Law Review: Brokers: Get it in writing
Every real estate broker knows that he/she must have a written agreement to be paid a commission. Nevertheless occasionally brokers are too lax or too trusting to dot that “i” and cross that “t” in a written fee agreement with their principal, and should that happen, most of the time the broker loses out.
“TRUST ME, I’LL PAY”
James and Eleanor Randall told their longtime friend and business acquaintance Stephen Shapiro that they were looking to buy a home in Los Angeles. Shapiro, a licensed real estate broker, agreed to represent them, but guess what, that agreement was never put in writing.
In fact, Shapiro found a property for the Randalls to buy — a $65 million estate in the Bel Air neighborhood of Los Angeles. He put together an offer and the agents went back and forth. Finally, the Randalls canceled the offer because they were “turned off on the property.” Sure, that’s what they always say. You know what’s next.
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Three months later, the Randalls made another similar offer through their attorney acting as their broker who waived his share of the broker’s fee. The offer was accepted and escrow closed.
BROKER SUES PRINCIPAL
Shapiro did what most brokers would do. He sued his (former) friends the Randalls for breach of an implied contract and sued the Randalls’ attorney for intentional interference with an implied contract. It was implied because there is no such thing an enforceable verbal agreement for a commission, and there was no written agreement.
STATUTE OF FRAUDS DEFENSE
The Randalls defended Shapiro’s lawsuit citing Civil Code section 1624, the so-called Statute of Frauds, which makes certain types of agreements unenforceable unless they are in writing and signed by the party to be charged.
The Statute applies to “an agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate … or to procure, introduce or find a purchaser or seller of real estate …, for compensation or commission.” (The Statue of Frauds also governs real estate purchase contracts and leases for more than one year.)
Shapiro somehow managed not to have anything in writing from the Randalls authorizing payment of a commission.
The writing need not memorialize the entire agreement and can be a short note or email. The writing must unequivocally show on its face employment of the broker and agreement to pay a real estate commission. The writing would have to confirm that Shapiro was the Randall’s agent, and the purchase contract did not do so although it included a commission.
I think it was a close call whether the written, signed offers and counter offers included enough commission verbiage to entitle Shapiro to be paid a commission. This Court of Appeal concluded that reference to a commission in a purchase and sale agreement is not a written agreement sufficient to meet the Statute of Frauds: employment of Shapiro as the Randalls’ agent and agreement to pay his commission.
Shapiro argued he should have been paid because he was “procuring cause” of the sale. The Court of Appeal found Shapiro not to be procuring cause because the final price was slightly different than the offer he had presented earlier, and his offer in fact did not result in a signed contract. I question that part of the Opinion, to me Shapiro was the procuring cause; which is moot anyway because Shapiro did not have a written fee agreement.
The takeaway is clear. Get it in writing. Handshakes are for greetings, written contracts are for payment of commissions.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at firstname.lastname@example.org or http://www.portersimon.com.
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