What Must A Real Estate Broker Do To Have Earned A Commission?

A case regarding a lawsuit brought by Sotheby’s International Realty against Donald Deutsch over a commission for the sale of Deutsch’s property located in East Hampton reached a final solution on June 28, 2016, when New York’s highest court rejected Deutsch’s appeal for a reversal of the trial court’s decision arrived at on October 21, 2014. The Appellate Division of the Supreme Court had earlier denied Deutsch’s appeal on March 24, 2016. Since the highest court has upheld the lower court’s decision, the ruling has profound signification, not only locally, but for the entire state of New York.

The result is that Deutsch must pay $1,207,360, plus interest from October 8, 2010. But it also supports a long-held common law principle, that in order for a real estate broker to have earned a commission, they do not have to have a written agreement, as long as they can demonstrate by providing evidence that their actions created a contract for the services, and that those actions led to the sale and purchase of the property. The court also established that when the amount of commission earned is unclear, it will look to what the customary compensation is for the service provided. This case should dispel the commonly held view that a real estate broker who can establish that he has or she has met all of the common law requirements to be entitled to compensation for his labors, has no chance to prevail in a court of law. What it also demonstrates is that the broker has to back up the claim by showing that they have met all these requirements. There are many court decisions that illustrate the points made in this case, but the fact that it happened in the Hamptons real estate market gives it special significance.

In its decision, the Court stated the following: “A real estate broker is entitled to recover a brokerage commission when it establishes: (1) that he or she is duly licensed, (2) that he or she had a contract, express or implied, with the party to be charged with paying the commission, and (3) that he or she was the procuring cause of the sale.”

What I have learned anecdotally is that brokers are increasingly less likely to walk away from making a claim for a commission when they feel they are unreasonably being denied payment. Most of the large firms have access to litigators and are encouraged to avail themselves of their services. The cost of doing business and the loss of commissions has encouraged real estate brokers to pursue their rights, especially given the prices that sellers are receiving for the sales of their properties.