Can a Real Estate Agent Sue for Commission? (2022)

Can a Real Estate Agent Sue for Commission? (1)

My mentor and former PAR legal counsel, the late Tom Caldwell, used to caution brokers intent on suing clients for fees by asking that. The clear message is that when you sue for a fee, the client is going to bite by claiming that no fee was owed because of the malpractice committed by the broker or salesperson.

I represent brokers who sue for their fees and the defenses always include claims of malpractice. It is true that my clients win most of these cases, though the only credit I lay claim to is that I am selective about the cases I take. The reasons for success, however, I attribute to my clients. In this article, I’ll present several tips for success. I could drag the list out to 15 or 20 tips beginning with don’t accept a jerk for a client, but I’d rather provide you with the core. While these tips work regardless of your representing a buyer, seller, landlord or tenant, I’ll provide a context from a case I most recently resolved.

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Can a Real Estate Agent Sue for Commission?

In a prior case, the broker was the buyer’s agent for a married couple seeking a new home. The wife was an in-house lawyer for a retail chain and the husband an engineer. They signed a standard buyer agency agreement. During the course of his efforts, the broker wrote an offer that did not result in a signed agreement of sale. He continued to identify properties, but ultimately, the buyers went dark and ceased communicating with him. He doubled his effort to solicit a response. Eventually, he reached the wife by telephone. She reluctantly revealed that she and her husband had purchased a home, but that she would consider hiring the broker to list her former home for sale.

My client was far from delighted by her “generous” offer and told her that he expected her to pay his commission. While that call ended abruptly, the wife replied with an email several days later. She said she and her husband owed no fee because the broker was “not the procuring cause of the sale.” At this point I was engaged, and suit was filed. The complaint was less than three full pages and consisted of about 15 enumerated paragraphs and an exhibit, the executed buyer agency contract. The amount sought was the percentage fee recited in the buyer agency contract multiplied by the purchase price of the home the buyers bought during the term of that buyer agency contract. In our case, the fee came to $19,500.

The answer to the complaint included the affirmative defense of malpractice: The buyers alleged that the broker failed to make a continuous and good faith effort to find a property for the buyers as required by the Real Estate Licensing and Registration Act. To allay what little suspense there may be, my client prevailed. We moved quickly to get this matter on a trial list (believe it or not it happened within months) and on the eve of trial, the defendants agreed to pay $15,000 and it was accepted.

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Why did my client prevail? Consider the following.

1. First, my client had a nearly perfect file.

He had a fully executed buyer agency agreement. If your client bails on you and you don’t have an executed agency agreement, forget it. Further, he had every email and text from his first meeting with the buyers to the last exchange. No impartial judge or jury could reasonably conclude from the string of email that the broker abandoned his clients. Every step taken by the broker was memorialized by email to his buyers reciting their most recent telephone conversation or what his recent research had revealed. It easily demonstrated that it was they who had abandoned him.

Take any risk reduction seminar and something will be said of the importance of maintaining a file and corroborating and confirming all actions and discussions by mail or email. Usually, it’s suggested that this will assist in the defense of any malpractice claim should it be asserted. A good, comprehensive file also will enable you to recover a fee when your client breaches his or her contract with you.

2. Second, pursue the claim and march steadily to trial.

Engage counsel who know license law and the standards of practice of real estate brokers and salespersons. Don’t assume that every real estate lawyer knows anything about how brokers work, their duty or how they get paid.

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These files don’t have to be over litigated. When the amount in controversy is less than $50,000, the case will first be heard by arbitrators in the court of common pleas of the county where suit is filed. I take limited discovery to assure I have every document that might be asserted as a defense, I don’t take depositions because I’ll get the testimony at the arbitration and can have it recorded there by a stenographer for use if the case is appealed to a trial before a judge and jury. Discuss these matters with your counsel and keep in mind that your claim is for a liquidated amount (an amount certain). A realistic projection of costs and taking measures by which they are reasonably limited will assure that your net recovery is good. Unfortunately, no matter how efficient your attorney is, the other side can delay, obfuscate and over-litigate.

3. Third, the broker was first to demand payment, not me, his attorney.

To be clear, I am not suggesting that you don’t engage counsel before demanding payment. I have found, however, that when the broker makes his or her demand directly to the client, the client will respond. If I write a letter of demand, the response will be from an attorney whose words I can’t use as evidence in court.

