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Takeaways:
- At the outset, establish the nature of the relationship with the parties (e.g., exclusive) through a representation agreement which is preferably written.
- The agreement should set forth the terms between the parties such as duration, services provided, compensation and other obligations of the parties.
- A representation agreement, especially if written, will ensure broker is compensated for their services.
- Having a written representation agreement with specific terms promotes transparency and helps minimize disputes between the parties.
- The practice of using written representation agreements will demonstrate professionalism.
On February 2, 2023, the Supreme Judicial Court of Massachusetts held that the breach of an oral exclusive buyers’ agency agreement would entitle the broker to commissions as damages.
The Plaintiff, a Massachusetts broker, alleged that an oral exclusive buyers’ agency agreement was entered into with clients in May 2016. The agreement allegedly established that she would be the exclusive broker for one year for the clients’ purchase of a new home, and that she would receive a commission upon the purchase of the new home. Further, the clients agreed to refer all potential properties to the Plaintiff and notify all other real estate agents of the exclusive relationship.
The broker showed the clients at least ten properties and provided other financial and analytical services. Although the Plaintiff performed substantial services pursuant to the contract between May 2016 and February 2017, the clients identified a home on their own. Then, without referring the property to Plaintiff or notifying the listing brokerage of the exclusive buyer’s agreement, the clients purchased the home using another agent of the listing brokerage firm that represented the seller. After the purchase, the clients terminated their relationship with Plaintiff via e-mail, recognizing the work she did for them and sent her an Amazon gift card by way of apology. Plaintiff subsequently brought suit, claiming the clients’ breach of the verbal agreement was enforceable and the broker was entitled to the commission as expectation damages.
The trial court granted the clients’ motion for summary judgment because there was no written agreement. The Appeals Court vacated the grant of summary judgment, recognizing the Statute of Frauds has an express exemption for contracts involving compensation for real estate services. It further concluded that the remedy for breach of an exclusive real estate buyer’s broker contract, like other contracts, is the payment of expectation damages which would be the lost commission. A dissenting justice disagreed on the ground that an exclusive brokerage agreement doesn’t allow a recovery of a commission unless the contract contains a ‘clear statement’ providing for recovery regardless of whether the broker played any role in bringing about the desired sale or purchase. (See Huang v. RE/MAX Leading Edge, 190 N.E.3d 518 (Mass. App. 2022)).
The Supreme Judicial Court of Massachusetts granted further appellate review to clarify the limited issue of available remedies involving the breach of an exclusive real estate broker agreement. In affirming, the court declined to adopt a rule requiring a contract contain a clear statement that “the broker is entitled to receive a commission…regardless of whether the broker played any role in effecting the desired sale or purchase” in order for the broker to recover damages in the form of a commission. It held that expected commission as damages was appropriate because the Plaintiff is entitled to the ‘benefit of the bargain’ and be placed in the position she would have attained had the contract been fully performed.
In disagreeing with the lower appellate dissenting opinion, the court highlighted the negotiating experience and market knowledge gained by the client-defendants from Plaintiff in this case during their 10-month relationship and cited caselaw providing lost commissions in other industries for breaches of exclusive agency agreements.
Additionally, with the assistance of an amicus brief filed by the Massachusetts Association of REALTORS® and supported by NAR’s Legal Action Program, the court distinguished opposing caselaw involving ‘barebones contracts’ and analyzed the industry’s transition from the agent/subagent ‘bygone’ era into the modern practice of buyer’s agents entering exclusive agreements that include defined obligations placed on both parties. These new market realities, combined with the “Internet’s ubiquitous display of such listings to buyers and sellers,” led the court to conclude that both brokers and clients should be required to comply with express contractual obligations, including the imposition of expectancy damages in the event of a client breach.
The case was remanded to the Superior Court Department of Middlesex County where Plaintiff’s breach of contract claim may proceed against the former clients.