How to protect yourself from losing out on $ due to confusing commission rules when you buy a home in New York.

In a previous post, we covered an overview of how the Real Estate Board of New York’s current rules provide for buyer’s agents to earn a commission by representing a buyer in a residential real estate purchase. NYC has additional complexity because one set of rules – the UCBA – governs the commissions for homes that have been owned before (‘resale’), while another, the RUNDBA, governs purchase and sale of new development units.

We have discussed how commission attribution rules create a ‘buyer beware’ environment. To take control of whether you end up paying a commission, how much, and to whom, you as a buyer need to know your options and choose proactively before touring a home in order to ensure the outcomes you want. Real estate agents will rarely inform you of this, unfortunately.

In this pt. 2, we discuss a few finer points of the commission rules in NYC, and how you as a buyer can action them:

Be Cautious When Allowing A Family Member to Represent You.

Let’s say that your sibling, parent, spouse, or even cousin is a real estate agent. You’d like to let them represent you in your home purchase, and they’ve even agreed to rebate the majority of their commission to you. This is a golden plan – if you are only looking at resale units. The UCBA does not contain any language disqualifying a broker who is a family member of a buyer from earning a commission by representing the buyer in their purchase.

However, the RUNDBA provides that a buyer’s broker is not entitled to a commission when the buyer is an “agent, employee, or family member” of the broker. Your family member representing you could be denied a commission, which is bad for them, and also bad for you if you were counting on a rebate. And because commissions on a new development condo purchase are on a ‘first in’ basis with the agent/broker who first brings you to a building, this cannot be remedied after you go on the initial tour. The Sponsor (seller in a new development) can still agree to give your family member representing you a commission (and from what I have seen, most do) but they could also decline to give a commission, leaving you and your family member in a bind. For this reason, I advise against being represented by a family member in your home search if you will be looking at new developments, or both new developments and resale – it’s simply not worth the risk.

Self Representation Rights are Dubious Under the Current UCBA and RUNDBA.

The UCBA provides that a home buyer has the right to be represented by a broker “of their choice” but does not specifically mention that buyers have the right to self-represent in their home purchase (they do). The UCBA also expressly prohibits agents from interfering with a buyer’s right to be represented by a broker (but not to self-represent), and prohibits sellers agents from denying showing appointments to a buyer’s broker (but not to a buyer). The lack of express language prohibiting discrimination against self-represented buyers is …intriguing to say the least. All real estate agents and brokers who become members of REBNY in New York agree to the UCBA (and RUNDBA) as a condition of membership, so it would certainly be more comforting to buyers if the rules provided that brokers must treat self-represented buyers and sellers at parity with those who are represented by a broker.

How can a buyer action this knowledge? Firstly, consumers still have rights with respect to agents and can report agents who violate their ethical duties: https://dos.ny.gov/system/files/documents/2021/08/realestate_guide_08-20-21.pdf

Secondly, however, it’s important for consumers to understand that fundamentally, the UCBA and RUNDBA (and real estate rules across the country) were designed to center the role of brokers. These documents largely assume that both a buyer and a seller will be represented by a broker in most transactions. Therefore, it can be advantageous for a buyer to use services like Bluesidy that will provide them with broker representation on paper and help them fit into the existing 2-sided transaction process (i.e. interface effectively with a seller’s agent to get the outcomes you as a buyer want), rather than trying to go it entirely alone in their home purchase. Discount brokerages, or simply negotiating with your regular buyer’s broker, are also options.

I hope this de-mystifies some of the key rules and incentive structures that are in play in the residential real estate industry. My mission on this blog is to pull back the curtain on legal rules are not often made apparent to you, the buyer, yet greatly affect your customer experience and your fees. Further, I hope to provide actionable takeaways that will help you remain in control of your home-buying experience, and hopefully save money in the process.

Until next week!

– Elizabeth