Lawyer Typing with Justice Scales in Front

When Real Estate Brokers are Forced to Sue for Their Fees

Lawyer Typing with Justice Scales in Front

By: James L. Goldsmith, Esquire

My mentor and former PAR legal counsel, the late Tom Caldwell, used to caution brokers intent on suing clients for fees by asking that. The clear message is that when you sue for a fee, the client is going to bite by claiming that no fee was owed because of the malpractice committed by the broker or salesperson.

I represent brokers who sue for their fees and the defenses always include claims of malpractice.  It is true that my clients win most of these cases, though the only credit I lay claim to is that I am selective about the cases I take. The reasons for success, however, I attribute to my clients. In this article, I’ll present several tips for success. I could drag the list out to 15 or 20 tips beginning with don’t accept a jerk for a client, but I’d rather provide you with the core. While these tips work regardless of your representing a buyer, seller, landlord or tenant, I’ll provide a context from a case I most recently resolved.

In that case, the broker was the buyer’s agent for a married couple seeking a new home. The wife was an in-house lawyer for a retail chain and the husband an engineer. They signed a standard buyer agency agreement. During the course of his efforts, the broker wrote an offer that did not result in a signed agreement of sale. He continued to identify properties, but ultimately, the buyers went dark and ceased communicating with him. He doubled his effort to solicit a response. Eventually, he reached the wife by telephone. She reluctantly revealed that she and her husband had purchased a home, but that she would consider hiring the broker to list her former home for sale.

My client was far from delighted by her “generous” offer and told her that he expected her to pay his commission. While that call ended abruptly, the wife replied with an email several days later. She said she and her husband owed no fee because the broker was “not the procuring cause of the sale.”  At this point I was engaged, and suit was filed. The complaint was less than three full pages and consisted of about 15 enumerated paragraphs and an exhibit, the executed buyer agency contract. The amount sought was the percentage fee recited in the buyer agency contract multiplied by the purchase price of the home the buyers bought during the term of that buyer agency contract. In our case, the fee came to $19,500.

The answer to the complaint included the affirmative defense of malpractice: The buyers alleged that the broker failed to make a continuous and good faith effort to find a property for the buyers as required by the Real Estate Licensing and Registration Act. To allay what little suspense there may be, my client prevailed. We moved quickly to get this matter on a trial list (believe it or not it happened within months) and on the eve of trial, the defendants agreed to pay $15,000 and it was accepted. Why did my client prevail? Consider the following.

First, my client had a nearly perfect file. He had a fully executed buyer agency agreement. If your client bails on you and you don’t have an executed agency agreement, forget it. Further, he had every email and text from his first meeting with the buyers to the last exchange. No impartial judge or jury could reasonably conclude from the string of email that the broker abandoned his clients. Every step taken by the broker was memorialized by email to his buyers reciting their most recent telephone conversation or what his recent research had revealed. It easily demonstrated that it was they who had abandoned him.

Take any risk reduction seminar and something will be said of the importance of maintaining a file and corroborating and confirming all actions and discussions by mail or email. Usually, it’s suggested that this will assist in the defense of any malpractice claim should it be asserted. A good, comprehensive file also will enable you to recover a fee when your client breaches his or her contract with you.

Second, pursue the claim and march steadily to trial. Engage counsel who know license law and the standards of practice of real estate brokers and salespersons. Don’t assume that every real estate lawyer knows anything about how brokers work, their duty or how they get paid.

These files don’t have to be over litigated. When the amount in controversy is less than $50,000, the case will first be heard by arbitrators in the court of common pleas of the county where suit is filed. I take limited discovery to assure I have every document that might be asserted as a defense, I don’t take depositions because I’ll get the testimony at the arbitration and can have it recorded there by a stenographer for use if the case is appealed to a trial before a judge and jury.  Discuss these matters with your counsel and keep in mind that your claim is for a liquidated amount (an amount certain). A realistic projection of costs and taking measures by which they are reasonably limited will assure that your net recovery is good. Unfortunately, no matter how efficient your attorney is, the other side can delay, obfuscate and over-litigate.

Third, the broker was first to demand payment, not me, his attorney. To be clear, I am not suggesting that you don’t engage counsel before demanding payment. I have found, however, that when the broker makes his or her demand directly to the client, the client will respond. If I write a letter of demand, the response will be from an attorney whose words I can’t use as evidence in court.

In our example, the buyers’ first response was that the broker was not the procuring cause of the sale. Of course not, the buyers had abandoned their broker and did not give him the chance to put them in a property. This defense was dropped and in the answer to the complaint it was replaced by the defense that the broker committed malpractice by abandoning his buyer clients thereby justifying their non-payment.

This change in the defense would make good fodder for cross-examination. Don’t most people who have a legitimate reason for non-payment know that reason? Here it was evident that the buyers were searching for a pretext and the original procuring cause defense was put together before they engaged counsel who realized it was a losing argument. Again, if I had been the first to demand payment, the matter would have gone straight to counsel and we wouldn’t have had this switch in defenses that made buyers look particularly weak. I don’t encourage self-representation but a simple request for payment might be reasonable coming from you, the broker. This too is a matter for discussion with your counsel.

My experience suggests that brokers are generally successful in recovering fees that have been earned. That judges and juries favor clients over their real estate brokers is not true in my experience, especially for those brokers who maintain good files and can establish that they provided the services that a reasonable prudent licensee is to provide.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved