New law offers hope to cheated brokers
December 22, 2008 02:00PM By Marc Ferris
Assemblyman Michael Gianaris
At his very first closing, Brooklyn broker Luke Constantino was stunned when the seller's lawyer told him and his co-broker that the deal would be dead unless they each shaved a point off their commissions. Both were green and accepted, but Constantino, who's now at RE/MAX Metro in Brooklyn, vowed it would be the last time.
"She had no idea what to do and I didn't know how to react; it was the blind leading the blind," he said. "People pull this all the time when they see the costs pile up at the closing and they look at my commission and figure they can take me down a little. But every time they ask, I just smile and say 'no' and that's it."
He fully supports the state's new commission escrow act, signed into law in August and taking effect January 1, which says that sellers who do not pay their commissions when the deed is transferred can be forced to deposit the contractually agreed-upon commission, taken from the proceeds of the residential sale, into an escrow account held by the county clerk. Brokers are then able to file a motion for a hearing before an arbitrator, an administrative law judge or the courts to retrieve the money.
The law does nothing to slow down the closing, since there is no ability to place a lien on the property, but it does keep the disputed commission under the care of the state. The new law only applies to sellers' brokers.
Michael Gianaris, a state assemblyman from Queens, sponsored the bill after the Long Island Board of Realtors convinced him that the problem is endemic to the industry.
"Typically, at closing, the parties are negotiating the final remnants of a deal with all the different costs thrown in and it adds up to a lot of money, so they turn to the brokers and put the onus on them, in effect coercing them to take a lesser commission and claiming that no one will get paid unless they play along," Gianaris said. "It's not fair."
The bill has a long history. In 1982, the state allowed brokers to file an affidavit of entitlement to commission for completed brokerage services. In some instances, this filing process led to payment by the seller, but the law lacked teeth and delinquent sellers got away with keeping all of part of the commission.
"Let's say a seller moves to France or to Montana. If they don't pay at the closing, you can forget about tracking the party down and getting payment," said Steven Spinola, president of the Real Estate Board of New York, who helped shepherd the law's passage. "Now, if you think something like that may happen to [a broker] between the time the broker earns his or her fee and the closing, the money stays within the jurisdiction and it's much easier to collect."
The law combats the related problem of a seller shortchanging the broker at the closing.
"Sometimes the seller hands the broker a check and says if you don't like it, sue," said Assemblyman Gianaris.
Faced with this take-it-or-leave it choice, brokers often factor in the cost of litigation and decide to accept lower commissions, said Linda Page, head of the New York State Association of Realtors.
Three years ago, a bill similar to the commission escrow act passed in the state Assembly and Senate, but then-Governor George Pataki vetoed it.
"It was a hard sell," Assemblyman Gianaris said. "Entrenched interests opposed it."
The New York State Association of Realtors identified the New York State Bar Association as being particularly skeptical of the new law. To add heft to its lobbying efforts, the state realtors association commissioned a survey that found 36 percent of brokers had lost out on a commission during their careers.
Often, the broker's nemesis at a closing is the seller's lawyer.
"They make $800 to $2,500 at a closing and they don't understand that it normally takes an average of 125 working hours to sell a listing; these days it takes twice that," Constantino, the Brooklyn broker, said.
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Comments
Anonymous
This is a fantastic story. Thank you. Sending it to every agent in my firm.
Comment #1 Posted By: Anonymous 12/22/08
Anonymous
"They make $800 to $2,500 at a closing and they don't understand that it normally takes an average of 125 working hours to sell a listing; these days it takes twice that¨ The broker who sold my place in 1999 made 25K for himself and an equivalent sum for the firm. The apt was sold in 3 weeks, was listed in the NYT a couple of times. The 6% commission is crazy. This percentage has to be revised or brokers existence as we know it will end.
Comment #2 Posted By: Anonymous 12/22/08
Anonymous
brokers are criminals and belong in jail
Comment #3 Posted By: Anonymous 12/22/08
Anonymous
#3 your a hater and a piker for talking ish the way you are,.
Comment #4 Posted By: Anonymous 12/22/08
Anonymous
Brokers and agents DESERVE protection.......Finally a common sense bill to protect agents in a market where averything else is stacked up against them....!
