Can a real estate licensee with an agency agreement with a buyer collect a commission on a deal with a seller who is unrepresented for sale by owner )? near XiAn, Shaanxi

From the mail bag… I received this email this past week…

Dear Paul

Here’s my story. I’ve shown a buyer over 30 houses and I’ve written 5 unsuccessful offers. All were beat out by better offers. My buyer is qualified up to 150K FHA. Its so hard to find anything for them. After all this work my buyers stopped by a random open house this weekend without me. The open agent, who was also the listing, convinced MY buyers to write an offer with her… I think I deserve at least a referral fee, but the listing agent refuses to pay. What can I do?

Sincerely… Jacob

That’s a great question… and I’ll give you 5 possible answers IN THIS VIDEO

I can’t tell you how many times in my RE career I have seen this. I have also been a victim of this as well. But… does Jacob any recourse… and the answer is yes…. And no…. and maybe…

Jacob…. UNDERSTAND the buyer can choose to use whomever they want to work, regardless of how many times you’ve shown them houses. On it’s face there are no procuring causes here. Also understand, it sounds like your buyers really want a home to buy and they certainly have had their share of disappointments. Sometimes this cause desperation… and if there faced with any glimmers of hope, buyers will many times forgo any loyalty to their agent just so they can get a house…. And that’s not a reflection on you as the agent, you’re obviously a great agent, but that’s just the reality of the today’s tight marketplace…

But I want to break this down into two parts…. First, are you entitled to any compensation AND second, are there any disciplinary options to take against the open agent

Option #1

Let’s look at the compensation aspect first…. Jacob, IF you have a signed Exclusive Buyers Agency Agreement Then yes, the fact that your buyers used another agent provides legal recourse against the s for compensation agreed to in the agreement.

To Clarify! An Exclusive Buyers Agency Agreement is NOT the Agency disclosure that licensee’s have their client sign outlining the agent’s duties and obligations under license law. This is a separate contract, not unlike a listing contract, between the broker and the buyer and its purpose is to protect the agent and the broker from exactly what happened to Jacob…

If you have no such contract, then there is no claim for any type of compensation. From the buyers or the other agent.

Also keep in mind, since the Buyers Exclusive Agency Agreement is technically between the broker and the buyer, only the broker can bring any legal action or against the buyer if there’s an agreement in place. So, Jacob will need to have that discussion with his broker about taking any legal action

Option #2

What about filing a complaint against the open agent with the Nebraska Real Estate Commission (NREC)?

From a license law perspective, Jacob MAY have an actionable complaint with the real estate commission against the open agent. I say “may” have. I spoke to Greg Lemon director of the NREC and UNLIKE LISTING AGREEMENTS, he indicated there are no specific prohibitions in statute or precedent about poaching other agents clients who are under an Exclusive Buyers Agency Agreement. But depending on the fact pattern, there certainly could be other violations.

For example, in Jacobs case, his buyers went to an open house. If the open agent made any kind of statements such as “’Buyers Exclusive Agency Agreements aren’t enforceable” or “No worries, courts don’t like these agreements” or “Don’t worry Buyer agreements are not worth the paper they are written on.” Something like that, there would certainly be potential violations.

So, it really depends on the facts of the individual situation.

Option #3

In Jacobs case, if the open agent is a member of the National Association of REALTORS, Jacob may have recourse through the ethics process. Let me explain using a few possible scenarios:

The Realtors Code of Ethics Standard of Practice 15-2 says:

[Realtors have] The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means. (Adopted 1/07, Amended 1/12)

In Jacobs example, IF the Open agent had known that the buyers were working with an agent, AND the open agent made a false statement about the buyer’s agent, such as, “you’d be better off allowing me to write up an offer, because the agent you’ve been working with is has been sued several times by his previous clients,” or makes some other disparaging, false or misleading comments. There would be grounds to file an ethics complaint under Standards of practice 15-2.

