13. Commission Issues/Anti-Kickback Decisions

Declaratory Ruling 91-2 Matter of Dentino, Cammarata & Byrnes - in addition to agreed commission, homeowner paid $250, which was aggregated with such fees from other sellers as an extra incentive program. Ruled to be improper (note that had the initial agreement provided for a component of the agreed commission to be so allocated, there may have been a different result)

Declaratory Ruling 91-7 Matter of Sehlmeyer - to encourage quick sale at the "full asking price," seller would pay listing broker a $5,000 "promotional fee" which, in turn, would be passed along by the listing broker to the purchaser. Ruled illegal

Declaratory Ruling 91-44 Matter of Coffey - improper for the broker to pay to a tax exempt organization a referral fee of a percentage of commissions earned from referrals by its members

Opinion Letter 91-50 (Stanley M. Gordon) -franchisor can offer employees discount on commission payable on sale of their home. Broker prohibited from paying to buyer customer part of the compensation. The alternative of a contractual reduction in the commission, accompanied by a credit to the buyer, is permissible

Opinion Letter 91-51 (John Posner) - permissible for listing broker to offer incentive to seller clients, such as use of vacation rental property

Opinion Letter 91-52 (James M. Hoffman) - permissible for broker to pay stock broker for a list of potential clients, as opposed to a referral of particular customer where payment is conditioned on consummation of the brokerage transaction. Impermissible for a salesperson to pay for such a list of potential clients, as it constitutes payment of part of the expense of the branch office (19 NYCRR §175.20[a])

Opinion Letter 92-32 (Phil Oddo) - can negotiate (or re-negotiate) commission to provide for "gift" of a trip to seller client

156 DOS 92 Matter of Gotshall - landlord not advised of payment, which tenant thought was rental payment, but broker kept as additional fee for assisting in securing cooperative's approval of subtenancy

158 DOS 92 Matter of Miles - sales associate affiliated with commercial broker, without broker's knowledge or constructive knowledge, engages in residential transaction and takes direct commission payment, not via broker (RPL §440-a, 442-a)

Opinion Letter 93-1 (Marilyn H. Kaye) commissions are negotiable; don't refer to commission "customarily paid;" clarify form letters proposing payment of compensation to buyer's broker

Opinion Letter 93-4 (Francine Heinlein) listing broker with proper disclosure and agreements may advertise and provide a "homeowners warranty plan" for buyers "at no cost," by effectively reducing commission by equivalent amount

Case #138 Matter of DOS v. Cooper, Consent Order -receipt of commission in excess of maximum rent for rent stabilized apartment - $3,000 and 6-month suspension

CRC #228 Matter of DOS v. Goblet, Consent Order -improperly converted deposit as unearned commission and failed to obey seller client's instruction to refund to buyer - restitution and surrender of all licenses

94 DOS 93 Matter of Parenti - incompetency in renting apartment in illegal two-family house without checking certificate of occupancy; unreasonable to rely on owner's claim of two-family status without making reasonable inquiry; restitution of rental commission

Opinion Letter 93-21 (Robert Jacobsen) - lawful to provide seller with two free airline tickets at time sale closes; promotion is equivalent to a negotiated reduction in the listing commission

102 DOS 93 Matter of Eisenhauer - salesperson transacted business as broker for her own account violates RPL §§440-a and 442-a and forfeits commission collected; subsequent licensure as a broker is immaterial for services were rendered when she was a sales associate; her broker is not entitled to commission either, as her activities as unlicensed broker are illegal, so no commission can be claimed

CRC #378 Matter of Skydell, Consent Order - excessive rents and fees charged, failure to advise of broker's interest in premises (19 NYCRR 5175.6); failure to advise DOS of relocation of office (RPL §441-a[5]); failure to furnish duplicate original of lease (19 NYCRR 5175.2); 3-month suspension

121 DOS 93 Matter of DOS v. Jacob - DOS fails to prove licensee knew, or failed to take reasonable steps to obtain knowledge regarding the illegality of rentals under the zoning ordinance; where broker is aware that particular area is zoned one-family, must make reasonable inquiry as to what use is being made of other floors; commission is unearned where rental is in fact illegal; ALJ rejects as incredible the broker's self -serving testimony that DSS did not want the commission returned; 2 representative brokers each fined the amount of the unearned commission ($750) for failing to return; ALJ rejects SAPA 301[1] claim of failure to hold a hearing within a reasonable time due to lack of demonstration of prejudice and refuses to consider an affidavit submitted by the licensee's counsel, as leave was not sought at the hearing to submit a response to the affidavit DOS was given permission to submit