In our example, the buyers’ first response was that the broker was not the procuring cause of the sale. Of course not, the buyers had abandoned their broker and did not give him the chance to put them in a property. This defense was dropped and in the answer to the complaint it was replaced by the defense that the broker committed malpractice by abandoning his buyer clients thereby justifying their non-payment.

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This change in the defense would make good fodder for cross-examination. Don’t most people who have a legitimate reason for non-payment know that reason? Here it was evident that the buyers were searching for a pretext and the original procuring cause defense was put together before they engaged counsel who realized it was a losing argument. Again, if I had been the first to demand payment, the matter would have gone straight to counsel and we wouldn’t have had this switch in defenses that made buyers look particularly weak. I don’t encourage self-representation but a simple request for payment might be reasonable coming from you, the broker. This too is a matter for discussion with your counsel.

So, Can a Broker Sue for Commission?

My experience suggests that brokers are generally successful in recovering fees that have been earned. That judges and juries favor clients over their real estate brokers is not true in my experience, especially for those brokers who maintain good files and can establish that they provided the services that a reasonable prudent licensee is to provide.

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Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

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FAQs

Do I have to pay estate agent fees if buyer pulls out? ›

Most agents do not tend to charge a seller if the buyer pulls out, unlike industries where you have to pay for a service – estate agents do all the leg work and only get paid once the property is successfully sold,” says Jo McIntyre. “Some agents do charge for marketing material and some even charge an 'up-front' fee.

Can you sue an estate agent for misrepresentation? ›

You can sue the seller for misrepresentation if they have missold the property and you have suffered detriment as a result. In extreme cases, where awarding damages would be insufficient compensation, the court may order rescission of contract.

Can I change estate agents when selling a house? ›

In brief, that means you can't list your house with another agent until the end of that exclusive period (or if you do, you'll still be liable to pay your original agent their fee upon sale – even if the sale didn't go through them). If you're stuck with an exclusivity clause, there's not a lot you can do immediately.

How can I cancel my estate agent contract? ›

An estate agent's contract termination letter is a way for you to formally bring the contract to an end. A lot depends on the type of sales contract that you will have signed and whether you need to pay any fees when leaving. Usually, you can pull out of a contract without having to pay the agent any money.

What is gazumping in real estate? ›

Gazumping occurs when an agent or seller accepts an offer you make to buy a property at an agreed price but the property is sold to someone else. This usually happens when the vendor sells the property for a higher amount.

Can you pull out after offer accepted? ›

While an offer may be formally agreed between buyer and seller, it is not legally binding on either party until contracts have been exchanged. However, because Exchange happens right at the end of the process, this means that they can change their mind and pull out of the sale at any time, for any reason.

What are the 3 types of misrepresentation? ›

There are three types of misrepresentations—innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation—all of which have varying remedies.

What can I sue an estate agent for? ›

Claims Against Estate Agents, What can I claim for?
  • Negligently drafted a property's particulars of sale;
  • Negligently offered a property for sale at an incorrect value;
  • Negligently failed to provide continuing advice in the context of a changing property market;
  • Negligently made errors in their role as a letting agent.

What is an example of misrepresentation in real estate? ›

What are some examples of misrepresentation in real estate? One example of misrepresentation in real estate is marketing a rental property as new, despite its being occupied for years. Another example is selling a piece of property with an undiscovered defect, e.g. a leaking roof.

Are you allowed 2 estate agents? ›

You can have one, two estate agents or more agents working for you. The options are called: sole agent or sole agency agreement. joint sole agents or joint sole agency agreement.

Can you have two estate agents? ›

If you appoint two estate agents to act together for you in selling the property, this is known as 'joint agency' or 'joint sole agency'. A joint sole agency contract is where the estate agents involved share the commission when the property is sold regardless of which estate agent actually finds the buyer.

Is it a good idea to change estate agents? ›

The main benefits of changing estate agents to sell your property are: Better relationship. If your relationship with your agent breaks down, they're not communicating well with you, or worse – they begin avoiding your calls or messages – it's going to be very difficult for you to continue working with them.

