NYC-based boutique law firm Pardalis & Nohavicka brings the latest legal updates from the world of real estate. Pardalis & Nohavicka handles an eclectic array of matters, representing individuals and business owners in civil litigation, criminal cases and business transactions, currently litigating and representing clients throughout the United States and around the world.
In light of recent legislative changes, New York’s brokers and brokerage firms have been hit with fees, fines and requirements like never before. In particular, one recent bill — Senate Bill S-7729, otherwise known as the SOP law — has added an especially high number of policies to regulate the actions of brokers and agents.
Which procedures were affected by Senate Bill S-7729?
The new law affects the practices of real estate brokers and agents before they list a property for sale. Additionally, it also provides for the implementation of new standard operating procedures (SOPs) for brokers.
What standard operating procedures are involved in the bill?
Under the new bill that amends Real Property Law 442-h, prior to receiving services from a prospective buyer, a broker must provide guidance to prospective buyers prior to providing services for them. While brokers are not required to answer questions, they must create policies using this standard language:
- We do not require identification from prospective buyers.
- We do not require a purchaser to sign an exclusive brokerage agreement.
- We do not require pre-approval for a mortgage loan.
What is a broker required to do in implementing this policy language under SB-7729?
The law requires brokers to make their policy language available in bulletins or in writing at their respective real estate offices and on the web, as well as accessible on electronic devices, such as mobile apps. Notably, brokers must be in compliance with this policy in order to renew their broker’s license.
What was the legislative history of this law?
The bill went through a lengthy legislative process. The original bill was drafted and introduced to the Senate in January 2021 and then to the Assembly in June 2021. The bill was subsequently read a third time in the Assembly by legislative counsel in January 2022, at which time it was finally sent on and passed by the Senate on January 20, 2022. It then reached Governor Hochul’s office, who signed it in March 2022, with the bill finally becoming law in April 2022.
What was the legislative justification behind the SOP bill?
The main purpose of this legislation was to correct the unequal service received by prospective minority and non-minority buyers from New York state brokers.
Specifically, the bill was passed in response to a three-year investigation by NewsDay, a well-known Long Island media outlet. The investigators conducted seven extensive tests into the practices of local real estate brokers in Long Island and found pervasive differences in the way that real estate brokers treated minority buyers, as opposed to non-minority buyers, when selling a home.
For instance, the investigators found that brokers flagrantly failed to apply the SOP policies appropriately or in a uniform manner to African American buyers of real estate. In one example, NewsDay reported that minority buyers were often asked by brokers to secure mortgage pre-approval before they would render services. The brokers also forced the prospective minority buyers to sign exclusive brokers’ agreements, whereas they did not make the same requests of non-minority buyers.
Furthermore, the study also found that, instead of just providing guidance and written materials to the non-minority buyers as they were required, the brokers consistently violated the policy and SOP rule changes by requiring that minority buyers comply with the SOP proposed directives. In addition, brokers often violated the rule by requiring minority buyers to provide identification before receiving services or showing a home, which was an unlawful practice under the rule.
What does this mean for brokers in complying with the new SOP policy?
At a minimum, all brokers and real estate agents should have the three policy directives of the 442-h real property law amendments documented before every potential showing or listing of a property. They should also document the policy language by posting the new policies to their existing websites, social media channels or mobile apps. In addition, each broker should also maintain a hard copy of the new policy directives at their respective real estate offices.
What if the broker or agent wishes to make alterations or updates to their procedures?
The new law requires that every broker who wishes to make alterations or updates to their procedures date-stamps and notarizes the changes on their respective websites. Brokers must also ensure that the amendments are posted to their websites within 30 days of the changes being made.
What are the consequences for brokers who violate the mandates of law 442-h and commit a license violation?
The SOP law amendments make it clear that a broker who fails to properly display the policy directives with an appropriate time-stamped and notarized copy of the directives may face numerous penalties. This could include the possibility of a written reprimand by the Department of State or even more serious penalties — ranging from a $1,000 fine for each violation to possible suspension and/or revocation of their real estate license.
Moreover, this provision also supplements an existing law that’s still in effect. That law suspends or revokes a broker’s license in the event of a material misstatement of fact to buyers in connection with a pending real estate transaction or when the broker places false information on their real estate application for a renewed license. To that end, brokers could even face the possibility of suspension, reprimand or other administrative delay in the renewal of their license application if they fail to notarize and/or stamp changes made to the policy on their website, as the new rules require.
