By Howard Rubin
A common tale of woe I hear from brokers is that they acted on an open listing by introducing a property to a potential buyer and the buyer eventually buys the property but the broker is frozen out of a commission.
These cases can be difficult to prosecute because there is usually no writing to support the broker’s claim that they were the procuring cause of the transaction. This is a fact pattern that can be avoided by a broker who makes proper use of e-mail.
Most brokers know that in order to earn a commission, they must meet three (3) criteria:
1. That they are duly licensed in the State of the transaction;
2. That they had a contract, express or implied, with the party to be charged with paying the commission; and
3. That they were the procuring cause of the sale.
The first requirement is usually not an issue. If the person seeking a commission is not a licensed real estate broker, they are barred in New York from obtaining a commission or any compensation.
This restriction has become much more stringent as recent case law has virtually eliminated the use of finder fee agreements for transactions that are essentially real estate sales or leases.
The second requirement is where e-mail correspondence can be essential to establish a right to commissions. While New York will enforce an oral brokerage commission agreement, proving the existence of such an agreement and its terms is a very difficult matter.
If the broker can point to contemporaneous e-mails to all the parties involved in the transaction setting forth their expectations and their involvement, a basis for a recovery may exist which otherwise could never successfully be pursued. Every contact and communication with a party involved in a real estate transaction should be documented and confirmed by a contemporaneous e-mail or text.
This is a mantra I try to drill into my clients. It does not have to sound like a letter from a lawyer but it should set forth what the broker did, what the broker’s expectations are if the deal is closed and that the broker wishes to assist in bringing the transaction to a close.
The third requirement was that the broker was the procuring cause of the sale. A broker need not have been involved in the ensuing negotiations or the completion of the sale to qualify for a commission.
However, the broker must demonstrate that he/she created an amicable atmosphere in which negotiations proceeded or created a chain of circumstances that proximately led to the sale.
What happens very often is that a broker makes an initial introduction and the deal doesn’t go through but is revived sometime thereafter with a new broker or no broker. If a broker has documented that they made the initial introduction of the parties and that they held themselves out to be available to proceed with the transaction, a recovery is possible.
If all the broker can do is establish that they called the property in question to the attention of the prospective buyer, a basis to recover a commission does not exist.
However, if a broker can establish, through e-mails, or other means, that they were available to assist in the transaction but were prevented from doing so, they can meet their burden of showing they were the procuring cause. Again, the use of contemporaneous e-mail is critical in meeting this standard.
A broker who diligently uses e-mails through all steps of a transaction has a much greater chance of avoiding that tale of woe where they are frozen out of the transaction.
This is not to say that it is not preferable to have a written brokerage agreement. However, in the real world, where brokers are pitching open listings to cold call potential buyers, this is not always possible. Handshake deals and assumptions that commissions will be paid if the deal goes through is not something I would depend on in an electronic age where it is so easy to communicate by text or e-mail.