BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Q: I am a salesperson and one of my sellers just flat-out breached the listing agreement. He took the property off the market, and wrote me a letter stating that he had cancelled my listing. He told me he was having financial troubles and is going to just let the property go into foreclosure. I only had about three weeks left on the listing — but what he did was wrong. I talked with my broker who felt that it was not worth going after this seller who may have little money.
So, I hired an attorney who wrote a demand letter to the seller who did not respond. My attorney now wants me to pay him a retainer of several thousand dollars to proceed with a lawsuit. Is this a good idea? What do you think?
A: Whether it’s a good idea or not is a secondary question. The threshold issue is whether you are even able to proceed. As a salesperson, you cannot bring a lawsuit in your own name against this seller. Remember, under
If your broker has decided not to proceed, there is really not much you can do. Most brokerages have policy manuals which give them the sole discretion as to whether to sue for commissions.
The second question, as to whether it is a good idea to proceed, has apparently been decided in the negative by your broker. Here, you have a seller who has clearly breached your listing agreement because no seller can unilaterally cancel a listing agreement.
However, when you have a seller (the defendant, if you will) who may have little money then, even if you do obtain a judgment for the commission, you may have a hard time collecting anything. If the seller is willing to walk away from this property, he may also be willing to file bankruptcy as well. It seems your broker has weighed that risk against the real, hard dollars that will have to be paid to the attorney to prosecute the matter, and has chosen to take a pass.
Sometimes, in the situation where the broker has chosen to not sue for a commission, a broker will give the agent the right to sue in the broker’s name, with the agent agreeing to front all of the costs but, perhaps, then reaping all of the rewards. The agent then also would have to defend, and be ready to pay for defending, any cross actions if, for example, the attorney for the seller files a cross complaint for, say, breach of fiduciary duty or other alleged wrongdoing. Are you willing to stand ready to bear those costs as well?
Remember, most of these matters settle at some point and, in that case, you would likely not receive the full compensation, and you would still have to pay your attorney.
There are also other factors to consider in making a decision to proceed. You will be spending a fair amount of your time assisting the attorney in preparing the case, attending depositions, being deposed yourself, attending mediation, arbitration and/or litigation hearings, etc. How much money could you have made if you had spent that time selling real estate?
Finally, you may wish to consider the loss of goodwill in suing a person who may know many people in your farm area or sphere of influence. That person may give a very biased version of the facts to those very people on whom you are depending for future business.
PRACTICE TIPS:
1. There are times when a broker should sue to collect a commission that they have earned per the terms of the listing agreement, or buyer representation agreement. However, before any action is taken, you should discuss it thoroughly with your broker, weighing all of the pros and cons before proceeding.
2. Matters within the jurisdictional limits of Small Claims Court ($7,500 or less) can be brought without the expense of hiring an attorney, because attorneys are not allowed to appear in those hearings.
3. If a commission or referral claim is against another broker who also is a member of an Association of REALTORS®, and thus is a member of NAR and a subscriber to the Code of Ethics, then the dispute must be arbitrated through the AOR, and not in court.
4. All commission or fee recovery matters must be brought by, or in the name and approval of, the broker who is entitled to receive the commission or fee.
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