Comment #5 Posted By: Anonymous 12/22/08
Anonymous
The fee is the fee. If you don't like the commission, don't use that broker.
Comment #6 Posted By: Anonymous 12/22/08
Anonymous
A fee is a fee. I always wondered why anyone would pay 6% of such large sums for services a any high school graduate could perform.
Comment #7 Posted By: Anonymous 12/22/08
Anonymous
What about commercial transactions?
Comment #8 Posted By: Anonymous 12/22/08
Anonymous
"Brokers are criminal and belong in jail"...It takes a criminal to think that way, so your poor judgment may be based on your own behaviour!
Comment #9 Posted By: Anonymous 12/22/08
Anonymous
We all should keep in mind that commissions are not fixed, and therefore the 6% that most bkokers charge is negotiable!!
Comment #10 Posted By: Anonymous 12/22/08
Anonymous
A written, signed and executed commission agreement is an agreement just like a signed executed sale contract. If a buyer and seller goes into contract on a property for $800K, then the buyer at the closing say he want to negotiate the price to $700K or the seller says at the closing the market value increased in the last three months and I want $900K would this be fair? That’s why we have written contract agreements for sale items or services render….so both parties know what there obligations are…plain an simple.
Comment #11 Posted By: Anonymous 12/22/08
Anonymous
Yes...commissions are not fixed, but this is normally negotiated before the property goes into contract not at the closing table.
Comment #12 Posted By: Anonymous 12/22/08
Anonymous
Did Bernie Madoff open a rental firm ?
Comment #13 Posted By: Anonymous 12/22/08
Anonymous
Most sellers are cluess puke heads, and they think they "know" more then a broker. That's why most FSBO's can't sell and the so called seller are clueless to the market value and how to evaluate potential buyers. Makes me wonder how these damn sellers function in life. If you don't like brokers shut up, suit up and sell your emotional, overpriced apartment yourself!!!!!
Comment #14 Posted By: Anonymous 12/22/08
Anonymous
I am a broker and I have worked like a dog for the 4 years I am in this. The percentages usually translate into a lot less per hour than anyone cares to see. It really sucks to hear all this stuff about "the brokers" - what generalization and stereotyping. I guess there must be a reason for it. I do agree that there are some real shady characters in the industry but there are shady charcters and good people in every kind of work , industry and field. Brokers get screwed left and right by unscrupulos PEOPLE that are buying and selling.There is NO protection for us. You just take the heat. It is just interesting to see that in this day and age of the internet and transparency and brokers being so "useless" for years now , majority of sellers end up listing with a broker either right away or after they are not able to sell on their own. I wonder why? Have fun in this Pandora box.
Comment #15 Posted By: Anonymous 12/22/08
Anonymous
Any seller that uses a broker and agrees to pay whatever percentage and then wants to change their mind is a criminal. Bbrokers are criminals and belong to jail ? How about this one for a smart comment: Sellers are criminals and belong to jail. Or what about this one : Buyers are criminals and belong to jail. Its a joke. There are good brokers and there are bad brokers. If you dont like brokers dont use one. If you dont like brokers why do you read a magazine that is meant mainly for brokers - like the Real Deal . I always say this again and again: Stereotyping brokers is like stereotyping anything else. Stupid.
Comment #16 Posted By: Anonymous 12/22/08
Anonymous
Did Michael Jackson open up a Real Estate Firm ? NBA players making 20M year while there are homeless people and hungry people is criminal.
Comment #17 Posted By: Anonymous 12/22/08
Anonymous
If it were easy to be a broker I would have retired years ago. FSBOs usually end up screwing themselves by selling too cheap after mismarketing the property at too high a price or turn buyers off with precisely the same attitude they give brokers. I'm a broker but in practically all of my personally-owned purchases, sales and rentals I have paid brokers full commissions. I practice what I preach- I don't split the commission on my own properties since I want to incentivise the brokers to get me the best price. I am happy to report that this policy has made me a lot of money and a lot of good friends in the brokerage community. And, by the way, I and my firm have been screwed many times by owners. Fortunately we have only lost one lawsuit and that was because a judge had absolutely no idea of the law of agency. I applaud this new law.
Comment #18 Posted By: Anonymous 01/02/09