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Category: The Brokers World


Brokers Agreements: The ins and the outs

March 14th, 2012 — 9:59am

First things first.  When selling real estate (be it an apartment house, office building, townhouse or a co-operative or condominium apartment) Sellers should enter into a written agreement with their Broker setting forth their understanding.  The agreement should be fair and reasonable for BOTH sides.  Selling real estate is a collaborative effort and the agreement between the Sellers and their Broker should keep both sides eager to work together and ensure that neither feels they have been or will be treated unfairly. Continue reading »

These are some of the things to look for in a brokerage agreement:

1)      The term:  Just how long do the Sellers have to work with the broker?  How easy is it for the Sellers to end the relationship and sign up with broker No. 2?  While the Sellers first preference might be for a shorter term then the Broker wants,  Sellers should consider that if the term is too short or the Sellers can cut out the Broker on too short a notice, the Broker may not be as willing to put as much effort (think advertising money and time) into the deal.  So it may not work in the Sellers favor to have too short a term.  Brokering is hard work and takes a great deal of time, effort and expense and it may not be in the Sellers best interest to disincentivize their Broker by keeping him or her on too tight a leash.

2)      The commission:   This one is obvious but Sellers should realize that in an “exclusive arrangement”, they will owe the commission even if they sell the property to their Aunt Tilly UNLESS the agreement says otherwise.  The agreement should also spell out if there are any reduced commissions (i.e. “4% if I sell to my next door neighbor Bob in the next 30 days”).  The Sellers will naturally want to pay a lesser commission but should note that a lower commission may result in lost opportunities since buyers’ brokers (who share the commission) might prefer to steer their buyers to properties offering a higher commission.

3)      Post Contract Sales:  It ain’t over till it’s over.  Many brokerage agreements fairly provide for the Sellers to still pay the commission AFTER the term so long as there was a sale to a buyer whom the Broker found. Fair is fair but the Broker should provide a list of the people he or she introduced to the property and there should be some time limit.

4)      “If, as and when”:  The four most frightening words in the English language to brokers.  The agreement should be clear that the Broker only gets their commission “IF AS AND, WHEN” a contract is signed, the deal closes and the Sellers get paid!

5)      Indemnity: Sellers should be protected from claims by other brokers that the Broker they are dealing with brought to the property.  Brokers hate this but it is fair.  Many brokers will reluctantly agree to it at least up to the amount of commissions they are paid.

6)      Should the Broker get a commission if the buyer defaults and the Sellers wind up keeping all or some of the downpayment?  Some brokers want their commission on the downpayment if the deal falls apart after the contract is signed.  While this seems sort of reasonable it is also fair that the commission be based on the amount of downpayment the Sellers keep AFTER all the Sellers’ costs (think legal fees in a protracted fight over the downpayment) and expenses.

While there are other issues to think about (such as  the listing price and advertising) the above list is a reasonable start of the basic points to consider when entering into a brokerage agreement.  Good Luck with your sale!

 

 

 

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Let’s Make a Deal.

March 30th, 2011 — 11:41am

Let’s Make A Deal. We often hear of a deal being on the brink of falling apart because the parties are a few thousand dollars apart. Quite often, one of the lawyers suggests that the brokers chip in to help make up the difference.

But, if you are dealing with the sale of a condominium or house, there may be another way that is relatively painless. Continue reading »

If the seller’s lender “assigns” the seller’s mortgage to the buyer’s lender, the buyer can save the mortgage recording tax. This tax can be one of the main expenses of buying the house or condominium. For example, to record a $700,000.00 mortgage on a condominium in Manhattan, the tax would be $15,195.00 of which $13,445.00 is paid by the borrower and $1,750.00 is paid by the borrower’s lender.

Typically, when a condominium or house is sold, the seller pays off his/her mortgage loan and the seller’s lender will issue a satisfaction or release of the mortgage. In the ordinary situation, the buyer then pays a mortgage recording tax on the total amount of his or her loan. But, if the seller’s lender ASSIGNS the seller’s mortgage to the buyer’s lender, then the buyer would only pay a mortgage recording tax on that portion of the money borrowed which is in excess of the principal balance of the seller’s mortgage.

For example, if the balance due on the seller’s mortgage is $700,000 and that mortgage is assigned to the buyer’s lender, then the buyer will not pay any mortgage recording tax on the first $700,000 being borrowed. That amounts to a saving of $13,445 to the buyer.

So, if the parties are $10,000 apart and the seller’s lender assigns the seller’s mortgage to the buyer’s lender, then the buyer will save $13,445 which very well may persuade the buyer to accept the higher purchase price.

But there is no free lunch.

The seller’s lender will charge a fee to prepare an assignment (for example, Citibank currently charges $650.00) and the buyers lender will also charge more to prepare a Consolidation and Extension Agreement which is the common name of a document that effectively combines the two mortgages- the one being assigned by the seller’s lender and the new one from the buyer’s lender. However, despite these additional expenses, the savings can be enough to bring the parties together.

It should be noted that if the parties are going this route then they should let their respective banks know as soon as possible.

This tax does not apply to co-ops since although people commonly speak of mortgages on co-ops, these loans are technically speaking based on security interests in the stock and lease rather than on mortgages on real property such as condos or homes.

The good news for co-op owners is that there is no such tax on the recording of a security interest. The bad news is that this method of bridging the gap is not available for co-ops.

Also, keep in mind that every once in a while someone tries to amend the law to have the mortgage recording tax apply to co-ops and I feel this is bound to happen at some time in our not too distant future.

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Real Property Law Section 443

January 1st, 2011 — 4:11pm

Brokers owe duties of loyalty to their clients.  However, what happens when the same broker or their company represents both the buyer and the seller?  Whose side is that broker really on?  A new law, effective now, attempts to address this.
This law, Real Property Law Section 443, requires that the buyer or seller sign a disclosure form which essentially acknowledges whether the broker is acting on behalf of the buyer, seller or both. Continue reading »

If the broker is representing only one of the parties then that broker owes a duty of loyalty to just that one party. However, if the broker is representing both sides of the deal then neither side can expect the broker’s undivided loyalty.
But it gets more complicated than that since in a situation where the broker represents both sides, each side and the broker can pick someone to be a “designated sales agent” to work under the supervision of the broker. At first it may seem that the designated sales agent for the buyer and or seller are independent but in reality they also cannot provide undivided loyalty to the side they are designated to help.
We will have to wait and see how this pans out but the thing for buyers or sellers to remember is that if they want their broker’s undivided loyalty, they should not enter into a dual agency relationship. However, if either a seller or broker does not agree to a dual agency relationship that might restrict the broker from working with brokers in his or her company.

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