer: Yes, absent an exclusive representation agreement, a buyer may switch real estate brokers at any time during a transaction. However, the buyer’s decision to change brokers does not necessarily dictate which broker is the procuring cause of the buyer. For example, let’s assume that Broker A represented the buyer for the entire transaction and, on the night before closing, the buyer instructs Broker A not to come to the closing because the buyer wants to bring Broker Z to the closing. The buyer has the right to change to Broker Z, but doing so does not negate the fact that Broker A was the “procuring cause” of the buyer. In this case, Broker A would still be entitled to share in the commission even though the buyer has changed brokers. Once again, the determination of who is the procuring cause of the transaction is a fact-sensitive inquiry that turns on the specific facts and circumstances of each case.