New Jersey is a Statutes of Frauds State.
New York is a Procuring Cause State.
An oral brokerage agreement is enforceable under New York law and does not violate the Statute of Frauds.
In New Jersey all agreements must be reduced into writing to comply with the Statute of Frauds.
The statute of frauds in New Jersey requires that a real estate broker must memorialize in writing any agreement to be paid a commission for the sale of real estate in order for the agreement to be enforceable. N.J.S.A. 25:1-16, which is the section in the statute of frauds dealing with real estate brokers, has three provisions that govern whether or not a real estate broker is entitled to be paid a commission.
Under N.J.S.A. 25:l-16(b), a real estate broker who acts as an agent or broker on behalf of a buyer or seller regarding the transfer of an interest in real estate, which includes any lease interest for less than three years, is entitled to be paid a commission only if the broker’s authority is “given or recognized in a writing signed by a principal or the principal’s authorized agent” before or after the property is transferred, and the “writing states either the amount or the rate of commission.”1
The only exception to Section 16(b) is where a broker acts pursuant to an oral agreement that falls within the requirements of N.J.S.A. 25:1-16(d). Under Section 16(d), a broker who acts pursuant to an oral agreement with a principal is entitled to be paid a commission if two requirements are met. First, the broker must serve the principal with a written notice stating that “its terms are those of the prior oral agreement including the rate or amount of commission to be paid” within five days after making the oral agreement with the principal and before the transfer or sale of the real estate. Second, the broker must either effect the transfer or sale, or in good faith enter into “negotiations with a prospective party who later effects a transfer or sale” before the principal provides the broker with any written rejection of the oral agreement between the parties.
In New York this is not necessarily required as long as you are the Procuring Cause.
The New York 3 Prong Test is:
1) Having Real Estate Brokers License
No person, copartnership, limited liability company or corporation shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered, in any place in which this article is applicable, in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the alleged cause of action arose.
2) Express or Implied Contract (NOT Necessarily in Writing)
3) The Procuring Cause
For purposes of the requirement under New York law that a broker, to be entitled to a commission, must have been the procuring cause of the sale, there must be a direct and proximate link, as distinguished from one that is indirect and remote, between the bare introduction and the consummation; the duty assumed by the broker is to bring the minds of the buyer and seller to an agreement for a sale, and the price and terms on which it is to be made, and until that is done his right to commissions does not accrue.
Questions for thought.
Can a brokerage firm be the procuring cause when the salesperson was acting outside the authority of the brokerage firm?
My opinion is NO. Would love for Active Rain Community to share their opinions.......
Can two separate brokers be the Procuring Cause?
Would love for Active Rain Community to share their opinions......and rationales.....
The Mueller Law Firm specializes in matters regarding the 3 prong test for real estate commissions in New York.
The Mueller Law Firm
Michael Todd Mueller, Esq.
299 Broadway, Suite 1605
New York, New York 10007