What could a broker face for repeated violations of the new SOP law?
In this situation, the New York State Association of Realtors would have the ability to discipline the broker by referring complaints of repeat violations to the Department of State. They could then impose heavy fines or move to suspend or revoke the broker’s license by scheduling their case for hearing and notice. Upon conviction, the broker’s case could even potentially be sent to the New York State Attorney General’s Office for criminal referrals.
What are the new educational requirements imposed by SB 7729?
The new law imposes stringent new requirements on brokers and sales agents, including the requirement to complete 22.5 hours of CLE; 2.5 hours of ethical training; and at least one hour of education on recent legal matters involving the application of the new SOP guidelines as applied to New York state regulations and statutes and Department of State opinions.
Most important, all new applicants for broker licenses must also comply with cultural competency requirements equating to 75 to 77 hours of virtual and/or live course training. These new CLE requirements override brokers’ previous 15-year statutory exemption from CLE requirements.
What is the current state of broker fees relating to the rental of NYC apartments?
Until recently, brokers assisting landlords in securing apartments could receive a commission of up to 15% of the annual rental income generated from the leasing of the apartment. However, in the summer of 2019, the Housing and Tenant Security Act deemed it unlawful for brokers to collect a fee if they were not directly employed by the tenant to secure the tenant’s apartment. This new legislation is supported by two supplemental housing directives implemented by the New York Department of State.
Therefore, if a landlord secures a broker to assist him in securing an apartment without the tenants’ knowledge, the landlord — and not the tenant — now bears the responsibility for paying the broker fees upon entering into the lease. Consequently, real estate brokers will now have to rely on the good will of their landlords to pay their fee if the tenants did not directly hire them to acquire their apartments.
In truth, many brokers fear that they will never secure these fees from unsavory landlords under this new legislation, prompting the possibility of lawsuits. On the other hand, the ACLU is satisfied because many low- and middle-income prospective tenants will be relieved of the hardship of paying onerous brokers fees that are often in excess of their incomes.
What new rules apply to background and application checks for prospective tenants of NYC apartments?
Prior to the passage of the SOP law, the Tenant Housing Law of 2019 mandated that landlords could only charge a maximum of $20 for apartment application fees relative to the rental of their apartments. However, the law did not include any reciprocal obligation to limit brokers’ ability to charge more than $20 in application fees or for credit and background checks for prospective tenants.
What does this mean for real estate brokers today with the recent passage of the SOP laws?
According to Brian Kavanagh, a key Democratic state legislator from Manhattan and subsequent sponsor of the SOP law, any application above the $20 cap in application fees as applied to brokers should be “left to the courts and regulatory agencies.”
Curiously enough, a recent renter of an NYC affordable housing unit apartment located at 832 Bedford Stuyvesant in Brooklyn was charged a $300 application fee with Rentopia. Then, after the renter complained and asked for his application fee to be returned, his apartment was given away to another tenant — even after he put down a $5,800 deposit. Ultimately, the renter got his fee back from the broker but lost the apartment.
As you might expect, Josepha Velasquez of the City noted that this was a risky area that’s rife with potential enforcement problems for prospective tenants in the NYC apartment industry. As such, it appears that the prevailing practice going forward is similar to “caveat emptor” — or buyer beware — for future tenants.
What should New York City buyers and tenants do going forward?
The advice to any buyer or tenant looking to avoid unscrupulous realtors would be to consult with your marketing agent or retain a local real estate attorney before going forward with any real estate transactions in the greater New York City and Long Island areas.
Taso Pardalis is a founding partner of the Law Offices of Pardalis & Nohavicka, a leading full- service NYC law firm with offices in Manhattan, Queens and WeWork. Taso may be a well-known attorney with many cases making headlines in major media outlets, but at heart, he is a true entrepreneur that believes in supporting the small business community. His areas of concentration are: Intellectual Property, Trademarks, Corporate, Business Law and Real Estate Law.
Jacqueline Weiss, a graduate of Union College, received her Juris Doctor from Albany Law School and is admitted to practice in the States of New York and New Jersey. She has completed NYS Basic Mediation Training for Community Mediation and interned with Justice Pineda-Kirwan in the NYS Supreme Court of Queens County and is now a full time attorney at Pardalis & Nohavicka. Ms. Weiss has experience in healthcare and the defense of professional liability claims involving physicians, hospitals and nursing homes.