Option #4

Standard of Practice 16-9 says,

Realtors®, PRIOR to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service. (Amended 1/04)

Standard of Practice 16-13 goes on to say,

Before providing substantive services (such as writing a purchase offer or presenting a CMA) to prospects, Realtors® shall ask prospects whether they are a party to any exclusive representation agreement. Realtors® shall not knowingly provide substantive services concerning a prospective transaction to prospects who are parties to exclusive representation agreements, except with the consent of the prospects’ exclusive representatives or at the direction of prospects. (Adopted 1/93, Amended 1/04)

This means, the open agents is obligated under this Standard of Practice to:

(1) ask the buyer about any potential Buyer Exclusive Agency Agreements they may have sign with another agent, and

(2) not conduct business with a prospect who is bound by the terms of a Buyers Exclusive agency agreement, unless it falls under one of the two exceptions.

Option #5

It’s happened to the best of us! I know it sucks but suck it up, move on to fight another day!

MY Recommendation

For all you agents working especially in tight market where there is low inventory and your buyers fall into that 1st time homebuyer price range and they have challenging financing such as FHA. Have your buyers sign an Exclusive Buyers Agency Agreement before committing to them. Be open and honest with them as to why.

Its really the only way to protect your interest against the very situation we discussed in this video.

CONCLUSION

That’s all I have for todays video. If you have any questions or comments about todays topic… leave a comment below. If you have a situation, you’d like me to opine on, or you have a suggestion for a video topic, drop me an email:

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Suits to enforce payment of real estate commissions generally turn on the presence or absence of a signed agreement providing for the commission.

PLAIN LANGUAGE OF THE TEXAS REAL ESTATE LICENSE ACT

The Texas Real Estate License Act (“RELA”) statute of frauds provision in section 1101.806(c) of the Texas Occupations Code states:

A person may not maintain an action in this state to recover a commission for the sale or purchase of real estate unless the promise or agreement on which the action is based, or a memorandum, is in writing and signed by the party against whom the action is brought or by a person authorized by that party to sign the document.

TEX. OCC. CODE ANN. § 1101.806(c); see also Tex. Builders v. Keller, 928 S.W.2d 479, 481 (Tex. 1996) (“A real estate broker may not sue for a commission unless the agreement is evidenced by a writing complying with the Real Estate License Act.”).

“The [l]egislature was quite explicit: a broker may not recover a commission unless the commission agreement is in writing and signed by the party to be charged.” Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 635 (Tex. 1997). Therefore, courts have required strict compliance with RELA and held an “agreement to pay a real estate commission must be in writing or it is not enforceable.” Brice v. Eastin, 691 S.W.2d 54, 57 (Tex. App.—San Antonio 1985, no writ); see also Harkinson, 944 S.W.2d at 637 (holding Texas courts strictly adhere to RELA’s statute of frauds requirements).

“To comply with this section, an agreement or memorandum must:

be in writing and must be signed by the person to be charged with the commission;
promise that a definite commission will be paid, or must refer to a written commission schedule;
state the name of the broker to whom the commission is to be paid; and
either itself or by reference to some other existing writing, identify with reasonable certainty the land to be conveyed.”

Lathem v. Kruse, 290 S.W.3d 922, 925 (Tex. App.—Dallas 2009, no pet.); see also Levenson v. Alpert, 399 S.W.2d 955, 956 (Tex. App.—San Antonio 1966, no writ) (holding same requirements to comply with section 1101.806(c)’s predecessor statute). “The essential elements of a commission agreement cannot be supplied by parol evidence.” Boyert v. Tauber, 834 S.W.2d 60, 62 (Tex. 1992).

PROOF REQUIRED TO DEFEAT A COMMISSION CLAIM IN THE ABSENCE OF A WRITING

A party resisting a suit to collect a commission based on section 1101.806(c) must prove:

the plaintiff’s suit is for the recovery of a commission for the sale or purchase of real estate, and
the defendant signed no written promise, agreement, or memorandum to pay a commission.

