BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIPS
Statute of Frauds
Or “Why Do Contracts Have to Be in Writing?”
Q: I had a former client who called me and said he was going to be selling his house and, if I brought a buyer, he would pay me a commission. I was working with a buyer who was perfect for that house, so I immediately wrote an offer at the price the seller said he wanted, presented it to the seller who signed it and returned it to my buyer. I opened escrow and only then remembered that I hadn’t given the seller a listing agreement, which I had left on my desk in my excitement of finding the perfect house for my buyer. When I presented the listing agreement to the seller, he refused to sign it saying the sale was too easy, that he would handle the rest of the transaction, and would pay me $500 for my trouble. I am clearly the procuring cause for this sale. I want to sue him for the commission that he promised to pay. Can I?
A: In a word: NO. We all know that in real estate sale transactions certain documents must be in writing. This is because of the Statute of Frauds (Civil Code 1624, et seq).
The purpose of the Statute of Frauds is to establish the existence of a contract. The California Statute of Frauds states that the following real estate-related agreements must be in writing:
1. Sale of real property;
2. Lease for more than one year;
3. Authorizing or employing an agent, broker or other person to purchase or sell real estate, or to lease real estate for a longer period than one year;
4. To procure, introduce, or find a purchaser or seller of real property, or a lessee or lessor of real property where the lease is for a longer period than one year.
Such a document need not be signed by both parties, but must be signed by the party who will be obligated to pay the compensation or commission, and must be sufficiently detailed to permit a court to enforce it. Good practice though is for both parties to sign the agreement.
The law in California is clear that a listing broker cannot recover a commission from a seller, even if the seller has taken advantage of the broker’s services and benefited from them, without a writing that satisfies the Statute of Frauds.
Some types of agreements related to real estate are not required by the Statute of Frauds to be in writing including:
1. A lease not to exceed one year;
2. An offer of compensation by a listing broker to a cooperating broker.
3. The cancelling of an offer or counter-offer.
However, even in these situations, it is ALWAYS advisable to have a writing so that there is no disagreement as to what was said. Proving the agreement or what was said when it’s “he said – she said” is difficult and expensive.
It is possible for a court to find that there was a “writing” from a series of documents, emails, etc. However, that also is risky and expensive because it may take a full trial to prove the writing, and attorney fees may not be recoverable. So, once again, good practice is to be sure that there is a fully completed contact form signed by all parties in order to avoid these problems.
For more information on the requirements of a valid contract, see CAR Legal Memo entitled “Contract Law and Real Estate Transactions” at:
http://www.car.org/legal/contract-forms-folder/contract-law-re-transactions/?redirectFrom=login
Electronic signatures are acceptable in real estate transactions to meet the requirements of the Statute of Frauds under both the California and federal laws when the requirements of those laws have been met.
However, there are numerous documents which cannot be signed with electronic signatures.
For more information on electronic signatures and which documents cannot be signed with electronic signatures, see CAR Legal Memo entitled “Electronic Signatures and Records in Real Estate Transactions” at:
http://www.car.org/legal/contract-forms-folder/electronic-signatures-records/
PRACTICE TIPS:
1. Because of the Statute of Frauds, always make sure that all Listing Agreements, Buyer Representation Agreements, Purchase Contracts and Leases for more than a year, are fully completed, and signed and dated by all parties.
2. Even for those agreements which are not required to be in writing by the Statute of Frauds should also be in writing so that there is no disagreement as to the terms of the agreement.
3. As a listing agent, never tell a buyer’s agent: “My seller has signed your offer. Congratulations we are in contract.” This just raises false expectations and a buyer will be upset, and maybe hire an attorney in an unsuccessful attempt to force a sale, if the sellers change their minds before the signed offer is delivered to the buyer or their agent. Instead, just tell the buyer’s agent, “My seller has signed your offer. When it has been delivered and received by you, then we will have an accepted offer.”
4. A property listed in an MLS is an offer of compensation to all members of that MLS, and any reciprocal MLS, which is accepted by the MLS member co-op broker when the offer is presented. So, in those situations, no other writing is necessary.
5. If a property is not in the MLS, then, as a buyer’s agent ALWAYS get a written compensation agreement PRIOR TO presenting your offer. (See CAR form “Cooperating Broker Compensation Agreement.” zipForms form CBC) Don’t rely on a verbal agreement from the listing agent that you will be paid unless there are witnesses who can verify that verbal agreement. Even then try to get it in writing.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2012 08/03/12