- I have written in previous articles on the competition among real estate licensees for buyers and sellers in a market of fewer transactions, lower prices, higher costs of doing business, and increasing expectations concerning the services they provide. In May, 2011, the Appellate Division of the Supreme Court of the State of New York, (Second Department), rendered a decision welcomed by the real estate industry.
In September, 2010 I had an article posted on this website explaining the difference between a "finder fee" and a "referral fee."
The recent New York State Appeals Court decision, Futersak v. Pearl, has changed all that. The court stated: Real Property Law S 442-d provides that, "no person shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered in buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the cause of action arose." The Court also stated: "This prohibition
applies even if the services rendered are characterized as those of a 'finder.'" As a point of information, the amount claimed by the "finder" and denied on appeal, was $109,197.91.
In my earlier article I said, "The courts are wary of attempts by persons claiming to be finders who are in fact attempting to circumvent the license requirements of the State of New York." This decision formalizes that wariness. To put it mildly, it will have the effect of eliminating practices where unlicensed individuals can create a "cottage industry" which would obvert the intention of the License Law of the State of New York, contrary to the public's interest. More bluntly, it will prevent unlicensed people from competing with real estate professionals and commanding large fees for merely introducing potential buyers and sellers to real estate agents. As stated in my previous article, "finder fees" should not be confused with referral fees payable to someone who has a real estate license, is licensed to practice law in New York State, or who has met the requirements of another state for receiving a referral fee.
The NY State Department of State, in conjunction with the Department of Justice and the Federal Trade Commission, recognizes and encourages competition as in the best interest of the consumer. The Department of State has taken the position that real estate brokers may compensate buyers and sellers in a manner that would not violate license law requirements. It is also true that an owner need not engage the services of a real estate broker to sell their property, nor is a buyer required to be represented by a licensed real estate agent.
In my opinion, the court's decision in Futersak recognizes the distinction between fair and unfair competition as well as the fostering of a practice that would encourage behavior that is contrary to the best interests of the consumer and the licensed real estate professional.
: John will be teaching a 22.5 hours Real Estate Continuing Education classes at Long Island University in Riverhead on October 10, October 12 and October 14. For information and registration contact Rosemary Malone at 631-287-8334 or by email at firstname.lastname@example.org.
John is a St. John's University graduate, licensed Real Estate broker, lecturer, teaches real estate license classes at LIU and NYU, and acts as a consultant to the real estate industry.