PROTECTING YOUR COMMISSION
This article was first published by Thomas J. Tighe, Esq. in Florida Realtor magazine.
If you’re to maintain your livelihood as a real estate broker, you must protect your commissions. Protect against what? How about buyers and sellers you bring together who proceed to avoid you and complete a transaction without paying the commission? Or individuals who employ the “squeeze” â€” a tactic in which you’re told near closing that because of problems, the transaction won’t close unless everyone compromises. This means, of course, that you’re expected to concede part of your commission.
Basic to protecting a commission, is understanding the two legal grounds for commission entitlement: holding a listing agreement or being the “procuring cause” of a transaction.
THE LISTING AGREEMENT
As we know, a listing agreement is an express, specific contract to pay a commission for a sale or lease. Such agreements are usually exclusive rights to sell or lease in a standard format. However, listing agreements can come in a wide range of guises, perhaps containing non-standard provisions or being entered into orally. (If you enter into an oral listing, be aware that it is usually necessary to have witnesses to the statements that constitute the listing if an owner disputes it.)
At first glance, it appears easy: When an owner has signed an exclusive right to sell or lease for a reasonable term with a post-listing protection period, you as broker have safeguarded your commission. However, there will not always be such a listing, held by either yourself or a co-broker, guaranteeing your commission. What if:
You represent a prospect to purchase from a commercial or residential developer that has its own marketing division?
You find a prospect for an owner who is reluctant to list?
More than one broker has dealt with your prospect regarding particular property?
THE “PROCURING CAUSE” THEORY
Listing agreements are circumvented. You might develop a transaction between a buyer and seller who wait out the expiration of the listing agreement or protection period, then close the sale without you.
In this situation, and others, the “procuring cause” theory of commission entitlement is important to protecting your commission.
What is procuring cause? Florida law provides that a real estate broker is entitled to a commission as the procuring cause of a transaction, regardless of whether or not there is a specific listing, when he or she brings the parties together and institutes continuous negotiations which lead to completion of the transaction. A broker does not have to be involved in the continuous negotiations if, after bringing the parties together, he or she is excluded from the negotiations.
Because the legal definition of procuring cause is only generally expressed, the exact parameters of commission entitlement under this theory will vary with the fact-finder (e.g., the arbitrator, judge, or jury). One case indicates that a broker can still be procuring cause of a transaction even with a lapse of up to a year between the broker’s involvement and the closing. Sheldon Greene and Associates vs. Rosinda, 475 So.2d 925 (Fla.App. DCA 31 1985). Another case states that advertisement of property may be sufficient basis for commission entitlement on the basis of procuring cause. Alcott v. Wagner & Becker, Inc., 328 So.2d 549 (Fla.App. DCA 4, 1976). Of course, the facts of each situation are crucial and should be individually compared with the caselaw.
WAYS TO PROTECT YOUR COMMISSION
In view of Florida law, the following six steps can help you protect your commission:
Verify prospect’s history with property. When showing property on which you do not have a listing, verify that the prospect has not inspected it before, either with or without another broker. If the prospect already knows about the property, it is difficult for you to be the procuring cause. Also, find out whether the prospect is acting as a “straw man,” the representative of another person or a larger group. If this is the case, problems can develop if the straw man drops out of the transaction. When you learn of this situation, notify the owner that the broker’s representation also includes the person or group behind the straw man.
Verify developer’s policies. Before showing property in a development, inquire about the developer’s commission policies and verify that your commission entitlement will be recognized.
Clarify commission obligations. When dealing with owners who will not list, be sure they understand their commission obligation. Sometimes, owners will later “understand” that their selling price did not include a commission (this is their “net” argument). At other times, non-listing owners will simplistically identify the broker’s work as assisting the buyer, not the owner, as an argument against their obligation to pay the commission. Thus, except in the rare instance when the buyer commits to pay the commission, the broker must stress to the owner that the broker is working for the owner and that standard commission arrangements apply.
Remain in touch with the transaction. Often, after buyer and seller have been introduced, they will deal through attorneys or directly. Brokers may be inclined to concentrate on new transactions, considering a particular transaction made. However, the adage “Out of sight, out of mind” applies. Continued involvement will reduce the chance that the broker’s commission will be “conveniently” forgotten.
Keep track of the property. In one of the worst scenarios, a broker may introduce buyer and seller and then be told that the negotiations have failed. Contrary to the representation, though, buyer and seller deal directly with each other and close the transaction. To prevent this scheme from succeeding, brokers should verify the ultimate disposition of all property they have shown, especially where property is valuable or their suspicions are raised.
What if the buyer disguises the purchase through a corporation or partnership? Florida law remains helpful â€” a broker may still be procuring cause when the purchase in made by a corporation or partnership in which the prospect is a principal. American United, Inc. v. Kroll Realty, Inc., 443 So.2d 217 (Fla. 4th DCA 1983). To find out whether a prospect is linked to a purchasing entity, check such information as the grantees address on the deed, the signatory on any mortgage and, if a corporation, what officers and directors have been listed with the Florida Secretary of State.
- Avoid the squeeze. What do you do if your are told after a purchase contract has been signed that the deal will fail unless you concede part of the commission. Sometimes, a broker will want to accommodate a requesting party to avoid a dispute or keep good relations. Remember, however, that after a commission is earned, without conditions, a concession on the commission amount or payment terms may be treated as without consideration, so that the concession is not binding. This means the original commission obligation can be enforced. See, for example, Cohen v. Mohawk, Inc., 137 So.2d 222 (Fla. 1962).
While this article is not meant to give brokers specific instruction on individual situations, it should generally help them enforce their commission entitlements and protect their livelihood.
Important Note: This article is for general information only and is not intended to give any specific legal advice or opinion which should be sought from an attorney. The facts of any particular situation need to be examined before deciding on a legal course of action.
Copyright Â© 2001 by Tucker Tighe P.A. All rights reserved.