Standards of Practice 3-4 and 16-16 still not enforceable in New York

Recently, the NYSAR Legal Hotline has seen an increased number of callers inquiring about the enforcement of Standards of Practice (SOP) 3-4 (formerly 9-9) and 16-16 (formerly 21-16) in the REALTOR Code of Ethics.

The New York State, Department of State, Division of Licensing Services (DOS) had issued a declaratory ruling in 1992 stating that the provisions of SOP 3-4 are unenforceable in New York. SOP 3-4 states as follows: “REALTORS, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker's firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease.”

The Department of State found that SOP 3-4 enables board members to intrude on private negotiations between principal and agent and required disclosure to members of confidential information involving transactions to which they are not a party. Furthermore, DOS stated that such a rule creates the threat of price fixing pressure that would result in harm to the public through inflation of the costs of real estate transactions.

On April 21, 1989, the DOS issued an opinion stating that SOP 16-16 is not enforceable in New York. SOP 16-16 states as follows: “REALTORS, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker's offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker's agreement to modify the offer of compensation.”

In its opinion, the DOS stated that NAR was not correct on the law and that all licensees in New York should be aware that it is the seller, not the real estate broker, who has the right to establish the amount and terms of compensation offered to cobrokers, subagents and buyer’s agents. DOS also states that a buyer’s agent who is unable to make a counteroffer as to the amount of compensation offered by the listing broker places the buyer’s agent in the undesirable position of having to either abandon or be disloyal to his client and such coercion constitutes the tort of interference with a fiduciary relationship.

Questions? Contact the NYSAR Legal Hotline. The hotline is available Monday through Thursday from 9 a.m. to 1 p.m. at 518-436-9727      . 
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