Recent rulings could impact litigation and Realtors®

Two recent orders issued from the Court of Common Pleas of Lackawana County could affect you.

Both orders emanate from the same lawsuit. One order dismissed a complaining Realtor’s® suit against another, and in so doing, decided issues of cooperation and compensation among Realtors®.

The other dismissed the complaining Realtor’s® suit against his buyer (the client). That order made clear what documentation was necessary to enforce a licensee’s commission against a buyer.

The plaintiff broker (broker who filed the suit) alleged that he introduced the buyer to the property for purpose of purchase and that: a) as procuring broker he was entitled to 50 percent of the listing broker’s commission; or, b) in the alternative, that he was entitled to a similar amount to be paid by the buyer pursuant to an oral agreement between the broker and buyer.

Both the listing broker and the buyer filed preliminary objections to the complaint alleging, as a matter of law, that the selling broker had not established a legal right to a commission. The objections were sustained and the buyer broker’s case was dismissed.

The buyer broker had initiated the lawsuit in 2012 by securing and serving a writ of summons on the buyer and the listing broker. A writ of summons initiates a lawsuit, but does not set forth any of the specific facts that would entitle a complainant to the relief he seeks. It is frequently filed to toll the statute of limitations from running. There is no requirement that a writ of summons be answered and the case cannot be advanced merely upon its filing.

Nothing occurred for two years after the writ’s filing until the buyer agent filed a complaint. The complaint sets forth the facts, that if is true, entitles the plaintiff to the relief sought. In this case, the complaint averred that the buyer agent produced the buyer for the property.

The complaint further averred that the listing broker owed a 50 percent commission split by virtue of: 1) custom and practice in the industry; or, in the alternative, 2) a contract between the listing broker and buyer broker; or, in the third alternative 3) quantum meriut (a rare and specially applied doctrine that provides for a reasonable amount of money to be paid for services provided in the absence of a contract).

While the listing broker had defenses to these allegations, he chose instead to seek dismissal of the complaint based upon the buyer broker’s failure to submit the matter to Realtor® arbitration. All Realtors®, upon obtaining membership, agree to submit business disputes to arbitration pursuant to Article 17 of the National Association of Realtors’® Code of Ethics.

In dismissing the case for failure to arbitrate, the court took note of well-established public policy in Pennsylvania that favors arbitration. And while the buyer agent offered many reasons why arbitration was inapplicable, the court held that it was the agent’s responsibility, in the first instance, to abide by the code. It is assumed that had the buyer agent first sought arbitration in a timely manner, only to have it dismissed for one of the few reasons within the discretion of a grievance committee (e.g., overly complex), the court would have entertained the suit. Unfortunately for the buyer broker, he first went to court.

The buyer agent fared no better against the buyer. While a written commission agreement was authored by the buyer broker, it was signed by the broker only, not by the buyer. The broker argued that it was merely representative of the oral agreement that had earlier been reached between the parties.

The court took note that the Real Estate Licensing and Registration Act (RELRA) requires written agreements between brokers and consumers and that a significant violation of RELRA constitutes a defense to a brokerage commission claim.

There are a number of lessons offered by the decisions reached in this single case. Brokers cannot assume entitlement to a cooperating fee in the absence of membership in the MLS where the fee is offered or a written agreement between brokers executed prior to the introduction of the buyer to the property.

As important, the first place to take the commission dispute is to the association of Realtors®. A grievance committee has the right to determine when the matter is too complex or when there are other reasons why the parties may be excused from their obligation to arbitrate. The failure to buyer broker to first seek out arbitration was fatal.

When it comes to enforcing a commission agreement against a buyer or seller, the broker claiming entitlement must demonstrate the existence of a written agreement describing the services to be provided and the fee to be charged. There are exceptions to the requirement in the cases of an open listing agreement and a non-exclusive buyer agency agreement; in both cases, the oral agreements must be memorialized in a written memorandum which is akin to a contract that does not require signatures.

The Pennsylvania Association of Realtors® supports its members by providing the documentation necessary to establish and confirm fees. There is no excuse for working for free.