Assessing advance commission payouts

From The Real Deal

NEW YORK CITY — Recent attempts by Extell Development to recover commissions it paid to brokers after condos at the Lucida on the Upper East Side failed to close are having a ripple effect in the industry.

Indeed, it’s not just the brokers in Extell’s crosshairs who are worried that the advance commissions they received years ago (and in many cases spent) are now in jeopardy.

During the real estate boom, when it was the norm for developers to presell units before construction was finished, it often took up to two years from contract signing to closing. As a result, many developers offered a percentage of the sales commission to agents before closing as an incentive to bring clients to their developments.