New York law provides that brokers have a duty of undivided loyalty in a real estate transaction and as such, they must disclose and get consent of the parties if they are working as a dual agent. A recent decision by the New York Appellate Division First Department demonstrates that courts take this rule seriously and will withhold a broker’s commission if he/she doesn’t comply with the law.

The Court in P. Zaccaro, Co., Inc. v. DHA, LLC held that a real estate broker who acted for both parties to the sale of property engaged in an impermissible dual agency, failed to fully disclose its dual agency and therefore, was not entitled to any commission despite the fact that the broker had found the purchaser. The Court also rejected the broker’s contention that it should receive its commission since the Defendant seller was not injured by this impermissible dual agency. However, under the law, because of Zaccaro’s breach of its duty of undivided loyalty, the Court said the broker must forfeit its right to a commission even if the party to whom the duty was owed suffered no damages.

In an attempt to avoid dismissal of its claim, Zaccaro also argued that it was merely acting as a “finder” and not a real estate broker. This argument failed because Zaccaro’s complaint contradicted its claim that it was a finder. In the complaint, Zaccaro stated that it was the broker for the Defendant, not a finder, and also said that it was obligated to negotiate the sale of the premises, clearly the function of a broker and not a finder.

By seeking a finder’s fee, Zaccaro, a licensed broker, was apparently trying to avoid both the consequences of its misconduct and Real Property Law Section 442, which requires payment of a commission in a real estate transaction to be made only to a duly licensed broker (and in certain limited instances, licensed attorneys). However, finder’s fees are generally not permitted where the acquisition of real property is the primary component of the transaction. As such, it appears that even had the Court not found that Zaccaro had made binding admissions that precluded it from claiming to be a finder, it would have ruled against Zaccaro because the transaction in question involved the sale of real property.

The lesson in Zaccaro seems clear. If you are a real estate broker and wish to act on behalf of both the buyer and the seller in a sale of realty, you must make a full and unequivocal disclosure of this fact and obtain the consent of both parties in order to avoid forfeiting your commission. The logic behind this policy seems simple enough. In dividing its loyalty, the broker will likely not represent either party vigorously enough.

If you are a real estate broker or are involved in a situation involving a broker who is acting as a dual agent, please contact one of our real estate attorneys.

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