Broker Beware! How to NOT Lose a $925,000 Commission!

Legal Update, Real Estate Agent & Broker Representation, and Real Estate Law by Simon Offord, Esq.

A recent case confirmed our oft-repeated advice to get it in writing.  In Westside Estate Agency, Inc. v. James Randall, a broker learned this rule the hard way.

California’s statute of frauds declares invalid any “agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate” unless that agreement is in writing and signed by the broker’s client .  (Civ. Code, § 1624, subd. (a)(4).)   This rule has very limited exceptions, and the Westside case did not contain any such exceptions.

In Westside, the broker agreed to assist a “friend” in purchasing a $40+ million dollar home in Bel Air.  The broker did not get an agreement in writing.  The broker prepared two offers for the purchase which were rejected.  However, the sellers remained interested.  A couple months later, the client (“buyer”)  hired an attorney to prepare a new, slightly higher offer which was ultimately accepted.  The attorney then received the $925,000.00 commission (those pesky attorneys!).

The broker filed suit against the buyer, claiming that it was owed the commission under a breach of an implied contract theory.  The attorney was also sued for intentional interference with an implied contract (which cause of action was ultimately dismissed by the broker).  The buyer demurred to the Complaint (which is a motion that is filed at the outset of the case, arguing that even if everything in the Complaint is true, there is no legal recourse), arguing that without a written agreement, buyer owed no duty to broker.  The Trial Court agreed and dismissed the action against the buyer.

The broker appealed the Trial Court’s decision.  The  Appellate Court  affirmed the Trial Court’s decision, concluding that there was no viable cause of action to overcome the statute of frauds as the complaint failed to allege that there was a written agreement (let alone one that “unequivocally” shows on its face that the broker was employed and seeking to recover a commission, which is what the law requires).

The Appellate Court examined the facts further, and rebutted the broker’s argument that the prior offers he wrote constituted a writing sufficient to entitle him to a commission.   Specifically, the Court held that even though the two unsuccessful offers contained language that stated that the broker would collect a commission, since the broker was not the procuring cause of the eventual purchase, he had no right to a commission.  The Court affirmed century-plus old law that states that “merely putting a prospective purchase on the track of property which is on the market will not suffice to entitle the broker to the commission contracted for, and even though a broker opens negotiations for the sale of the property, he will not be entitled to a commission if he finally fails in his efforts.”

The obvious take away from this case is GET IT IN WRITING!  Even if you are working with a client that you consider a friend, do not make the mistake of assuming they will make good on their word.  We realize that buyer representation agreements are uncommon, but if you are in the midst of making multiple offers on a $40 million dollar plus property, you should do everything you can to get an agreement in writing, or you could miss out on the commission of a lifetime.

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