Shuttered firms put more properties in play

What happens to listings when a brokerage folds or an agent jumps ship?

Sep.September 01, 2009 11:25 AM

When a broker switches firms, mailing out glossy announcement cards is the easy part. What’s not so simple is wresting listings away from the old firm to bring them to the new one. The armor-plated contracts that govern exclusive listings threaten sellers with punitive fees or lawsuits if they try to pick up and follow a relocating broker.

But the recent shuttering of several New York firms has shaken loose hundreds of listings, in a whirlwind that few have seen in years, brokers say.

“There have definitely been a lot of listings in play that otherwise wouldn’t be. It’s very unusual,” said Michael De Rosa, a senior vice president at Halstead Property who joined the firm in June after Coldwell Banker Hunt Kennedy closed.

Because it’s rare to have so many listings dislodged at once ? anecdotal evidence suggests that there have been about 400 in the last few months ? there was confusion about where all the listings would go after firms like CBHK and JC DeNiro & Associates shuttered.

Now it’s clear that most seem to have stayed with the listing brokers as they relocated to their new firms.

Still, the recent firm closures have given some sellers an unexpected opportunity to find new representation with impunity.

De Rosa, for example, lost one of his three listings, a $359,000 Upper West Side studio, because the owner wanted to “re-evaluate.” His other two listings ? a Chelsea two-bedroom, renting for $5,300, and a one-bedroom Upper West Side co-op, for $549,000 ? went with him to Halstead.

Few brokerages were willing to disclose exactly how many listings they picked up as a result of the closures of other firms in recent months, making the total reshuffling tough to quantify. But the majority of brokers at shuttered firms ended up at the Corcoran Group, Sotheby’s International, Halstead and Prudential Douglas Elliman.

Patrick Lilly, a former CBHK broker, took all 22 of his listings with him to Corcoran. They range in price from $250,000 to $4 million.

Meanwhile, at Halstead, which hired 28 CBHK brokers, top producer Elayne Reimer also delivered 22 listings, which a firm spokeswoman said was “huge” when compared to many others.

James Harp, another top producer at CBHK who migrated to Halstead, told The Real Deal that he brought over five listings.

While having any listings can improve an agent’s chances of finding a new firm to affiliate with, absorbing listings can be a double-edged sword, said Kathy Braddock, co-founder of Charles Rutenberg Realty. The costs associated with marketing properties can discourage firms from taking on the inventory in this sluggish market.

Because today’s market is stacked against sellers, Braddock would rather have brokers with buyers in tow. Indeed, the six agents she hired from CBHK and JC DeNiro brought in only two listings, she said.

All the moving around creates some sticky situations for both brokers and firms. For example, while still somewhat rare for resales, release forms, in which sellers demand to be officially released from their sales contracts (even when the firm folds) are almost mandatory with new developments. That’s largely because there is often more money at stake ? a fact broker Dawn Tsien discovered when she left CBHK for Elliman.

Three of the four projects she was representing, including 77 Hudson Street, a condo in Jersey City, ended up coming with her. A fourth, Twenty9th Park Madison, dropped her, as “its sales strategy changed,” Tsien said.

In the three projects she took with her, the marketing costs associated with new listings were not a deal-breaker, she said. “New developments are different because developers shoulder the responsibility,” she said.

But to illustrate just how firms can lose when listings migrate, consider the Livmor, an under-construction condo in Harlem, that was also a CBHK listing that moved with Tsien to Elliman.

CBHK spent months marketing the condo’s 73 units, Tsien said, but because no contracts had been signed when the firm folded, it won’t see a penny.

While CBHK won’t be dealing with the commission issue for that project, when a defunct firm does collect a commission, it still must pay its former employees. Brokers interviewed by The Real Deal indicated that their old firms have done so, and that they are getting the same commission “split” that they expected when the firms were up and running.

But the rules of transferring listings are trickier when brokers leave firms that are still in business.

In fact, firms usually invoke carefully worded agreements to claim commissions if a contract brought in by a broker closes after that broker leaves.

When a broker voluntarily leaves a firm that still exists, he or she shouldn’t expect to be paid a full and standard commission. To discourage brokers from exiting, firms typically take a hefty cut of any commission collected after a broker is gone.

Brokers say this paycheck-chopping practice has grown even more extreme in recent months, as agents look for better opportunities.

Today, for unclosed deals, firms are routinely lowering brokers’ splits from 50 percent, which had been the lowest limit for years, to 40 percent, brokers said.

In 1998, when Doug Heddings joined Elliman, he said officials there told him his split would drop to 50 percent if he were ever to leave.

But when he left this summer to join Charles Rutenberg, he said Elliman cited a “broker’s discretion” standard and told him it would pay only a 40 percent split on six of seven deals that hadn’t yet closed.

As a result, he lost “tens of thousands of dollars,” he said. “But I want to move on with my new business and not fight the Goliath.”

A spokesman for Elliman declined to comment.

The time and money it takes to collect a commission can be a strong deterrent for brokers who consider trying to recoup what they believe is owed to them, said Steven Sladkus, a partner with Wolf Haldenstein Adler Freeman & Herz.

With a $1 million apartment, where the commission can be $60,000, a broker might walk away with $12,000 now under the new reduced 40 percent commission split for deals that close after a broker leaves that firm. Attempting to recoup the difference may cost more than $5,000 in legal fees, Sladkus said.

Alternately, brokers may be tempted to put off contract signings until they’ve changed firms.

De Rosa said he briefly considered delaying the signing on one of the units before he understood CBHK would give him his full split.

“I could have eliminated the risk,” De Rosa said. “But then I realized that giving it to CBHK was the right thing to do.”

Note: Correction appended


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