Real Esate Brokers - Get it in Writing or Lose Your Commission
Real estate brokers who rely upon oral agreements or oral modifications or extensions to written brokerage agreements run the risk of losing valuable commissions.
In a 2011 Pennsylvania Superior Court case, the Court addressed the enforceability of an oral extension to a written listing agreement. The Court ultimately refused to allow a real estate broker to recover a commission from a landlord based on an oral extension to a brokerage agreement. The broker failed to comply with the Pennsylvania Real Estate Licensing and Registration Act (“RELRA”) (see 63 P.S. §§ 455.101 - 455.902) by failing to put the extension of the term of the agreement in writing.
In order for brokerage agreements to be enforceable, it is important to be aware of the RELRA requirements. The RELRA provides that brokerage agreements must be in writing and signed by all parties. The Pennsylvania Superior Court held that this requirement must be applied to extensions of original brokerage agreements as well.
In addition, a written brokerage agreement must contain the following:
1. Notice that a Real Estate Recovery Fund exists to reimburse a person who has obtained a final civil judgment against a Pennsylvania real estate licensee owing to fraud, misrepresentation or deceit in a real estate transaction and who has been unable to collect the judgment after exhausting legal and equitable remedies;
2. Notice that payments of money received by the broker on account of a sale shall be held by the broker in an escrow account pending consummation of the sale or a prior termination thereof;
3. Notice that the broker’s commission and the duration of the agreement have been determined as a result of negotiations between the broker, or a licensee employed by the broker, and the seller/landlord or buyer/tenant;
4. A description of the services to be provided and the fees to be charged;
5. Notice about the possibility that the broker or any licensee employed by the broker may provide services to more than one party in a single transaction, and an explanation of the duties owed to the other party and the fees which the broker may receive for those services;
6. Notice of the licensee’s continuing duty to disclose in a reasonably practicable period of time any conflict of interest;
7. In an agreement between a broker and a seller/landlord, a statement regarding cooperation with subagents and buyer agents, a disclosure that a buyer agent, even if compensated by the listing broker or seller/landlord, will represent the interests of the buyer/tenant and a disclosure of any potential for the broker to act as a dual agent; and
8. In an agreement between a broker and a buyer/tenant, an explanation that the broker may be compensated based upon a percentage of the purchase price, the broker’s policies regarding cooperation with listing brokers willing to pay buyer’s brokers, a disclosure that the broker, even if compensated by the listing broker or seller/landlord will represent the interests of the buyer/tenant and a disclosure of any potential for the broker to act as a dual agent.
Typically, all of the requirements above are included in standard written brokerage agreements. However, it is equally important to be aware that any extensions (or other modifications) to those agreements must be in writing signed by the parties in order for such agreements (and thus rights to commissions) to be enforceable.
