On the real estate brokerage law homefront, there's both good news and bad news. The good news for Jay J. Gurfein is business is booming. According to Gurfein, an accountant-turned litigator, brokers today are earning more than ever. The bad news for brokers is that law practices like Gurfein's are booming. "[Brokerage law] is so litigious in New York," says Gurfein, whose practice is currently 90% real estate brokerage law-based.
Recently, I spoke with Gurfein about real estate brokerage law - how it's changed over the years, the challenges real estate brokerage lawyers face and what brokers can do to stay out of the courtrooms.
NREI: What is going on today with brokerage commissions that you are in such high demand?
Jay Gurfein: That's a very good question. The marketplace in New York is absolutely booming. The deals are getting more and more complex because of the terribly high commissions. Brokers are getting cut out of certain deals.
There are three ways a broker will earn a commission: when the broker obtains a tenant for the space the landlord has vacant; when he sells a property that the landlord has available for sale; and third is when the owner hires him to refinance a mortgage that's coming due. So in those three cases, a broker will earn a commission. In the sale of the property, he will get a commission on the selling price. If it's $1 million cash, and a $3 million mortgage - the commission is on $4 million. On a lease, it's on the gross rent that the landlord charges, also many, many extras and premiums that are built in for the broker.
The broker in New York, in most cases, has no right - if someone says, "I'm not going to pay you" - to stop the sale. All he can do is let the sale go through. He wants that to happen because he wants the deal to be consummated so he can show the court ultimately there was a deal. So he doesn't want to break up the deal; he wants it to go ahead. But on the other hand, he wants to get paid. He just has to wait for the deal to go through and then sue.
Years ago, it was two to three years down the road [after a deal closed] that a case would finally come to court. Today it is much quicker because we're getting more efficient.
Regarding mortgages, there are cases where the broker is hired specifically to procure a mortgage. "Procure" is a very specific term in real estate brokerage law. Procure is when a broker brings parties together and makes a deal. The broker then becomes the "procuring cause" for that sale or that lease.
NREI: I noticed in a recently published law article, you mention "procuring cause." What are some of the difficulties in proving that the broker indeed was the procuring cause?
Gurfein: The difficulties exist because there is no statutory definition of procuring cause. Neither in the statute in New York state nor in any statute of any state is there a definition of procuring cause. And yet, it probably is the most important term that defines the whole area of real estate brokerage law.
What it really refers to is whether the broker set the wheels in motion to allow the buyer and the seller to make a deal. If he sets these wheels in motion - and he doesn't even have to be present when the deal is struck - so long as he set the chain of circumstances that allowed the parties to make their own deal.
NREI: What are some of the issues that affect brokerage law across state brokers?
Gurfein: First of all, I don't think that any other city law firm whose subject is brokerage law could make a living for four or five lawyers. In New York, there's so much happening, and the deals are so large that we're able to practice real estate brokerage law with a great deal of success.
Secondly, there is no federal law on this subject. If a real estate brokerage law case goes to federal court, it will follow the law in the state that the judge feels is most closely connected with the state. It's called the center of gravity. So, if the land is in one place and the buyer lives in one place and the seller lives in one place - and all three are in the same place - we know that even though it's in federal court, the federal court will use the law for that one state.
NREI: Is that the state in which the broker is licensed?
Gurfein: It may or it may not be. This issue can make a simple case somewhat more complicated. Suppose I were to say that the seller lives in one state, the buyer lives in another state, the land was in a third state and the broker was licensed in a fourth state?
You can see what's happening. Especially now, where we have so many multi-national deals. I have a client just down the street who sells shopping centers all over the country, but he's licensed in one state, New York. He has to pray someone doesn't stiff him in Alabama because if he goes to Alabama and performs brokerage services in Alabama, he can't go to Alabama and sue. It may be that the defendant - the seller, who he's suing for commission - lives in Alabama and has never come to New York. So, my client has to sue him in Alabama, and my client, who went to Alabama, looked at the land and then practiced brokerage services without being licensed.
So what do you think the state of Alabama will think if he comes there and sues? He is not going to collect.
NREI: How has the practice of brokerage law changed over the years?
Gurfein: The deals have become a lot larger, a lot more complex and more multi-tiered. Take, for example, the juries. Juries aren't brokers' best friend, particularly because most everyone has had a bad experience with a broker. They list their one-family house and a broker brings in 10 customers who can't come close to affording that, so they waste their time. Or someone wants to buy a house, and a broker will call and say, "Come over quick. I've got just the house for you," and it's $100,000 more than they want to pay. So everyone's gone through that.
NREI: Speaking of change, you made a career change somewhat later in life. What was that like?
Gurfein: I got out of law school very late. I started law school when I was 30. People generally start law school when they're 22, but I had worked in business for a real estate operator in New York City, and I was an accountant for him. I graduated college as an accountant, and I really didn't know that much about law - and certainly real estate law - but I was a smart kid. Before it was over, I was helping my boss at the time with his closings.
About that same time, I remember someone saying to me, "You know, you have a nice practice." I told him, "The only thing is I'm not a lawyer." So he said, "You're not a lawyer?" I said, "No, I just go around helping my boss do deals." This guy then told me I was crazy. He said I could go to New York Law School and if I went to evening classes - this was important because I had a job and a family - I could make it in a little over two years. I went home that evening, very excited, and asked myself, "Where am I going to be in two years if I don't do this?" I would have been no further along in my career.
The rest is history.
I went to New York Law School; they accepted me; and I graduated No. 1 in my class. I was the ol' timer then, though; I was 30 years old. Most of the other kids were 22. But they didn't even know what a checkbook was because they were so green, and I had all of this business experience. Not that I was smarter than them - well, maybe I was - I certainly had more experience. [The law students] called on me to help them with their problems in school, and that carried on until they became lawyers, and then they would refer business to me.
I remember I was working this one case which was a real estate brokerage case. I became an "experienced" real estate brokerage litigator with that one case, and 90% of our practice is today is litigating real estate brokerage cases.
NREI: In closing, what is the best advice you could give to a broker prior to entering a deal?
Gurfein: [A broker] may not be able to prevent [litigation] if he's got this client who's intent on cheating him or cutting his commission. I don't think he'll be able to do anything to beat that. But what he can do is plan his strategy so that if he does get involved in litigation, he's in a better position to win. Also, keep a very good paper trail - a lot of letters and documentation. Knowing the principals of law that are involved will help him strategize his position.