The first step of selling real estate is by finding the parties necessary to facilitate a sale (a seller and a buyer). A broker is often used to find these parties.
Brokers are typically hired by the sellers and paid in a commission basis. The broker’s right to payment comes from an agreement between the seller and broker called a listing, which is often governed by the state where the deal is taking place (see the case below). There are four main types of listings that provide varying levels of control to the seller and the broker:
- Open listing – Any broker can sell and the first to sell gets the commission. If the property is sold by the owner (For Sale By Owner or FSBO), then no commission is paid.
- Exclusive agency – Only brokers from an agency can sell. If a sale is facilitated without the agency, then the agency is still entitled to their commission. However, if the sale is a FSBO, the agency receives no commission.
- Exclusive right to sell agreement – Only the hired broker has the right to sale. Any sales facilitated without the broker will still entitle the broker to a commission.
- Net Listing – A seller wants to recoup a sum of a property. The broker is entitled to set the listing price higher and recover any surplus made within the sale.
Brokers Duties to Clients
Rangel v. Denny
104 So. 3d 68 (La. App. 2012).
Rangel is the plaintiff who lost and appealed. In this case, Dowling is the primary defendant.
Question
Did the plaintiff’s state a sufficient claim that the Dowling brokers failed their duty to the plaintiffs?
Rule
The duties owed by a broker include:
- Performing the terms of the brokerage agreement
- Promoting the best interest of the client by seeking transactions at a fair price, presenting the property in a timely manner, and timely accounting for the client’s finances.
- Show reasonable skill in providing brokerage services.
Holding
The plaintiff did plead sufficient facts to state a claim. Reversed and remanded.
Facts
The plaintiff Rangel had a broker agreement with Dowling where Dowling would work to sell the Rangel’s property. If Rangel found a potential buyer, they would then report that buyer to Dowling.
Rangel found a potential buyer, reported it to Dowling, and requested that Dowling draft a purchase agreement. Dowling refused (because the buyer wasn’t a client) and Rangel drafted the agreement himself. As the buyer was looking for financing, the Rangels moved to an apartment and incurred additional expenses to prepare for a larger move. Later, the buyer was unable to obtain financing and backed out of the deal.
Rangel sued both the buyer (for breach of contract) and Dowling (for breach of duty). The Rangels argued that Dowling should have produced the purchase agreement, represented an unrepresented buyer, helped the buyer find financing or alternative means of financing, and informed the Rangels not to move out.
The trial court dismissed saying that these duties were speculative of whether they actually caused Rangel’s damages.
Analysis
This is in the pleading stage. Rangel does not need to prove that these things happened yet, just that there is a potential failure of duty. According to the rule stated above, the claim set forth by Rangel would fall into the duty of the broker to promote the best interest of the client. Their failure to do so could very well be the cause of the damages.
Rowedder v. Helkenn
2009 WL 1492558 (Iowa App.)
Rowedder is the plaintiff while Preul is the defendant at issue.
Question
Did Preul breach his duty of care as a real estate agent to Rowdder?
Rule
A real estate agent needs to act in the best interest of the client, inform the client of the value of the land, and attempt to sell the land for as much as possible. If the client wishes the land to be sold at a lesser value, the agent should do some investigating to determine why the client would want the lesser value.
Holding
There is a material issue of fact that would authorize this case to go to trial. Reversed and remanded.
Facts
Rowedder is the conservator of Kral and bringing this action on his behalf. Kral inherited some farm land and sold it in four separate transactions. Each transaction consisted of a sale of 40 acres at $2,000 per acre. Preul facilitated these sales. This price was significantly below market value, and sold at that price to avoid capital gains taxes (which appears to be a poor excuse).
In reality, Kral had mental disabilities and several individuals were taking advantage of him. Rowedder was then appointed as conservator where she instigated the lawsuit against several individuals who may have taken advantage of Kral’s mental capacity.
Analysis
Expert testimony is to be provided to determine what the duty of a real estate agent is. As stated above, a real estate agent needs to act in the best interest of the client, inform the client of the value of the land, and attempt to sell the land for as much as possible. If the client wishes the land to be sold at a lesser value, the agent should do some investigating to determine why the client would want the lesser value.
Preul did not do this investigative work, did not sell the property at market value, and did not work hard to advertise the property. There is a material fact to show that there was some professional malpractice if a jury so decides.
Additional Notes
Brokers have a duty of reasonable care, diligence, and judgment to obtain the best possible outcome for their client.. These are very similar to the fiduciary duties owed that we learned in Business Associations.
Lawyers Acting as Brokers
Depending on the state, lawyers can act as brokers without a broker’s license at varying degrees of control.
In re Roth
577 A.2d 490 (N.J. 1990)
Roth lost, public reprimand was recommended, and Roth appealed.
Question
Can an attorney not licensed as a real estate broker act in the dual role as attorney and broker and be paid dual compensation?
Rule
An attorney can act as a broker without having a license if the broker actions are merely incidental. There can be no dual compensation. Additionally, if an attorney is also a licensed broker, the practices must be separate and there can be no dual compensation.
Holding
The attorney here was in violation. However, since the rule was unclear before, and the attorney acted in good faith, there is no need for discipline. Any future violations will result in discipline.
Facts
Roth was a real estate attorney and had passed the test to be a real estate salesperson, but he was not a licensed broker. His paralegal noticed a house for sale and asked Roth for help in purchasing the home at a discounted price. He agreed and said that he would accept a commission. The commission would then be gifted to the client as the price reduction. Roth talked to the seller’s broker about this as well.
Offers were made by the paralegal and all were declined. The house eventually sold for the listing price to another. The seller’s broker complained to the New Jersey Ethics Committee about the attorney and these actions proceeded.
Analysis
New Jersey has an attorney’s exception to the broker’s license. That is, the attorney can act in some capacity as a broker without having a broker’s license. The law now explains that this capacity is minor and merely incidental to the attorney’s role. Whether the attorney is receiving a commission helps determine whether the capacity is merely incidental (receiving a commission is not merely incidental). Even though the attorney here was receiving the commission to benefit his client, he exceeded his role. Additionally, had he been licensed, he still would have been in violation because the law states that there can be no dual compensation (commission as a broker and pay for attorney services).
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