Is an estate agent contract legally binding? ›

You must sign a legally binding contract with an estate agent if you use one to sell your home. You must stick to the terms of the contract or you could be taken to court. Estate agents must also treat buyers fairly. They must show any offers promptly and in writing to the person selling the house.

How long are most real estate agent contracts? ›

Common Time Frames

Some of the most common lengths of time for listings include 30-day, 90-day, six-month and one-year listing contracts.

What do you do if you are not happy with your estate agent? ›

One of the first things you should do is talk to your estate agent. Clear and open communication will be helpful both ways. Sharing your concerns, asking for their advice and opinion on why your house isn't selling should be your first port of call.

Can a seller accept two offers? ›

Sellers can accept the “best” offer; they can inform all potential purchasers that other offers are “on the table”; they can “counter” one offer while putting the other offers to the side awaiting a decision on the counter-offer; or they can “counter” one offer and reject the others.

Can a seller change their mind after accepting an offer? ›

Yes. A seller can back out of an accepted offer or before closing, as long as there are no specific clauses that state otherwise. That being said, whether or not a seller can back out of a contingent offer depends on the contract that was written and what is mentioned in it.

What happens if a seller changes their mind? ›

If a seller changes their mind, they may use an unfulfilled contingency or cancelation clause written into the contract to back out of a contract. However, if no such legal loopholes exist and the seller cancels, you might be able to collect monetary damages from them.

Can seller increase price after offer accepted? ›

Yes, it is legal and quite common, especially if the survey of the property reveals extensive damage, to negotiate a house price after an offer has been accepted.

Can you sue if house sale falls through? ›

If the buyer pulls out of the sale after contracts were exchanged, you can sue them for any loss this causes you and you may be able to keep the deposit. You will need to get legal advice.

Can a seller ask for more money after accepting an offer? ›

No. Typically, when a seller wants to back out of a contract, it's because the house appraised much higher than the offer and the seller wants a do-over. Unfortunately, at that point, you'd be legally obligated to go through with the under-contract buyer.

How do you prove misrepresentation? ›

(1) The defendant made a false representation of a past or existing material fact susceptible of knowledge. (2) The defendant did so knowing the representation was false, or without knowing whether it was true or false. (3) The defendant intended to induce the plaintiff to act in reliance on that representation.

What is an example of negligent misrepresentation? ›

An example of negligent misrepresentation would be a seller of a rental property in which the seller has never lived or spent any time, yet tells a buyer, “the roof on this home doesn't leak,” when in actuality, the roof does leak. Not having lived there, the seller doesn't know the roof leaks.

What is positive misrepresentation in real estate? ›

There are four elements to positive misrepresentation: a false statement must have been made, the person stating it (e.g., the agent) must have known the statement to be false, and another person (e.g., a principal) must have relied on and been harmed by the misstatement.

Can estate agent be sued? ›

Misleading information, misrepresentation and over- or under- valuations are some of the most common reasons clients proceed with negligence litigation against estate agents.

Who is liable landlord or agent? ›

The principal / landlord is liable for EVERYTHING done by the agent – so long as this comes within the ambit of his 'ostentsible authority'.

Can you sue letting agent for negligence? ›

In order to prove professional negligence on the part of an estate agent, you'll need to be able to demonstrate three things: That your estate agent owed you a duty of care. That the estate agent breached that duty of care. That their negligence resulted in financial loss to yourself.

What are three common forms of real estate dishonesty? ›

What Are the Common Types of Real Estate Fraud?
  • Value Fraud. Value fraud occurs when a seller provides a buyer with false information about the real estate property's actual value. ...
  • Mortgage Fraud. ...
  • Title Fraud. ...
  • Foreclosure Fraud. ...
  • Syndicator Fraud. ...
  • Avoid Rushing. ...
  • Conduct a Thorough Investigation. ...
  • Get an Appraisal.
24 Mar 2021

What is an example of false representation? ›

Examples of fraud by false representation include: Selling an item under false pretences: i.e. claiming a gemstone is a diamond when in fact it is cubic zirconia. Using a credit card that does not belong to you to make a purchase. Lying on an application form: i.e. overstating your income to gain a mortgage.

What is considered misrepresentation? ›

Primary tabs. A misrepresentation is a false or misleading statement or a material omission which renders other statements misleading, with intent to deceive. Misrepresentation is one the elements of common law fraud, and other causes of action for fraud, such as securities fraud.

