In the past, I have written articles posted on Hamptons.com regarding a seller's obligation to pay a real estate broker's commission. Since brokers representing buyers has become more common on the North and South Forks of Long Island, I thought an article on the subject would be appropriate.
As is true when a broker represents a seller, although a written agreement is always desirable, the agreement between a buyer and broker does not have to be in writing to be binding. Courts have awarded commissions to sellers and buyers brokers absent an agreement in writing.
Two such cases in New York, Cohen v. Seinfeld decided on January 2, 2007, and SPRE Realty v. Dienst on May 21, 2014, illustrate this point with respect to buyer agents. In neither case had the buyer and agent entered into a written agreement. In both cases the court decided in favor of the broker.
On January 16, 2013, a New York Court in the case of The Hunter Realty Organization v. A.O. Textiles awarded a commission to a broker representing a tenant who had a written agreement with Hunter and rented a commercial space through the efforts of a different broker. The court ruled in favor of Hunter and left it to a referee to determine the amount of the commission to be paid by A.O. Textiles.
With respect to the typical arrangement with buyer agents, a seller authorizes the listing broker representing the seller to engage the cooperation of other brokers, including buyer brokers. The seller may not refuse cooperation with buyer brokers. Usually the seller will agree to allow the listing broker to share the commission paid by the seller with the buyer broker as they would with any cooperating broker. If they do not, then the buyer broker would have to be compensated by the buyer.
What if the seller agrees to pay the buyer broker commission and fails to do so? According to Anthony Gatto, Counsel to the New York State Association of Realtors, the buyer would have to sue the listing broker and the listing broker would have to sue the seller. Mr. Gatto advises that if the payment of the commission of the buyer broker by the seller was included in the offer to purchase, then the buyer broker would have recourse against the seller.
What is often misunderstood by buyers who hire buyer agents, and sellers who hire seller's agents are the circumstances that would obligate a buyer to compensate the broker? It is a well settled matter of law, that a broker, representing a buyer or seller has earned a commission when the broker meets all of the terms of the agreement with the seller or buyer, even if no contract is entered into between the buyer and seller or if the property doesn't transfer unless the other party to the contract backs out of the deal through no fault of the other party. These terms may be modified by agreement such as "title must pass in order for the broker to be entitled to a commission, or the lease must be signed."
If a seller enters into an Exclusive Right to Sell Agreement with a broker, or a buyer enters into an Exclusive Right to Buy Agreement with a broker, the broker is entitled to a commission no matter who sells the property for the seller or finds the property for the buyer.
If two brokers are each claiming a commission for the same transaction, courts will look to identify the broker who is "the procuring cause" which might entitle both brokers to a share of the commission.
There is some dispute between Manhattan and the Bronx, the other three boroughs of New York City
and Nassau and Suffolk Counties as to what constitutes "procuring cause."
Given the complexity of seller and buyer agency, prudence should dictate that prospective buyers and sellers consult an attorney before entering into seller or buyer agreements, oral or written.
John is a St. John's University graduate, licensed Real Estate Broker, DOS Certified Instructor, and real estate consultant. He previously taught at NYU, LIU, and The Cook Maran Real Estate School, which he helped found.