Traditionally, real estate salespersons and associate brokers work as independent contractors. This allows the company to have no obligation to pay benefits it would ordinarily pay to an employee and allows the agent the freedom of working the hours and manner they wish with a lesser degree of company control. This business model is used in virtually all the real estate brokerage companies in New York.
However, there has been a growing trend within brokerage companies to allow agents to use fancy titles that have no relationship to their position with the brokerage company.
A recent letter opinion from the New York Department of State dated April 26, 2013 has opined that such puffery constitutes deceptive advertising. The specific question addressed was whether a brokerage company may provide a corporate title such as “President”, “Vice-President”, “Senior Vice-President”, “Executive Vice-President” or “Managing Director” to an agent for marketing purposes.
The Real Property Law at Section 441-(c)(1)(a) has always prohibited “dishonest or misleading advertising”. However, there has never been a definition as to what that specifically entails.
When dealing with puffed up titles, the letter opinion makes clear that unless the agent is a corporate officer or member of a limited liability brokerage company or partnership, they cannot have any title that infers that they hold such a position. Therefore, a Vice-President has to be a Corporate Vice-President of the Corporation and a Managing Director has to actually have the job responsibilities of a Managing Director.
Brokerage companies are on notice that unless they take official action aligning an agent’s title with their relationship with the Company, both parties are open to disciplinary action for engaging in deceptive advertising as defined in the Real Property Law.
Compliance with this opinion is not a simple matter of amending corporate minutes. As the opinion points out, 19 NYCRR 175.22 prohibits the ownership of voting stock by real estate salespersons or associate brokers. Compliance would require that the agent be a licensed broker and not be acting as an associate broker, a title that means that they have elected to work under the name and supervision of another broker.
This opinion letter does not define which titles are acceptable and I expect that there will be future clarifications either by opinion letter or judicial decision on the parameters of titles of non-equity owners of real estate brokerage companies. In the interim, all business cards, websites and promotional materials should be reviewed to ensure they comply with the current standards recognized by the New York Department of State.
The use of terms such as “Associate Broker”, “Salesperson” and “Agent” are clearly acceptable. The terms such as “Senior Director”, “Associate Director” or “Principal Agent” may be permissible but may be precluded by future court decisions or Department of State opinions.
It is suggested that a company have an objective criteria for labeling someone “Senior” or any other embellished title that is defined on its website so that a consumer would have the ability to understand the meaning of the title. In fact, I would suggest adding language to the website clearly defining the relationship between the agent and the brokerage company.
It is recommended that companies be conservative with titles, particularly for salespersons who are independent contractors and not even employees of the company.