What are sole selling rights? ›

Sole selling rights agency

This is an arrangement where a single estate agent is appointed to market a property for sale. That estate agent will be entitled to its fee if there is any disposal of the property while the agent's agreement is in force, regardless of who found the buyer or had negotiations with them.

How many valuations should I get? ›

So: how many house valuations should you get? Ideally, it's best to arrange at least three. This should serve to counteract any biases involved in each survey and help you to find an average value that you can trust.

What is a sole agency fee? ›

Sole agency means the estate agent is the only agent with the right to sell your home during the term of the contract but if you find a buyer yourself, you don't have to pay the estate agent fees.

What do you have to declare when selling a house? ›

What must you declare when selling a property? Major problems found in previous surveys (e.g. subsidence, problems with the roof etc.) Crime rates in the area (e.g. neighbourhood burglaries, murders etc.) Location of the house (e.g. is it near a flight path or near a motorway?)

What happens when you sell your house for a profit? ›

What happens to equity when you sell your house? When you sell your home, the buyer's funds pay your mortgage lender and cover transaction costs. The remaining amount becomes your profit. That money can be used for anything, but many buyers use it as a down payment for their new home.

Why do people use two estate agents? ›

The real question is why would you want to? Two agents are usually employed either because one agent has failed to secure a sale or because another promises you they have a buyer waiting.

Can I cancel estate agent contract within 14 days? ›

The time in which a client has the right to cancel, known as the “cooling-off” period, is 14 days from the day the contract is entered into providing the client is made aware of their right to cancel. This is where many estate agents come unstuck.

Can I take my property off the market? ›

Whilst you can ask the seller to take the property off the market, it is the seller's choice as to whether or not to continue to market the property. Sellers can be more reluctant to remove the property from sale if they think the buyer is not in a solid, proceedable position.

Do you have to give estate agents notice? ›

Most estate agents require a notice period of around two weeks, which gives them a chance to have one last push and help you to find a buyer. Others may go in the opposite direction and remove your property from sale and cancel any upcoming viewings and appointments.

Do I have to pay estate agent if I pull out of sale? ›

A If you withdraw from a sale, it is normal to be charged to cover the costs – such as advertising – that an agent has already incurred. And it is also normal to have to pay some or all of the estate agent's commission but only if the contract you signed contained a “ready, willing and able purchaser” clause.

Can you change your mind after signing a contract to sell your house? ›

No one can force you to sell a home. But if you have already signed a contract with an agent and then changed your mind, you cannot sell the property for the time mentioned in the agreement. Yes, your property will be withdrawn from the listings, but that does not free you from the contract.

Do agents have to present all offers? ›

Legally, agents in NSW are allowed to disclose current offers to any other potential buyers. Agents are required to inform the seller of all offers made to purchase the property, but there is no law to prohibit the disclosure of offers to potential buyers.

What is the most common reason a home fails to sell? ›

overpricing. The most common reason a home fails to sell is: It requires a mortgage for validity.

What is the most widely used agreement in real estate? ›

An exclusive right to sell listing is the most widely-used listing agreement. Under this agreement, the broker has the exclusive right to market the property for a specified period of time.

Is a 90 day close too long? ›

You can schedule the closing at any time as long as it falls within the 30 to 90 days you have to close. Just be aware that if you schedule too close to the deadline and something delays the closing, you might not be able to reschedule before the commitment expires.

What can I sue an estate agent for? ›

Claims Against Estate Agents, What can I claim for?
  • Negligently drafted a property's particulars of sale;
  • Negligently offered a property for sale at an incorrect value;
  • Negligently failed to provide continuing advice in the context of a changing property market;
  • Negligently made errors in their role as a letting agent.

How long do you have to stay with an estate agent? ›

Estate agents must give clients 14 days in which they can change their mind about instructing them to sell the property without incurring a penalty. The 14 day period begins from the day the contract has been entered into.

What rules must estate agents follow? ›

They must pass on all offers all the way up to contracts being exchanged and the sale is finalised. Estate agents must inform sellers of offers in writing – either letter, email, or fax – and they must be passed on promptly from the offer being made.