See TEX. OCC. CODE ANN. § 1101.806(c); Neary v. Mikob Props., Inc., 340 S.W.3d 578, 584 (Tex. App.—Dallas 2011, no pet.); McKellar v. Marsac, 778 S.W.2d 573, 576 (Tex. App.—Houston [1st Dist.] 1989, no writ).

Thus, “[a] seller may defeat a claim seeking payment of a real estate commission by establishing that the seller did not sign an agreement to pay the commission.” NLD, Inc. v. Huang, 615 S.W.3d 444, 450 (Tex. App.—Houston [1st Dist.] 2019, pet. denied).

ALTERNATE THEORIES OF COLLECTION ALSO FAIL WHERE THERE IS NO WRITTEN COMMISSION AGREEMENT

“When RELA applies and its requirements are not met, courts have denied recovery when fraud, conspiracy, deceit, quantum meruit[, promissory estoppel,] and breach of contract have been pleaded.” Lathem, 290 S.W.3d at 925; Harkinson, 944 S.W.2d at 636–37 (holding failure to satisfy requirements of RELA’s statute of frauds provision bars recovery under a claim for promissory estoppel); see also Frady v. May, 23 S.W.3d 558, 562 (Tex. App.—Fort Worth 2000, pet. denied) (“RELA bars actions in both contract and tort for recovery of a real estate commission that does not comply with its requirements that the agreement or promise to pay a commission be in writing.” (citing Harkinson, 944 S.W.2d at 636–37)).

In some types of cases, a party is able to defeat the statute of frauds (and recover even though there is no written agreement) because their claim falls within the partial performance exception.

“The doctrine of part[ial] performance, under the general statute [of frauds], developed as a protection to a purchaser of land who, in reliance upon an oral contract, paid consideration, took possession of the realty and/or made valuable improvements upon the land.” Id.; see also Myer v. Kitano, No. 93-1787, 1994 WL 83429, at *3 (5th Cir. 1994) (not for publication) (“In general, the doctrine of part[ial] performance shields contracts for the sale of real estate from invalidation under the [s]tatute of [f]rauds, if certain requirements are satisfied.”).

However, Texas Courts have held that the doctrine of partial performance does not apply to RELA brokerage commission contracts because the equitable justifications for the exception to the general statute of frauds “are not present in the context of brokers . . . licensed to practice real estate.” Brice, 691 S.W.2d at 57; see also Harkinson, 944 S.W.2d at 636 (reaffirming “the doctrine of partial performance would not render [a brokerage commission] agreement enforceable” when it failed to comply with RELA’s statute of frauds provision); see also Myer, 1994 WL 83429, at *3 (“The applicability of the part[ial] performance doctrine to TRELA brokerage commission contracts is doubtful . . . .”)

“Allowing a broker to recover on the ground of his performance alone would permit enforcement of any commission agreement fully performed by the broker whether or not it complies with [RELA’s statute of frauds provision].” Boyert, 834 S.W.2d at 64; see also Carmack, 701 S.W.2d at 41 (“We do not hold that a broker’s full performance alone is sufficient to take a commission agreement out of [RELA’s statute of frauds provision] because such a construction would nullify the statute.”). “This would be in direct opposition to the expressed will of the legislature and would unduly expose the public to fraudulent claims for commissions.” Boyert, 834 S.W.2d at 64; see also Harkinson, 944 S.W.2d at 635 (“The [l]egislature was quite explicit: a broker may not recover a commission unless the commission agreement is in writing and signed by the party to be charged.”). Further, the Texas Supreme Court disfavors exceptions to RELA’s statute of frauds provision and has “consistently . . . refused to erode [RELA’s statute of frauds provision] with the same exceptions as may render oral contracts within the general statute of frauds enforceable.” Harkinson, 944 S.W.2d at 636.