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Are NYC broker commission rebates legal?

Yes.

NYC Boker Commission Rebates are 100% Legal and Encouraged by New York’s Attorney General.

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Where in the law does it say that NYC broker commission rebates are legal?

To pave the way for broker commission rebates, New York recently amended Section 442 of the Real Property Law Article 12-A to specifically permit broker rebates. As you can see in the excerpt below, broker commission rebates are full permitted and there is absolutely no limit on the amount or types of incentives a broker can offer to his client as a means of securing a client’s business:

“ … nothing in this section shall prohibit a real estate broker from offering any part of a fee, commission, or other compensation received by the broker to the seller, buyer, landlord or tenant who is buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate including the resale of a condominium or cooperative apartment. Such fee, commission, or other compensation must not be made to the seller, buyer, landlord or tenant for performing any activity requiring a license under this article.”

Source: New York Real Property Law Section 442, amended December 2014

What is a NYC broker commission rebate?

A NYC broker commission rebate is a cash rebate offered to a home buyer from his or her buyer’s agent as an incentive for working with them on the home purchase. While it’s certainly not permissible for a broker or salesperson to split a commission with an unlicensed party, brokers and salespeople are fully permitted and encouraged to offer rebates (cash or otherwise) to their actual customers (buyers and renters).

Where can I read the letter that NY’s Attorney General wrote about the legality of commission rebates?

The full text of the letter can be viewed below:

April 20, 2015

Dear participant in New York’s real estate industry:

I am writing to alert you to a recent change in New York State’s Real Property Law that was strongly supported by my office. This law has the potential to breathe new life into competition in the residential real estate brokerage industry, to the benefit of all New Yorkers. I urge you take advantage of this law and help reinvigorate price competition among real estate brokers in New York.

In December, a statute was signed into law amending Section 442 of the New York Real Property Law to make it completely clear that it is lawful for a broker to pass through, or “rebate,” part of his or her commission to the client. This legislation arose out of an investigation by my office into competition in the residential real estate brokerage industry. My office worked together with the New York Department of State, the New York State Association of Realtors, and others in the industry to initiate the clarifying legislation.

As you know, for most residential real estate sales in New York State, including New York City, the seller’s broker is usually compensated by receiving a contractually set commission from the seller. The buyer’s broker, however, is not typically paid by the buyer; he or she instead receives a fraction (often half) of the seller’s broker’s commission. Due to this payment structure, often the best way for a buyer’s broker to compete on price is to offer to rebate part of his or her commission to the buyer. Such buyer rebates are legal in most states, including New York. But until recently, some people in the industry may have read Section 442 to suggest that this type of rebating was not permitted in New York. As of December’s legislative fix, there is no room for debate: commission rebating in New York State is legal.

Such rebating is also procompetitive and good for consumers. One reason my office helped initiate this legislative change was because we were concerned that confusion over the legality of rebating may be hindering efforts of real estate brokers to employ more innovative, consumer-friendly business models. For example, the widespread use of sophisticated real-estate search websites now allows buyer-side brokers to offer more limited-service, lower-fee models, under which clients do more of their own legwork when searching for properties. Brokers adopting such models can offer lower commissions (by rebating) and, in principle, may also be able to serve a larger number of clients.

I encourage all real estate brokers and salespersons in New York to consider enhancing the choices available to real estate buyers by offering lower commissions (by means of rebates) to some or all of your clients. I also emphasize that my office will investigate any allegations of boycotting or discrimination against brokers engaged in rebating or other lawful discounting practices. Finally, I urge consumers and other buyers of real estate in New York to take note of your right to bargain with your broker for a lower commission.

For the text of Section 442 highlighting the recent amendment, and additional information about competition in the real estate industry in New York, see my office’s Antitrust Bureau webpage at here.

Sincerely,

Eric T. Schneiderman
Attorney General
State of New York

Source: Open letter from Attorney Eric Schneiderman to the New York real estate broker industry, dated April 20th, 2015: http://www.ag.ny.gov/press-relea…

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