Total existing-home sales—completed transactions that include single-family homes, townhomes, condominiums and co-ops—rose 3.1% from December to a seasonally adjusted annual rate of 4.00 million in January.
BARRISTER'S BRIEFING: Joining and Leaving a Brokerage: Understanding Your Rights
All New York state real estate Salespersons or Associate Brokers must place their licenses with a brokerage in order to conduct business. While you may not be an employee, the brokerage is required to monitor and supervise your activities. If a licensee violates the Department of State (DOS) rules and regulations relating to real estate activities, not only may the licensee be fined or have their license suspended or revoked, but the broker may be subject to the same thing. Holding someone’s license is a very serious matter. Therefore, it’s important that everyone understands the ins and outs of keeping your license with a brokerage and what you and your broker’s duties and responsibilities are related to that license.
Independent Contractor Agreement (ICA)
An Independent Contractor Agreement is a document that binds both the broker and licensee in a working relationship. In most cases, you are not an employee, but you have access to materials and the office and you act on behalf of the broker as an independent contractor. In some cases, you have the ability to bind the brokerage. For instance, some licensees have the ability to sign up listings for the brokerage without having the broker actually sign the listing agreement. In other cases, the licensee may be authorized to accept less money as commission at the closing table in the event that something goes awry and the agents need to contribute some money to make the parties amenable and close the deal.
What’s most important about an ICA is that it establishes the foundations of your relationship with your broker and it should set forth your commission split in writing. Further, your ICA should set forth your commissions in the event that you leave the brokerage and you have deals in play. If you leave and you still have a deal that will close after you depart, are you entitled to the same commission? Less commission? No commission? It all depends on your ICA, so you need to look at it and have a discussion with your broker; particularly if you are considering leaving, either now or sometime in the future.
Parting Ways with Your Brokerage
Your ICA agreement should set forth what will happen if you decide to terminate your relationship with your brokerage. Things such as returning supplies, keys, name tags, access to computers, signage, etc. will be covered in your agreement. Once you terminate your relationship, you must make efforts to ensure that any marketing that affiliates you with that brokerage is stopped. This includes ads, mailings, social media, signage and business cards. If you have deals in play, you should confirm or discuss with your broker the payment of those commissions; keeping in mind that those commissions are the brokers, not yours, and you cannot automatically take those deals with you to another brokerage without your soon-to-be former brokerage’s permission. In fact, a broker is entitled to keep the listing that you worked so hard on, give it to someone else and, in fact, give that other agent the MLS credit too (and possibly the commission—it all depends on your ICA).
Release of Your Real Estate License
When an agent decides to leave a brokerage, the broker of record must release that agent’s license back to the state. From there, the new brokerage will pick up that agent’s license. However, there are rules surrounding this transition of the agent’s license.
N.Y. Real Prop. Law § 442-b mandates that “When the association of any real estate salesman shall have been terminated for any reason whatsoever, his broker shall forthwith notify the department of state thereof in such manner as the department shall prescribe.” Black’s Law Dictionary defines the meaning of the term “forthwith” as “1. Immediately; without delay. 2. Directly; promptly; within a reasonable time under the circumstances; with all convenient dispatch.”
Based upon the foregoing and the ability to effectuate a transfer electronically, the DOS has indicated that absent demonstrable and unusual circumstances, termination should not exceed five (5) days. Additionally, the DOS makes it clear that while a broker has “reasonable time under the circumstances” to wind up the agent’s activities, they cannot simply delay 5 days out of spite or pettiness. For example, if a broker falls ill suddenly and cannot terminate, he/she would most likely not face discipline because of the delay, even if it potentially ran beyond five days, as such delay may be considered “reasonable time under the circumstances.” However, a broker that fails to terminate simply because they think they have five days under all circumstances and/or is acting out of spite or pettiness, may face discipline. Unless there is a real compelling reason to delay the termination of a license, a broker has five days or less to do so. General housekeeping issues such as keys, paperwork, etc. will not relieve the broker of his/her duty to release the agent. Additionally, keep in mind that a broker who fails to timely release a licensee renders that licensee unable to work and the broker may be held liable for damages in a subsequent lawsuit. Further, it is important to remember that a broker’s failure to provide the required notice, without justification after five days, could potentially result in a disciplinary proceeding pursuant to N.Y. Real Prop. Law § 441-c.
As noted above, once a real estate license is terminated, that agent cannot conduct any real estate activities whatsoever, including conducting old business, establishing new business, handing out old business cards or consulting, until they associate with a new brokerage. Doing so would be a violation of New York licensing law.
Once you depart a brokerage, you must remember that all of the clients you were working with are and remain with the broker. This includes all homeowners with listing agreements and those with whom you have developed potential future business, so long as it was done on the brokerage’s behalf. Further, all the buyer agents you have are the clients of the broker as well, whether there is a written agreement or not. The same goes for landlords and tenants. While these clients are free to choose who they wish to work with and can choose to follow you to a new brokerage, you must keep in mind several things:
You cannot encourage a client to leave a brokerage. You can say that you are leaving, but you cannot encourage the client to follow you. To encourage them to leave or assist them in trying to leave, could be a violation of Article 16 of the Code of Ethics. If a licensee were to do this prior to leaving, this may also be deemed a violation of the agent’s fiduciary duty to the broker and could result in a complaint to DOS.
If the client has an exclusive listing agreement (listing or buyer agreement), then that client is bound by that agreement. They cannot unilaterally get out of that contract. If an agent encouraged that client to sign a new agreement, they may be causing a situation where that client will now be paying two commissions. In that situation, it may not only be a violation under the Code of Ethics (Article 16, Standards of Practice 16-9 and 16-14) but, worse still as such an action may be deemed an interference with a binding contract and subject that agent to a lawsuit.
Joining and leaving a brokerage is not as easy as one may think. Make sure your ICA accounts for your commissions during and after your relationship ends. Make sure that your broker timely releases your license (within five days) and that you do not do any real estate work between the time that you leave one brokerage and join another. Lastly, remember that the people you are working with are not your clients; they are the broker’s clients. You can tell them where you are going, but you cannot make them or entice them to follow you. That decision is entirely theirs to make.