What happens if a buyer pulls out of a house sale? ›

A buyer can pull out of a house sale after contracts have been exchanged, but there are legal and financial consequences to this. If a buyer pulls out of a house sale after contracts have been exchanged, they will forfeit their deposit and may be liable for other costs incurred by the seller.

Who pays solicitor fees when buyer pulls out? ›

Unfortunately, you're liable to pay…

That's one of the things about selling a house. You're obligated to pay your legal fees. Depending on what stage your sales process is through, the conveyance and sale will determine how much the solicitor will charge you. It applies to every seller and buyer.

What happens if a buyer pulls out before exchange of contracts? ›

The buyer will not only forfeit their deposit but they will also be liable for any other costs that are incurred by the seller. In the event that your buyer does pull out before the exchange of contracts, it may be worth contacting your estate agent or solicitor to find out the reasons behind the sale falling through.

What happens if you pull out of buying a house? ›

If you pull out of the sale after the contracts are exchanged, you'll be breaking a legally-binding contract and will have to foot the bill for some hefty penalties; even if you're backing out for reasons beyond your control. You'll also lose any money you've spent on surveys, advisor fees, mortgage fees and so on.

At what point is it too late to back out of buying a house? ›

The Truth In Lending Act protects "right to rescind" or "right to cancel" until midnight of the third business day after credit transaction. Buying a house is not a simple transaction -- make sure you have the advice of an experienced real estate attorney before purchasing your next home.

How late can a house buyer pull out? ›

You can pull out of a house sale at any point up until the exchange of contracts. Once you have exchanged contracts, then you have entered into a legally binding contract that will mean you are subject to its terms.

Can I change my mind about selling my house? ›

Signing a contract to sell a home, you see, shows clear intent and is a legally binding pact between you and the homebuyer. Obviously, you would be in default and leave yourself in a legally vulnerable position. That doesn't mean, however, you can't handle this the old-fashioned way: Buy yourself out of it.

Can I sue if my house sale falls through? ›

How to recoup charges if your house sale falls through. Unless you have exchanged contracts, you have no legal recourse to recoup your costs from the buyer or seller, as there is no formal contract in place until this point.

Do estate agents charge if sale falls through? ›

A If you withdraw from a sale, it is normal to be charged to cover the costs – such as advertising – that an agent has already incurred. And it is also normal to have to pay some or all of the estate agent's commission but only if the contract you signed contained a “ready, willing and able purchaser” clause.

Can a seller back out right before closing? ›

Yes. A seller can back out of an accepted offer or before closing, as long as there are no specific clauses that state otherwise. That being said, whether or not a seller can back out of a contingent offer depends on the contract that was written and what is mentioned in it.

What should you not do after buying a house? ›

Read on so you're not blind-sided just before closing.
  1. Don't change jobs, quit your job, or become self-employed just before or during the loan process. ...
  2. Don't lie on your loan application. ...
  3. Don't buy a car. ...
  4. Don't lease a new car. ...
  5. Don't change banks. ...
  6. Don't get credit card happy. ...
  7. Don't apply for a new credit card.
11 Feb 2017

Can you pull out of a house sale after signing contracts? ›

After the exchange of contracts, all parties involved are legally bound to the contract and must adhere to its terms. Pulling out of a property sale or purchase after this stage could result in serious legal or financial penalties. When you sign and exchange contracts, you are legally committing to the transaction.

Can I threaten to pull out of house purchase? ›

At any point, buyers can threaten to walk away if the price isn't dropped, which holds sellers over a barrel. On the other side, buyers can be ready to move, think everything is going ahead, and then the seller takes a higher offer from someone else, out of nowhere.

Can I walk away from a home purchase? ›

Despite having a home purchase agreement, earnest money, and contingencies in place, both buyers and sellers can back out of purchasing or selling a home. As mentioned earlier, buyers are the ones who most often walk away from a real estate transaction.

How can I back out of buying a house? ›

Can you back out of buying a house before closing? In short: Yes, buyers can typically back out of buying a house before closing. However, once both parties have signed the purchase agreement, backing out becomes more complex, particularly if your goal is to avoid losing your earnest money deposit.

Why do sellers pull out? ›

A seller might pull out of a sale if they receive a higher offer from another buyer, even if they have already accepted your offer.

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