There are generally more rules around how commissions are paid to buyer’s agents for new development purchases in NYC, and sponsors are generally more strict in terms of requiring buyer’s agents to register and/or attend showings with their clients. This may present issues for buyers wishing to save their buyer agent time by attending viewings by themselves.
One positive development is that the Real Estate Board of New York (REBNY) released the standardized REBNY Universal New Development Cobrokerage Agreement in October of 2019, which will smooth the process for brokers representing clients on new construction purchases. Previously, brokerages needed to sign a custom co-brokerage agreement with each new development project which resulted in unnecessary legal review and potential negotiation time.
Table of Contents
New development listing agents are much more strict about buyer’s agents being present for any showings vs regular re-sale listing agents. Whereas in a regular re-sale listing, the listing agent might be alright with the buyer’s agent not attending the showing if the buyer’s agent has a valid excuse or if the buyer’s agent has a good relationship with the listing agent, for a new development the listing agent will be much more likely to enforce the buyer agent’s attendance.
As a result, in order to not seriously jeopardize your chances of receiving a commission rebate, you’ll need to work with a traditional buyer’s agent through Hauseit who will be able to schedule and accompany you on showings.
This means many “one man shops” offering a commission rebate where the sole proprietor refuses to or simply doesn’t have time to go to any showings won’t work for a new development purchase in NYC.
New development listing agents can contractually enforce attendance
There are multiple sections of the now standard REBNY Universal New Development Brokerage Agreement which give legal backing to a listing agent’s demands that the buyer’s agent attends showings and/or officially registers his or her client.
Remember that every REBNY member firm automatically accepts and is bound to this agreement, just as every sponsor agrees to this agreement in order to list the property in the REBNY RLS.
In section 2(c)(ii) reproduced below you’ll note that not only should the buyer’s agent be the procuring cause of the sale (i.e. industry standard, and in practice defined as the broker who submits and negotiates an offer to acceptance), but the buyer’s broker should also be “instrumental in bringing about the sale” which is much more vague. Thus, a buyer’s agent who refuses to go to any showings could conceivably be defined as someone who wasn’t instrumental to the sale.
(ii) the sale is not procured solely by Outside Broker (and its co-broker, if applicable) or Outside Broker is not instrumental in bringing about the sale;
In section 2(c)(iii), you’ll see language that might strip a buyer’s agent of the right to receive commission if the buyer previously saw the unit directly. Note the all powerful language of “in their discretion,” which gives the listing agent or sponsor wide latitude in deciding whether a potential buyer previously registered or attended a showing directly.
(iii) the Prospect (either directly or through a broker) has previously registered at the Property with Owner or the Exclusive Sales Agent, as determined by Owner or Exclusive Sales Agent, in their discretion;
In the next section 2(c)(v), buyer’s brokers should note that even if they attend a showing, they could still be omitted from any commission payments if they did not register their client exactly per instructions. This could be an issue for buyer agents who perhaps somehow found the client through a buyer lead generation program offered through any of the various property search websites, and the client is legitimately confused as to who they are and who they represent.
Outside Broker fails to register the Prospect, in writing, in accordance with Paragraph 4 below, with the Exclusive Sales Agent before introducing the Prospect to the Property, (B) Outside Broker and the applicable broker or salesperson of Outside Broker are not listed on the Property’s sign-in sheet (the “Sign-in Sheet”) filled out by the Prospect, or (C) the Prospect indicates on the Sign-in Sheet that they are not working with a broker;
In section 2(c)(vii) the listing agent and sponsor is entitled to strip the buyer agent of his or her right to commission anytime prior to the buyer signing the purchase contract if they decide that the buyer was actually represented by someone else.
(vii) Outside Broker registers the Prospect in accordance with Paragraph 4 below, and it is subsequently discovered prior to execution by Prospect of a Purchase Agreement, as determined by Owner and/or Exclusive Sales Agent in its sole discretion, that such Prospect had previously registered with a different broker;
Section 2(c)(viii) requires the buyer’s agent to accompany the buyer on his or her first visit to the property or sales office, unless the buyer designates on the sign in sheet that the buyer’s broker is representing him or her. This presents a problem for buyers who’ve seen a listing by themselves, but then sign up with a buyer’s agent after the event. In this situation, the buyer’s agent will be required per the below language to attend a second showing in person. This again will not work with a small rebate broker who simply refuses to or doesn’t have any time to attend any showings.
(viii) Outside Broker has not accompanied the Prospect on the Prospect’s first visit to the sales office for the Property (such location, or any other location designated by Owner or Exclusive Sales Agent, to be referred to herein as the “Sales Office”), unless (A) at such first visit the Prospect has designated Outside Broker as its broker on the Sign-in Sheet, (B) Outside Broker has accompanied the Prospect on the Prospect’s second visit to the Sales Office, if any, and (C) this Agreement has been fully executed and delivered prior to or simultaneously with Prospect’s first visit to the Property, or prior to or simultaneously with the acceptance by Owner of a written offer to purchase from a Prospect represented by Outside Broker;
Buyers and their agents should not be surprised if the commission or rebate they receive is less than expected. That’s because new development co-brokes are almost always paid as a percentage of “net purchase price” vs a straight contract price you might see in re-sale transactions.
