Posted by Connor P. Wallmark | Dec 22, 2016 | Fundamentals, Real Estate, Recent Case Decisions | 0
Westside Estate Agency, Inc. v. Randall
Facts: A broker is contacted by a buyer who is personally known to the broker to locate a property. A written listing agreement employing the broker is not entered into. The broker locates a property whose listing states the seller’s broker is to pay the buyer’s broker a cooperating broker fee. The buyer’s broker submits an offer to the seller and numerous counteroffers are exchanged. The buyer and seller do not reach an agreement concerning the purchase terms. Later, the buyer submits another offer to the seller using a different broker, which is accepted.
Claim: The original broker seeks a broker fee from the buyer, claiming the buyer breached an implied employment contract since the broker located the property which the buyer ultimately purchased and the listing referenced a cooperating broker fee.
Counter claim: The buyer claims the broker is not entitled to a fee since they never entered into a written listing agreement employing the broker, a requirement of the statute of frauds.
Holding: A California appeals court holds the broker is not entitled to a fee since the broker is required to enter into a signed listing agreement with the buyer in order to be eligible to collect a fee. [Westside Estate Agency, Inc. v. Randall (December 1, 2016) __ CA4th__]
Editor’s note — A verbal agreement to represent a client in a real estate transaction is sufficient to establish employment and impose an agency obligation on the broker to act as a fiduciary to that client.
However, all assurances of a broker fee on a real estate transaction are required by the statute of frauds to be in writing and signed by the person who agreed to pay a fee to entitle the broker to enforce collection. This is the case whether or not the broker performs as agreed.
Formal documentation of an obligation to pay a fee — a written agreement containing a fee provision and signed by the client — is the legislatively enacted and judicially mandated requisite to the right to enforce collection of a broker fee from a client who has agreed to pay it. The written agreement contains the client’s promise to either pay a fee or cause a fee to be paid by someone else, such as by the seller when the buyer is the client in a sales transaction under a buyer’s exclusive listing agreement. [See RPI Form 103]
Here, the client was a long-time friend of the broker, which likely induced the broker to disregard this fundamental requirement of contract law — much to their ultimate detriment.
Further, the broker’s fee would have been protected by a safety clause had the broker entered into a written exclusive listing agreement. [See RPI Form 103 §4.1(c)]
Form-of-the-Week: Demand for payment of a fee – Forms 123 and 123-1
I'm an expert in real estate law and transactions, with a comprehensive understanding of the intricacies involved in brokerage agreements, implied contracts, and the statute of frauds. My knowledge is grounded in both theoretical frameworks and practical applications, making me well-versed in the nuances of legal precedents and their implications on real estate transactions.
Now, let's delve into the key concepts presented in the article regarding the case of Westside Estate Agency, Inc. v. Randall:
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Implied Employment Contract: The case revolves around the concept of an implied employment contract between a buyer and a broker. Even in the absence of a written listing agreement, the broker claims a right to a fee based on their role in locating a property for the buyer.
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Cooperating Broker Fee: The listing of the property stipulates that the seller’s broker will pay a cooperating broker fee to the buyer’s broker. This is a common practice in real estate transactions, where the cooperation between brokers is formalized through such fees.
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Breach of Implied Employment Contract: The broker contends that the buyer breached the implied employment contract by not finalizing the purchase through the initial broker, who located the property. The central argument is that the broker's efforts led to the ultimate purchase, justifying a fee.
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Statute of Frauds: The buyer's counterclaim rests on the requirement of a written listing agreement, asserting that the statute of frauds necessitates such a formal, written agreement to enforce the payment of a broker fee.
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Fiduciary Obligation: The editor’s note emphasizes that a verbal agreement can establish employment and impose a fiduciary obligation on the broker. However, it distinguishes this from the requirement of a written agreement for the enforcement of a broker fee.
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Safety Clause and Exclusive Listing Agreement: The article mentions that the broker's fee would have been protected by a safety clause if an exclusive listing agreement had been established in writing. This underlines the importance of formal documentation in protecting the interests of the broker.
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Demand for Payment: The Form-of-the-Week highlighted in the article, specifically "Demand for payment of a fee – Forms 123 and 123-1," suggests a mechanism for brokers to formally demand payment of fees owed.
In conclusion, the Westside Estate Agency, Inc. v. Randall case underscores the critical importance of written agreements in real estate transactions, particularly in defining the terms of broker fees and protecting the rights of the involved parties. The interplay between implied contracts, statutory requirements, and fiduciary obligations creates a complex legal landscape that necessitates careful consideration and adherence to formalities in real estate dealings.
