Home Laws & Taxes New York REALTORS hail new law to protect earned real estate commissions

New York REALTORS hail new law to protect earned real estate commissions

Albany, NY – August 8, 2008 – (RealEstateRama) — New York’s REALTORS today applaud Gov.  David Paterson for signing into law a long overdue measure to make sure real estate practitioners have a fair chance to recover earned but unpaid real estate commissions (A.7519A/S.4874). The Commission Escrow Act provides that when a contractually agreed upon commission has not been paid the disputed amount will be taken from the proceeds of the sale and placed in to escrow, pending an impartial review and determination. The measure does not pre-judge who is guilty and who is innocent. It is simply a process for keeping the funds available in New York State pending an impartial review and determination.

“Existing legal remedies do not provide an acceptable avenue for recouping earned but unpaid real estate commissions,” said Linda J. Page, NYSAR president. “Frequently, real estate professionals are faced with ‘take it or leave it’ offers of less than the agreed upon commission from their clients at closing. As a practical matter, the real estate licensee is left with little choice but to take a reduced commission in many instances because the amount of the commission is less than the cost of recovery through the courts.”

More than 20 years ago the state Legislature recognized that real estate commissions were vulnerable to illegal non-payment and enacted Section 294-b of the Real Property Law. That law authorizes brokers who have fulfilled the terms of a brokerage employment contract to file an Affidavit of Entitlement to Commission with the county clerk.

While RPL 294-b was a positive first step toward protecting earned but unpaid commissions, time has proven the affidavit alone to be ineffective. The newly enacted law will strengthen the Affidavit of Entitlement Law in an open, predictable and fair manner to all involved parties by:

  • Providing that when an Affidavit of Entitlement to Commission has been filed, and the agreed upon commission has not been paid, the seller shall place the amount of the contractual commission into escrow with the county clerk from the proceeds of the sale.
  • Allowing the broker and seller to resolve the disagreement through negotiations, the courts or some other mutually agreed upon process.
  • Maintaining the escrow in force until there is a written agreement by the client and broker or an order from a court of record determining the parties’ rights to the escrow monies.

“This new law does not affect sellers of real estate who meet the financial and contractual obligations that they agreed to in their written contract for brokerage employment,” said Page. “Rather, this law would only apply to sellers that withhold all or some of the commission that they already agreed to pay. Importantly, the law does not create a lien or in any way interfere with the real estate closing. We thank Governor Paterson and our legislative sponsors, Assemblyman Michael Gianaris and Senator Dale Volker, for taking the lead on this issue.”

The New York State Association of REALTORS is a not-for-profit trade organization representing more than 62,000 of New York state’s real estate professionals. The term REALTOR is a registered trademark, which identifies real estate professionals who subscribe to a strict code of ethics as members of the National Association of REALTORS. These REALTORS are also members of the New York State Association of REALTORS as well as their local board or association of REALTORS.