Special Legal Considerations for Real Estate Brokers

Transactions involving the sale of real estate have certain considerations regarding the earning of sales commissions by real estate brokers. These should all be considered during the typical course of events that real estate brokers involve themselves when showing properties. While individual states have specific laws established to provide brokers guidance on sales commission issues, nonetheless, there are certain universal guidelines with which brokers should familiarize themselves.

The "causing the sale" issue is one of the most common potential points of legal conflict. Namely, what events leading to the sale must the broker effectuate to get credit for causing the sale to occur and thereby earning the commission? Most states recognize that it is not enough that the broker planted the seed of the sale in the buyer's mind. He or she had to be the cause in fact of the sale. Therefore, in deciding this issue courts will look to actions such as bringing the buyer and seller together for the purpose of looking at the property; discussing the buyer's concerns with the seller; participation in the financing activity; strong involvement in the negotiations; participation in the property's inspection or "walk through".

The Courts will also review when the events performed by the broker occurred. To be relevant for the broker's commission's claim, they must have occurred while the broker was in the employ of the principle. Hence, if a real estate broker is considering transitioning to another real estate company, he or she should take an inventory of where that broker is with respect to securing sales commitments. It's not uncommon for broker one to accomplish many steps along the sales process, but not be in fact that legal cause for the sale. After that broker leaves the company, a second broker may only have to complete several phone calls involving the sale price negotiation, to get credit for the sale and earn the commission.

In many states, it's not necessary for the property to go to closing for the real estate broker to earn the commission. Maryland, for example has a statute protecting real estate brokers that entitles the broker to the commission when the contract of sale is accepted by the broker's employer, regardless of whether the closing occurs or falls through, unless the broker prevented, hindered or delayed the closing.

A State Judge in a recent Missouri case, Byrd v. Wilson Trust, 182 S.W.3d 701 (Jan. 24, 2006) awarded the real estate commission to an auctioneer who sold real estate for a trust, even though the properties' buyer stopped payment on his down payment check, when he learned that the property had been destroyed after the auction, but before closing. The Missouri Court applied that state's law that an agent or broker is entitled to his commission once he has produced a purchaser ready, willing and able to buy on the terms proposed by the vendor." The Court further defined the requirements to earn the commission when a purchaser is willing to buy on the seller's terms or on terms agreeable to the seller.

However, certain states permit brokers to waive statutory protections by signing contracts to the contrary. Therefore, it's quite important to have the employment or commission contract reviewed by an attorney prior to the broker making a career move.

Another area of potential legal dispute arises when the broker suspects that the seller took advantage of the broker's efforts to introduce and procure buyers, then terminated the broker's services and completed the sale himself. A sale executed by the property's owner does not necessarily disentitle broker to commissions if evidence shows the broker procured purchasers. Some property owners after obtaining potential purchasers through the broker deal privately with the purchasers so as to cut off the broker's commission by consummating a sale at a price lower than that at which they have authorized the broker to sell. In such case, many Courts will permit the jury to draw an inference that the broker was in fact the procuring cause and that the owner's refusal to accept the offer submitted was a subterfuge to avoid payment of commissions which the broker had fairly earned.

A seller's best defense to paying an earned real estate commission may have nothing to do with the transaction. Many states will negate a real estate broker's commission claim if that broker did not possess the proper license or licenses necessary to complete the transaction. As such, brokers should take every precaution to protect their licenses.

There are several things that real estate brokers can do to give themselves the litigation advantage while in the employ of a sales principle or employer. First, try to get as many agreements or understandings for the payment of commissions in writing. Then have those documents drawn up by an attorney, even one behind the scenes, and presented to the company for signature. Second, brokers should keep daily journals of efforts made to close a sale. These should be kept electronically and in hard copy. Third, all documents, receipts, emails, etc. demonstrating evidence of a broker's involvement in the sale should be maintained. Finally, if a broker is contemplating a career move, it's vital for the broker to have any written employment or sales commission contract reviewed by an attorney, who along with the broker can devise an exit strategy that will maximize the broker's future commissions while still employed for the company or seller.

About the Author:

Morris E. Fischer, Esq., is an employment attorney who concentrates his practice in the area of unpaid sales commissions. Mr. Fischer is the C.E.O., of "Contracts & Commissions, LLC," a company dedicated to preserving the legal rights of sales representatives. He is licensed to practice law in the states of Maryland, New York and the District of Columbia and admitted to ten federal courts, including the Supreme Court of the United States. To learn more about the company, go to www.contractsandcommissions.com.

This article is not meant to provide legal advice for any given situation. Readers must retain qualified attorneys to protect their legal rights after carefully reviewing the facts of specific cases