Our November article (which can be found here) addressed the Listing Agreement, the “employment” contract between the owner of a property and the broker representing the seller.
This article will address the circumstances when the broker is representing the buyer. This contract is formally known as a Buyer Agency Agreement. It defines the rights and obligations of the buyer and broker. As is true with the Listing Agreement, New York’s Statute of Frauds does not require the Agreement to be in writing, unless it is for more than a year, but like the Listing Agreement, prudence dictates that it always be in writing.
A common misconception is that the buyer who goes to contract with the seller and subsequently backs out of the deal without legal excuse is not required to pay the broker the agreed upon commission. This is not true, unless the Agreement says so, except for willful default by the buyer.
Under New York Law, neither a seller who has listed the property for sale with a real estate broker nor the broker may refuse to cooperate with a buyer who is represented by a broker. The essence of the law is, if a seller is represented by a broker, it would be unfair to the buyer if they could not also be represented by a broker. However, the law does not require the seller to agree to pay the buyer’s broker’s commission. In that circumstance, the buyer’s broker would have to receive the commission from the buyer. The Listing Agreement between the seller and the seller’s broker can address this scenario. The Listing Agreement used by the Long Island Board of Realtors, for example, states that the owner agrees to pay the listing broker, and a cooperating broker, including a buyer’s broker. It is my opinion that this arrangement is in the best interests of the seller since it makes no difference if the commission is split with brokers representing the seller or the buyer. To do so would discourage an offer from a buyer, unless the commission was subtracted from the purchase price.
A set of events that led to a New York Appeals Court ruling is incorporated in the case, Eric Valdina v. Patricia Martin, decided January 24, 2008. Martin was the seller, and had an Agreement with their broker to pay a commission. The broker agreed with the buyer’s broker, Valdina, to split the commission if they produced the buyer prepared to go to contract on the seller’s terms. The broker did produce a buyer, the contract between the seller and buyer was signed, but the seller chose not to go ahead with the sale. The seller’s broker chose not to pursue their rights to sue for the commission. The buyer’s broker filed suit against the seller and the seller’s broker for its share of the commission, which the court denied. With respect to its claim against the seller, the court ruled there was no agreement between the seller and the buyer’s broker entitling the broker to a commission. With respect to the buyer’s broker’s suit against the seller’s broker, the seller’s broker did not receive a commission from the seller and therefore, no commission was due the buyer’s broker.
The Buyer Agency Agreement may also address the buyer broker’s entitlement to a commission, should the buyer buy a property to which they were introduced to by the buyer’s broker after the expiration of the Agreement.
As with a broker representing a seller, the rights and obligations of the parties to the contract are subject to interpretation by the courts, and advice of counsel should always be the rule before entered into by the parties.