CRC #276 Matter of Knobel, Consent Order - payment of commission to salesperson not associated with broker violates RPL §§442 and 442-a, 19 NYCRR §175.14; $3,500 fine

135 DOS 93 Matter of Graham - (related case settled - CRC #276 [Knobel]) payment of commission to salesperson not associated with broker violates RPL §§442 and 442-c and 19 NYCRR §175.13; sales associate arranges payment via another broker due to fear that former broker would not pay her; absence of harm to public; salesperson cannot be officer of licensee corporation; DOS failure to prove that sales associate of one firm, who was corporate officer of another firm, was also licensed as a sales associate of that firm

128 DOS 93 Matter of DOS v. Vuksanaj - motion to conform pleadings to proof granted where (i) additional evidence wouldn't have been presented if the charge had been stated in the complaint and (ii) issue was actually litigated and was within the "broad framework of the pleadings"; broker's authorization to execute lease on behalf of landlord must be in writing to be valid (G.O.L. §5-703); no commission earned on void lease (due to lack of written authority for broker to sign for landlord); broker is undisclosed "double agent" - thus "fails to make clear" for which party he is acting (175.7); broker is not "managing agent" under NYC Rent Stabilization Code unless (i) broker has ownership or financial interest in property or (ii) performs managerial duties; separate escrow account (§175.1) not required when broker is not holding escrowed funds; holding funds overnight does not trigger requirement for escrow account (returned next day upon demand); unlicensed name used in commission agreement but lack of intent to mislead considered in mitigation; restitution of unearned commission

142 DOS 93 Matter of Tannenbaum - corporation which manages real property, collects rents and cooperative apartment building maintenance charges requires a license; unlicensed salesperson and unlicensed corporation precludes legitimate claim for brokerage fee; settlement of civil suit between tenant and unlicensed corporation is not a defense to charge of unlicensed activity; corporation's failure to pay judgment where individual respondent is not a party is not considered in disciplinary case against said individual; deposit monies should be returned, as no viable lease was entered into and no lawful brokerage commission could be claimed; restitution of entire deposit ordered (civil action settlement provided for return of $600 of $900), as no licensed real estate services were rendered; however, retention of deposit is not conversion or illegal retention of deposit monies, but is unlawful claim for commission by non-licensee; broker's failure to file termination of association notices violates RPL §441-a(5); respondent's cooperation during investigation considered, as is testimony that action resulted from lack of knowledge and negligent, not deliberate attempt to violate licensing law

CRC #454 Matter of DOS v. Valladares, Consent Order - payment of buyer's closing costs out of commission proceeds is unlawful commission splitting RPL §442; unlicensed business name; failure to make clear agency relationship; restitution of $9,600 plus $1,100 interest; fine of $1,000 or suspension until compliance

Opinion Letter June 5, 1995 (Marc Gold) - Promotion whereby broker donates $200.00 to a charity of seller's choice is not fee-splitting under RPL §442, as not given for assistance provided in bringing about sale. Nor is it a kick-back as commissions are freely negotiable and broker may use promotional incentive as part of the commission agreement

Opinion Letter June 8, 1995 (E. Adam Leyens) - Referral fees to broker from home building, home remodeling and home inspection business can be offered where such incentives are disclosed to clients and customers and clients or customers are under no obligation to use such services. Such program can be offered to brokers only and not to associate brokers or sales persons under RPL §442-a

83 DOS 95 Matter of DOS v. Loffredo - improper commission suit by broker; representative broker liable for forms used; unauthorized practice of law where sales agreement did not contain attorney's approval clause; collateral estoppel on issues of fact; pleadings amended to conform to the proof where no surprise or prejudice, and matters actually litigated; ready, willing and able purchaser not obtained when unable to obtain mortgage per sales agreement; release of listing agreement required where improperly procured

143 DOS 95 Matter of DOS v. ReMax Specialists, Inc. - validity of listing agreement; oral brokerage agreement; unauthorized husband signs listing agreement for wife and father who own property; agreement ratified by acts of wife but not father; co-owner of property can employ broker for sale of jointly-owned property, without consent or authorization of co-owner, where broker lacks actual knowledge of joint ownership; co-owner employing broker may be liable for commission even though property cannot be sold without joint-owners' consent; broker not required to verify ownership of property listed for sale with broker; contracts for employment of brokers as agents need not be in writing to be enforceable; complaint dismissed

