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Buyers' Broker Loses $925,000.00 Commission!

In Westside Estate Agency, Inc. v Randall, released on December 1, 2016, the Los Angeles Court of Appeal held that a broker representing a buyer, who did not have a written representation or commission agreement with the buyer, could not collect a $925,000.00 commission when the client bought the property the broker found, even though the buyer had signed an offer naming the broker as the selling broker entitled to receive a share of the commission, because that offer had been rejected by the seller, and the same property was ultimately purchased with another broker for the buyer.

One of the exceptions to the rule that a commission agreement must be in writing, even a selling broker's commission agreement, is when the buyer's broker is named in the buyer's signed offer to the seller. This is how the CAR purchase agreement form and other popular forms deal with this issue. The broker in this case had done just that, on the initial offer. Maybe he felt adequately protected even against a subsequent offer made by another broker. The cheated broker may not have had much choice, since buyers often refuse to sign any representation agreement with a broker, even when it specifies that any commission will be paid by the seller and not be debited against the buyer.
 
The purchase price for the property was $46,250,000.00. The price in the losing broker's offer had been $45,000,000.00. The Court of Appeal went out of its way to describe the extensive efforts made by the buyers' broker on their behalf. The buyers asked their broker, repeatedly described by the Court of Appeal as a friend, to credit the commission to them to reduce the purchase price. Ultimately, they found another broker who did so.
 
Brokers are already getting their clients to sign disclosure forms about the roles of listing brokers, selling brokers and dual-agency brokers. When representing a buyer, why not include a form acknowledging the appointment as agent for the buyer, so that the buyer cannot make a second offer cutting out the buyer's broker?
 
If you have questions regarding what's going on with your real estate client, please give us a call.

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