Is a NY attorney with a broker’s license automatically entitled to collect the buyer’s
agent commission when representing her or himself on a residential real estate purchase in NYC?
We’ll discuss this topic in the following video.
I’m Nick at Hauseit, based here in NYC. Check out our website hauseit.com to learn how to save money
if you’re buying or selling real estate here in New York. So let’s get started!
First, let’s start by answering the following question: why is it common to see attorneys
representing themselves on residential real estate purchases of condos, co-ops
and townhouses in New York and NYC specifically? The reason is that lawyers who are admitted to the
New York State Bar essentially receive a shortcut when it comes to obtaining a broker’s license in
NY. Whereas other broker license applicants in New York (such as a Licensed Real Estate Salesperson)
must satisfy a litany of challenging educational, experience and examination requirements, attorneys
essentially get a free pass by way of not being required to fulfill any of these prerequisites.
An attorney who is a member of the New York State bar
simply needs to fill out an application and pay $155 in order to become a Licensed Real
Estate Broker. In other words, attorneys who are admitted to the New York State Bar
automatically qualify for a broker’s license in New York State. Must be nice!
As per the Division of Licensing Services Real Estate Broker Application,
“Attorneys who are admitted to the New York State bar are exempt from the educational,
experience and examination requirements. Submit a completed application and fee,
indicating on the application that you are admitted to the New York State bar.”
As a result, attorneys often apply for a broker’s license
right before buying a home in NYC in the hopes of representing themselves, and by extension,
collecting the buyer broker commission on a purchase. This creative strategy is largely
the result of a search for ways to reduce buyer closing costs, which in NYC are ridiculously high.
In other words, an attorney who obtains a NY broker’s license and attempts to represent
her or himself is essentially trying to obtain a buyer agent commission rebate
in order to save money on closing costs.
Instead of being represented by a traditional buyer’s agent who agrees
to rebate a portion of the commission (as would be the case under a traditional buyer
agent commission rebate arrangement), the attorney seeks to represent her or himself
and pocket the entirety of the buyer agent commission paid by the seller.
While this is a great idea in theory, it often fails in the execution stage. This
is because many lawyers who attempt this strategy in NYC specifically aren’t aware
that a listing agent has no obligation to split a commission with another licensed individual
in the absence of a co-brokerage agreement.
To be clear, NY licensing law does require a listing agent to cooperate with a buyer’s agent
(and by extension, a licensed individual representing her or himself).
However, attorneys often conflate this with a misguided assumption
that listing agents are also required to co-broke (i.e. share) a commission.
Most likely, this inaccurate assumption stems from the prevailing custom in NYC specifically under
which most agents agree to automatically split commissions. More specifically, all member agents
of REBNY sign a universal co-brokerage agreement which obligates them to split (or co-broke) no
less than 50% of the total commission paid by a seller with a cooperating broker.
In other words, automatic co-broking only exists as a result of REBNY membership.
Most attorneys who apply for a broker’s license simply don’t realize that there is a second step
involved in order to be automatically entitled to the buyer’s agent commission on a purchase:
applying for membership with the Real Estate Board of New York.
Therefore, many attorneys with a broker’s license often start submitting offers in
NYC while incorrectly assuming they’ll get paid a buyer’s agent commission.
This can be a difficult scenario for a listing agent, as the agent will inevitably need to give a
‘reality check’ to the licensed attorney, and this could inadvertently
offend the attorney/purchaser and result in retraction of an offer.
This scenario can also be harmful to the purchaser,
as the act of representing her or himself and wrongly assuming the right to earn a commission
could rub a listing agent the wrong way.
Ultimately, the most prudent course of action for an attorney looking to collect a commission
on her or his purchase in NYC is to both apply for a broker’s license and apply for membership
in REBNY. However, the latter is rather pricey and currently costs $1,650. Not to mention,
it’s more paperwork and extra headache to join an organization for just one deal.
Therefore, we believe the most effective route for an attorney
looking to collect the buyer agent commission on a purchase in NYC is
to retain traditional representation from a buyer’s agent who offers a commission rebate.
This approach is advantageous for several reasons. First and foremost, this saves the attorney the
cost and time associated with applying for REBNY membership. More importantly however,
having a traditional representation structure reduces the risk of agitating or annoying a
listing agent. And for obvious reasons, agitating the person who can influence the seller when it
comes to negotiating and accepting offers is the last thing a purchaser wants to do.
To be more explicit and direct, real estate agents in NYC don’t like needless complications
or headaches. Agents naturally gravitate towards the simplest path to a deal, i.e. the easiest
buyer to deal with. A lawyer who submits an offer guns blazing, declaring that she or he
is a lawyer with a broker’s license and making an automatic claim to a buyer’s agent commission
likely comes across as aggressive, annoying and complicated in the eyes of a listing agent.
So there you have it! We hope you enjoyed this video, and if you did, please like, subscribe and
leave us a comment. We’d greatly appreciate it. And if you’re looking to buy or sell, check out
hauseit.com to learn how to save money. I’m Nick at Hauseit, and we’ll seen you on the next video!