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Breach of Broker Buyer Agreement in Real Estate—How to Avoid a Legal Battle
By: R. Glenn Donaldson, Esq., Founder, Velocity Title
A high producing real estate brokerage and their agent recently came to my law firm seeking legal assistance in regard to enforcing commission compensation payment. The payment was being sought from a buyer who purchased a home from another Broker while still under a Buyer Residential Brokerage Agreement with their brokerage. The agent executed an Exclusive Buyer Residential Brokerage Agreement with the buyers and entered “zero percent (0%)” at paragraph 7(a) under “Broker Compensation.” I asked the agent why and they stated that it is their business practice, and that they usually enter zero percent (0%) or “Seller to pay per MLS” at paragraph 7(a). This situation is coming to my desk more and more frequently recently and can create a big legal problem for the brokerage attempting to collect commission compensation in situations where a buyer breaches the Agreement.
A Common Issue that Can Lead to Big Legal Problems
Many agents do not want to alarm their buyers by putting a commission compensation percentage in the Buyer Broker Agency Agreement that provides that the buyer would be obligated to pay the broker a commission. Indeed, some buyers will not sign the Buyer Brokerage Agreement where there is a provision in that Agreement that makes them liable to pay for real estate brokerage commissions. However, by putting zero (0%) percent or some other limiting language such as “Seller to pay per MLS,” the broker or agent is likely creating a legal problem—limiting their own ability to be compensated or to enforce any payment from a buyer to the broker for commission compensation. In other words, unless there are specific and unambiguous terms in the Agreement, then the Agreement may be unenforceable against a buyer.
Most brokers and agents understand that in a real estate transaction between the buyer and seller, all terms of an agreement must be in writing and that writing must be signed by the buyer and the seller to be enforceable. Maryland follows the Statute of Frauds, which simply states that in order to protect against fraudulent transfers of real estate, all real estate contracts and terms must be in writing, and that writing must be signed by the buyers and sellers of that real estate. Nothing orally agreed upon can be enforceable. For contracts that are not specifically relating to the real estate itself (for example, professional services contracts such as Brokerage Agreements with buyers and sellers) the question goes back to addressing what is agreed upon in the contract. The rule is that the Courts will first look to the specific language and terms in a contract to determine upon what the parties agreed. Oral terms can be introduced into evidence where the contract is unclear and ambiguous in some area, or the parties are in dispute about what was supposed to be in the agreement.
In this example where the real estate professional puts zero (0%) percent commission compensation to be paid by the buyer in the Buyer Brokerage Agreement, the Maryland Court would interpret that term to mean exactly what it says. Here, zero (0%) percent means that the buyer owes nothing under any circumstance to the Brokerage. Where the agent enters language such as “seller to pay per MLS” the contract is literally saying that no matter what the cause that a seller would refuse to pay the buyer broker commission, the buyers would also not have to pay anything and will owe zero to the brokerage. This is true even if the buyer breaches the Agreement and purchases a property through another brokerage without first terminating the Buyer Brokerage Agreement. As was the result in this recent case, the buyer would owe nothing as the contract’s commission compensation provision contains a specific term that is clear and unambiguous, that the buyer owes zero (0%) percent commission compensation to the Buyer Broker Agency.
The Lesson Learned to Protect Your Hard-Earned Compensation
The lesson learned here for real estate professionals is to make sure that you have included all the terms of the agreement in the documents with your buyers and sellers. Doing this protects your hard-earned compensations and fully discloses to the buyers and sellers what their responsibilities are when working with real estate professionals.
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