If one intends to buy or sell land in Maryland, or lease Maryland property one owns, a broker will probably be retained for the transaction. In Maryland, a person must be licensed in order to be compensated for real estate brokerage services. The services for which a license is required include any assistance, for pay, in selling, buying, exchanging, or leasing any real estate. Since the area is heavily regulated, one should understand the Maryland requirements before contracting for these services.
Although most brokers enter into written listing agreements or written fee agreements, Maryland courts find that oral agreements are enforceable as well. The employment of a broker for specified services may be implied from the conduct of parties, or the owner may ratify the acts of a party acting as a broker, thereby confirming the broker's expected oral employment. Commissions, in those instances, are imposed under the broker laws, which prescribe the payment terms to be used in the absence of a written agreement to the contrary. Therefore, it is strongly recommended that anyone who wants to hire or use a licensed broker for a real estate transaction in Maryland, or who is concerned about when and whether fees accrue, clarify the listing agreement or fee terms in writing.
A listing agreement should specify what the broker is to be paid for, and when the commission is deemed earned: for instance, in a sales listing agreement, the commission should be stated to be earned when the sale closes, and in a leasing listing agreement, to be earned when the tenant actually occupies the space and first pays rent. Other owner protections that should be contained include the retention by the owner of the right to market its property on its own, the absolute right of the owner to reject a contract or a lease, and a termination provision that specifies the parameters for paying commissions for prospects identified prior to the termination. The listing agreement should also detail the broker's obligations to the owner, such as confirmation that the broker is licensed, the broker's use of its best efforts on the owner's behalf, the level of ability and training the broker's employees assigned for the project, whether some specific employee will be assigned, and periodic reporting requirements.
Customarily in Maryland, brokers seek certain protections under listing agreements, including exclusivity as to the retained broker, availability of an onsite marketing area, payment of marketing expenses, and protection of the broker for prospects who have been identified by the broker at the time of any termination.
Written fee agreements recognize the purchaser's or tenant's broker, after the sale or lease prospect is identified and negotiations have begun. As in other jurisdictions, in Maryland the fees for the purchaser/tenant's broker are co-opted with the owner's broker. The fee agreement, for the owner's protection, should specify when the commission is deemed earned and/or paid (the first rental payment after occupancy vs. the execution of the lease), specify the actual fee or a formula for payment, detailing inclusions and exclusions from the calculation, and the invoicing procedure.
If the agreement provides for pay-ment to an out-of-state broker (i.e., not licensed in Maryland), or is with an unlicensed broker (i.e., not licensed anywhere), and it relates to Maryland real estate, it is invalid by statute. An out-of-state or unlicensed broker can-not bring an action against the owner of the real estate for the payment of the fees. In addition, the out-of-state or unlicensed broker may be subject to civil and criminal penalties for acting without the license. These rules apply to not only the owner's broker, but also to a co-opting broker.
An exception to the "no license, no payment" rule is the division of co-opting fees with an individual who is licensed in another jurisdiction, if the other jurisdiction permits licensed brokers to divide fees. In those instances, the out-of-state broker can receive a co-opt fee, but cannot act as the sole broker for an owner of Maryland property. If the owner of Maryland property has retained an out-of-state broker, without having retained anyone local to perform brokerage services, there may be methods of paying the fees, if the owner chooses to do so, including association by the out-of-state broker with licensed Maryland firms, or the reimbursement for consulting fees paid in the state of licensing, although the legality of these methods has not yet been tested in a Maryland court.
For more information on this article, contact Theresa B. Shea at 410/752-9755.