Brokers can offer rebates legally to their buyers

Eric Schneiderman

There has for some time been confusion about the permissibility of brokers giving part of their commissions to their buyers.

The money obviously can be perceived as an incentive for the buyer to ask for representation by a broker.

One reason that brokers may demur, however, is the New York Real Property Law, which declares the following:

. . . [N]o real estate broker shall pay or agree to pay any part of a fee, commission, or other compensation received by the broker . . . to any person . . . who . . . is or is to be a party to the transaction in which such fee, commission or other compensation shall be or become due to the broker.

Alfred M. Fazio of the Capuder Fazio Giacoia law firm has helpfully e-mailed a new memo from the office of Atty. Gen. Eric T. Schneiderman that clarifies the legality of rebates from brokers.

Observing “continuing misperception among real estate agents that commission rebates are illegal,” the memo goes on to acknowledge that the language of the law appears to prohibit rebates.

Yet the document also notes that the Department of State has written at least two opinion letters taking the position that statute does not prevent a broker from rebating part of his commission to a client.  For example, one letter to the U.S. Justice Department makes this point:

. . . [O]ffering cash or promotional gifts, such as a cash rebate, in order to attract a new customer or client does not run afoul of the statute.

Although the letter does not enjoy the status of a rule or statute, the memo observes that rebating is a “particularly attractive” business model for buyers’ agents.

“Many” agents and members of the general public in New York still do not know that rebating is lawful, to the extent the possibility of rebating has occurred to them at all, the memo says.  “As a result, competition in the brokerage industry is adversely affected.”

Depending on how much of a commission firms keep from brokers’ earnings, those of us who represent buyers (and sellers seeking low commissions) will be more or less generous in providing rebates.

So, it is okay to provide a rebate, but full disclosure is a requirement: In all-cap letters at the top of the memo, Schneiderman’s office proclaims: “Be advised that a commission rebate can only be paid to a customer with the full knowledge and consent of the client and this would apply to rentals as well as sales.”

While I don’t see that the headline does much to clarify anything or demonstrate much of an understanding of good grammar, the rest of the document, dense as it is, doesn’t mince words: Rebates are legal.

Tomorrow: Hanging in there

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Malcolm Carter
Licensed Associate Real Estate Broker
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201

Malcolm@ServiceYouCanTrust.com
Web site

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