139 DOS 97 Matter of DOS v. Martin - hearing may proceed ex parte as service of notice of hearing is sufficient where it is mailed to respondent’s last known business address by certified mail; broker not guilty of failing to cooperate with DOS investigation where broker’s statement that documents had been misplaced was unrefuted; providing false information to investigators violates RPL §442-e(5); broker allows unlicensed wife to act as real estate salesperson; broker not held to violate agency disclosure provisions of RPL §443 where DOS fails to establish property was a one-to-four family dwelling; broker violates 19 NYCRR 175.7 by failing to disclose to the parties whom he was representing; broker did not violate 19 NYCRR 175.7 when he accepted two commissions in the same transaction, from tenant and DSS on behalf of tenant, because DSS was not a party to the transaction; broker retained an unearned commission when paid same commission by tenant and DSS and refused to return commission to tenant; four months’ license suspension and forfeiture of both commissions with interest

CRC #96-2220 Matter of DOS v. Costanza, Consent Order - agreement to split a commission in violation of RPL §442; payment of restitution of $750 plus interest

869 DOS 01 Matter of DOS v. Hecht - commission; restitution; vicarious liability; the amount of the fee charged by a real estate broker and the fee’s relevance to actual services performed are proper issues for consideration; a real estate broker’s compensation is not regulated by statute and is not legally fixed by custom and usage; power to contract is not unlimited; where a real estate broker fixes a fee far in excess of rates established by custom and usage for a particular brokerage service in the community involved, the amount of the fee must be relevant to and represent charges for some legitimate service actually performed by the broker; element of unconscionability exists where fee charged is three times the maximum fee established by custom and usage; corporate broker liable for the cognitive acts of its representative real estate broker; restitution may be ordered where the brokerage agreement is unconscionable; broker ordered to refund amount in excess of the maximum fee established by custom and usage

4 DOS APP 02 Matter of DOS v. Hecht - business practices; commissions; broker’s past acts cannot be used against him as evidence of repeated misconduct on a charge of illegal business practices where such conduct is being now first reviewed for untrustworthiness; charging fees in excess of professional norms, absent a showing of unique services offered above and beyond those services normally rendered by a real estate broker, demonstrates untrustworthiness; broker’s current commission rates are far in excess of rates established by custom and usage; ALJ’s decision modified, license suspended until one month after broker refunds amount in excess of rates established by custom and usage

818 DOS 03 DOS v. Phifer - fraudulent practices; commission issues; forgery; associate broker commits gross act of dishonesty and commits fraudulent practice by attempting to steal a commission from her broker; departing associate broker who is going to set up her own firm advises salesperson not to inform broker of pending transaction and forges broker’s signature in an attempt to have commission check paid to her new firm; broker’s license revoked

515 DOS 05 DOS v. Duroseau - failure to appear at hearing; fraudulent business practices; deposits; commissions; unlicensed activity; disclosure of agency relationships; jurisdiction; DOS retains jurisdiction where alleged unlawful acts occurred during licensure and where after license expired licensee was eligible to automatically renew his license; salesperson engaged in fraudulent business practices by failing to refund deposit monies to a principal, illegally retaining deposit funds, retaining an illegal commission, failing to provide agency disclosure form to principal and by acting as an unlicensed real estate broker; DOS fails to prove non-cooperation with investigation where salesperson submitted two written responses to DOS’s requests; salesperson ordered to refund $2,300.00 plus interest, any future application for licensure will not be considered until refund made

136 DOS 07 DOS v. Burkhardt- Failure to provide agency disclosure; property offered without consent of owner; failure to refund deposit; failure to cooperate with DOS investigation; restitution as condition to relicensure

1373 DOS 07 Matter of Owner’s Club Realty Corp.- Broker; apartment rental; entitlement to commission upon bringing about meeting of the minds; improper use of rental agreement which misstates law in some situations; incompetency; $500.00 fine; dismissal of charges of retaining unearned commissions and requiring the signing of a statement allowing an unearned commission

2249 DOS 07 Matter of Lee- Salesperson; failure to return commission per agreement to refund if landlord unable to obtain c/o; failure to pay judgment; no proof of improper receipt of commission directly from client or failure to supervise

2263 DOS 07 Matter of Giffin- broker; obligation to refund $7,400 commission when lease not effectuated; failure to provide copy of lease which complainant signed; partial rebate of commission is not improper commission splitting; 6 month suspension and until refund $7,400 plus interest

2266 DOS 07 Matter of Mitchell- broker; unlicensed name; failure to notify of termination of association of salesperson RPL 442-b; §175.7 duty to make clear for whom acting and not receive compensation for more than one party without knowledge and consent of all parties; failure to cooperate; $3,000 fine and payment of judgment of $3,308.75 to salesperson for owed commissions

432 DOS 09 Matter of Godard – broker; prior listing agreement; 19 NYCRR §175.8; misappropriation of commission; prior misconduct; 6-month suspension

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