Real Estate Brokers Earn Commissions Because of Their Work - Not Because of an Agreement

Real Estate brokers in Manhattan (particularly at smaller companies) will often be anxious to have clients sign "fee agreements" in which the client acknowledges that the broker is showing the client a property or properties. This fee agreement will be executed notwithstanding the fact that real estate brokers are now under the obligation to have all clients sign an agreement in which the client acknowledges that the broker is in actuality beholden to the seller (or lessor).Why would a broker want the new client to sign such a fee agreement? The reason is that real estate brokers are constantly in fear that a client will look to cheat the broker out of a fee.The fear is explained in a hypothetical as follows: A real estate salesperson shows a client an apartment that rents for $3,000/month. A fifteen percent commission on such a deal would be $5,400 (15% of $36,000 or one year of rent). The client likes the apartment but balks at paying a full commission. The client haggles over the commission but the broker holds firm. The deal is not done because the broker won't reduce the commission. That client then goes and retains a different broker who agrees to show the same apartment at a lower commission. Broker #2 earns the commission while Broker #1 gets nothing for having introduced the client to the apartment. A person in Broker #1's shoes will have the client sign a fee agreement in advance of any showing believing that the piece of paper will secure for the broker a greater right to the commission that is earned than would otherwise be the case. In actuality the fee agreement is not needed for the commission to be earned. A real estate broker earns his/her commission by showing that he/she was the proximate link between introducing a client to real property and the deal being consummated. A recent decision of the Appellate Division, First Department affirms this long-standing principle. In Sioni Partners, LLC v. Vaak Properties,(1st Dept. March 1, 2012) a real estate broker had introduced a client to a piece of real property and a fee agreement had been entered into. The fee agreement was conditional and provided that if a certain price was not met that the commission to be earned would be re-negotiated.  The deal was consummated and the entity paying the commission refused to pay anything arguing that an agreement was never fully reached. The Appellate Division affirmed a decision of the Supreme Court and held that the broker earned his/her fee because the broker introduced the client to the building and the deal was then consummated. This holding merely restates what is well-settled law. A lesson for all of the real estate brokers out there - that fee agreement you want your client to sign may only scare the client away. You don't need it. You earn your fee from the work you do - and not from any piece of paper.