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New York Attorney General Eric T. Schneiderman has issued an open letter urging participants in the New York residential real estate market to take advantage of a recent change to the State’s Real Property Law confirming that real estate agents may rebate a portion of their commissions to clients. Attorney General Schneiderman’s letter explains that this change, which his office helped initiate, has the potential to reinvigorate price competition among real estate brokers in New York. His letter also emphasizes that his office will investigate any allegations of discrimination against brokers engaged in rebating.
“Rebating by real estate brokers can greatly reduce the costs of buying and selling property and even facilitate new and innovative business models,” said Attorney General Schneiderman. “I urge the real estate community to embrace this opportunity to be more competitive, and improve the choices available to New York homeowners. I also encourage buyers and sellers alike to take advantage of your right to bargain with your broker for a lower commission.”
Last year, the Attorney General’s Office worked with members of New York’s real estate community to propose an amendment to Section 442 of the New York Real Property Law clarifying that it is lawful for a broker to pass through, or “rebate,” part of his or her commission to the client. In December, this amendment was signed into law. The legislation was sponsored by Sen. Zeldin and Assembly Member Lavine.
In particular, the updated law makes it clear that when a buyer’s agent receives a portion of the transaction commission from the seller or the seller’s agent, he or she is permitted to rebate a portion of those funds to the buyer in the transaction. As Attorney General Schneiderman’s letter explains, because of the way that the real estate market works, this kind of rebating is often the only practical way for a buyer’s agent to offer a discount for his or her services.
The legislative change arose out of an investigation by the Attorney General’s Office into market factors that were preventing greater price competition among residential real estate brokers. Attorney General Schneiderman’s letter stresses that any complaints of boycotting or discrimination against brokers engaged in rebating will also be fully investigated by his office.
A full copy of the letter is available below.
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 athere.
Eric T. Schneiderman
State of New York