As you’ll see in paragraph 2(d) from the REBNY Universal New Development Cobrokerage Agreement reproduced below, the net purchase price is the purchase price less a myriad of potential items:
The computation of the Commission to be paid to Outside Broker (and cobroker, if any, acting with the Outside Broker) in the event of a sale shall be based solely upon the Net Purchase Price of the Unit or Units. For purposes of this Agreement, “Net Purchase Price” shall mean the actual purchase price paid by each Prospect pursuant to a Purchase Agreement for such Unit, but excluding (i) any extra charge for special work or special items ordered by Prospect and/or (ii) any concessions or purchaser incentives given by Owner to a Prospect in lieu of a reduction in the purchase price in order to effectuate the sale of and close title to the respective Unit, but without giving effect to any reduction in or credit against the purchase price resulting from any construction defects. The Net Purchase Price of a Unit as provided in the preceding sentence shall include the actual purchase price paid by such Prospect for any ancillary feature or license checked below:
– storage facility or bin;
– parking space or parking access;
– or other facility purchased in connection with such Unit whether purchased together or as separate condominium units.
Any “special work” ordered by the buyer could refer to enhancements or changes to the new construction home, such as a different shower floor or a different vanity set.
The net purchase price ostensibly protects against any reduction in the purchase price for commission calculations due to construction defects, but it’s conceivable that an unscrupulous developer could try to reduce the net purchase price for errors and defects that the buyer discovers and asks to be fixed in the new construction punch-list.
Another important item to note is that the net purchase price will be reduced by any incentives or concessions given by the sponsor to the purchaser. This can include offering to pay the NYC and NY State transfer taxes and the sponsor’s attorney fees which are “customarily” the responsibility of the buyer in a new development transaction.
This can also include any other concessions, such as the sponsor offering to pay the buyer’s NYC Mansion Tax, or offering multiple months of free common charges or maintenance fees.
The standard REBNY new development co-brokerage agreement does an excellent job for the sponsor of ensuring that commissions are only liable to be paid at closing. As you can see in paragraph 2(b) below, in no event will the developer be liable to pay a commission outside of a closing actually happening.
The Commission shall be deemed earned by Outside Broker and due and payable by Owner to Outside Broker only if, as and when (i) a Purchase Agreement satisfactory in all respects to Owner, in its sole judgment, is fully executed by a Prospect and Owner, it being agreed that Owner shall have the absolute right to accept or reject any Prospect without explanation and without liability to Outside Broker; and (ii) such Purchase Agreement is consummated and the agreed upon purchase price, less any discounts agreed to by Owner, is paid to and accepted by Owner at the closing of the sale of the Unit (“Closing”). It is further understood and agreed that: (x) if, for any reason whatsoever, a Purchase Agreement shall not be entered into between Owner and a Prospect, or (y) if a Purchase Agreement shall be entered into, but shall not be consummated for any reason whatsoever, including, but not limited to, Owner’s default, it being expressly understood that the closing of the sale of the Unit is an absolute condition to any liability for any Commission, then, and in either such event, no Commission or compensation of any kind shall be due, earned or payable to Outside Broker and Outside Broker hereby releases Owner and the Exclusive Sales Agent and any and all other Indemnified Parties (as such term is defined in Paragraph 10 below) from any and all claims whatsoever, including for a Commission or other compensation in connection with the relevant Prospect. Commissions, if due, shall be paid at the Closing. No portion of the Commission shall be payable until Outside Broker shall have delivered to Owner a bill for the payment of the same, unless otherwise agreed to by Owner.
Sponsors will sometimes pay additional bonuses or incentives to buyer’s brokers or buyers on top of the brokerage commission. These incentives typically have deadlines, such as contracts needing to be signed before a certain date.
These incentives aren’t typically widely advertised, and will usually be circulated by mass email blasts to brokers in NYC. Though occasionally, an especially desperate developer might advertise incentives directly on the listing description (i.e. offering to pay the buyer’s Mansion Tax for deals in contract before Christmas).
Bonuses can take many different forms and shapes, from American Express gift cards of $10,000 in value (usually given in separate gift cards) to gift cards from any vendor whatsoever (i.e. Trader Joe’s, Amazon, Whole Foods, John Varvatos etc.) to even offers of free furniture for the buyer.
Does all this sound too good to be true? What’s the catch? Well, since developers aren’t exactly the type to give out free economics, the catch is usually that the offerings are priced too high for the current market and/or they’re desperate to sell (perhaps because they are about to breach a construction loan covenant).
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.