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Real Estate Broker's Agreements

There are three types of broker arrangements – seller’s agent, buyer’s agent, and dual representation. By far the most frequent situation is that the broker is acting as a selling agent. This must be disclosed to all parties in writing and signed by the parties. The broker may be acting as the listing agent – the one that listed the premises, most likely on the Multiple Listing Service. The selling agent is the broker who finds the purchaser, although he is still technically representing the seller. This allows the listing broker to obtain his commission from the seller. A buyer’s broker will be representing the purchaser’s interest, but may have a more difficult time collecting a commission from the seller, or may have to charge the buyer.

Once a purchaser’s offer is accepted by the seller, the broker may ask the purchaser to sign certain forms. One form is called a Sales Agreement, and this document is not simply a binder. A Sales Agreement is tantamount to a contract of sale, and binds the purchaser and seller to the deal, giving each party rights and responsibilities. The last paragraph allows for a three day attorney review, but in reality, the Sales Agreement does not reach an attorney until after three days have elapsed, or when it is received, a more formal contract is prepared and entered between the parties. However, if one party backs out, a broker’s commission may still be owed to the broker, and the parties may have rights against each other that can be enforced in court. I advise my clients not to sign anything, especially a Sales Agreement, without having them reviewed by me. I would advise my clients not to sign a Sales Agreement given to them by a broker, but to let the attorneys draft a formal contract.

In the meantime, a binder, which is a more simple document, setting forth the purchase price, down payment, mortgage amount, time of closing, personal property included in the sale, and specifically stating that it is subject to an engineer’s inspection and attorney review, is acceptable. The attorney will use this document to prepare a more formal contract of sale.

Prior to being retained, a broker will have the seller sign a commission agreement and/or listing agreement, setting forth what price is acceptable, for how long the listing is in effect, and when the commission is earned. Some agreements state that the commission is earned when the broker finds a ready, willing and able purchaser is found at the listing purchase price, or other agreed upon amount (to be set forth in writing and signed by the parties). The best practice for a seller is to have the agreement specify that the commission is not due unless a closing takes place and the property is transferred, or upon the wilful default of the seller. Otherwise, in accordance with case law, the commission may still be payable if the deal falls through because the “meeting of the minds” takes place at the time the parties enter into a contract, and not at the closing. I have won cases for a broker on deals that did not close because the broker found a purchaser ready, willing and able to purchase the home, but the seller refused to proceed to closing.

As is the theme of this blog, the best practice, even in situations where you think you can sign a simple document prepared by a broker, it is best to have a lawyer protecting your interests. Once something is signed, it is difficult, if not impossible, to change your mind, and there may be legal consequences that you did not realize or contemplate in the documents presented to you.

Cynthia M. Burke, http://www.nyrealtylaw.com

Categories: Real Estate Law