Commissions Reboot!!!

In September 2010 Buffy Lawrence and Reyna Realty executed a listing agreement. The listing agreement engaged Reyna for three months to market and sell her property, in exchange for a 5% commission, to be shared with a cooperating broker if one was used in the deal by the buyer.

Although the listing term ended December 31, 2010, Reyna Realty’s broker continued to list the property, post signage and generally market the property after it expired. Buffy never objected to these continuing services and efforts.

Reyna Realty received an offer to purchase the property and assisted Buffy by negotiating a higher purchase price. The deal was poised to close in March 2011, and the Seller’s Statement provided for a commission payment to Reyna. Buffy, however, instructed the title agent to reduce the commission amount by 30%. Reyna rejected this proposal, so Buffy withdrew her offer and refused to pay Reyna anything.

The purchase and sale funded, and in October 2011 Reyna Realty sued Buffy Lawrence to recover a real estate commission. Reyna Realty attached the Purchase and Sale Contract to Reyna’s lawsuit pleadings, which Contract contained a statement to the effect that “all obligations of the payment of brokers’ fees are contained in separate written agreements.”

It was Reyna’s position that although the stated listing term had indeed expired three months before the sale date, both the Contract and Settlement Statement contained written evidence of an extension of the listing at least through the date of sale.

Buffy defended Reyna’s claim by using a statute of frauds defense. Basically, that defense means that all commission obligations in the State of Texas must be in writing, signed by the party obligated to pay it, and no oral or unwritten modifications are typically allowed.

The trial court awarded Reyna its commission of $14,440, plus $36,000 in attorney’s fees. Buffy appealed.

The Appellate Court, looking at the initial Listing Agreement, Purchase and Sale Agreement and Settlement Statement, concluded that the documents constituted a written extension agreement and defeated a statute of frauds defense. Similarly, even though the Seller’s Statement that was eventually signed provided no compensation to Reyna Realty, it still indicated that Reyna Realty was serving as the broker for the Seller.

And further, Buffy had willingly accepted the benefits of the services offered by Reyna Realty, which services were beneficial to Buffy.

From there it was an easy leap to legal conclusions of “ratification” and “non-repudiation.”

Judgment for Reyna Realty was affirmed. Reyna wins; Buffy Lawrence loses. See Lawrence v. The Reyna Realty Group; Cause No. 01-13-00819-CV; Court of Appeals of Texas, First District, Houston Division; May 15, 2014.

Lessons learned:

1.      Reyna Realty forgot to get its listing agreement extended, or maybe Reyna made the request but Buffy Lawrence was unwilling to sign it. Either way, if the listing agreement had been properly extended then one might assume that a lawsuit would not have been necessary and Reyna would have been paid in full at closing.

2.      While this case was ultimately won by the broker, a slight variation in facts would yield a different result. If the broker’s name was not included in the Purchase and Sale Agreement, then I suspect Buffy would have prevailed.

3.      Do not assume that just because you continue working for a principal’s benefit after the expiration of your contract that you will get paid if your efforts result in a closing. Get it in writing, *before* expiration of your agreement.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Now Tell Me Again: How Big Is That Property?

Bowen Zhu and Jain Yu contracted to buy a house in Harris County for $180,000. Seemingly, they intended to live there. But for this purpose it doesn’t matter.

The seller, listing agent, Harris County Appraisal District and Kai Lam all represented that the house had 2,722 square feet of living area. Kai Lam was the TREC-licensed broker representing Zhu and Yu. When Zhu and Yu initially viewed the property, Zhu told Lam that the house seemed smaller than 2,722 SF, but Lam assured Zhu that it only seemed smaller because it had an open floor plan.

On the day before closing Zhu told Lam he wanted to back out of the deal. Zhu claims that Lam told him he would get sued if he changed his mind. Lam gave Zhu a 1% purchase price rebate, and Lam persuaded the seller to discount the purchase price by $250 as a further inducement for Zhu to close.

After the closing and at Zhu’s request, the Harris County Appraisal Districted re-measured the house and found that its living area was only 1,967 square feet. The difference of 755 square feet is approximately 28% less than the square footage as represented to Zhu and Yu.

On a straight square footage basis, it is conceivable that Zhu and Yu paid $50,000 too much for the property.

The buyers sued Lam, Lam’s brokerage company Housesold Realty, Inc., the seller, the seller’s listing agent and others. All parties were dismissed (perhaps they settled?) but for Lam and HRI.

Finding no genuine issues of material fact, the trial court granted summary judgment for the broker Lam and his brokerage company HRI. Zhu and Yu appealed.

The buyers did not properly appeal the issue of monetary damages, and instead claimed that “damages are effectively presumed in this case.” Zhu and Yu’s testimony that the house had a value of $140,000 was given no probative value by the trial court. Also, it appears there was no expert testimony on this point, and so Zhu and Yu’s opinion of market value, without supporting comparables or other credible evidence, was merely conclusory, unsubstantiated and unreliable.

Since no authority was cited and since the buyers did not raise the argument in their response to Lam’s request for judgment in the trial court, the Court of Appeals had no choice but to forego awarding Zhu and Yu any compensation.

Buyers did, however, properly perfect their appeal regarding Lam’s and HRI’s breach of fiduciary duty owing to Zhu and Yu. To prevail under Texas law, the buyers must prove: (1) a fiduciary duty existed between Buyers and Lam; (2) Lam breached that duty; and (3) Buyers were damaged.

Lam and HRI defended the claim of breach of duty by asserting that Lam did not know the actual square footage, and that under Texas law Lam was neither required to measure nor investigate the size of the home.

Zhu and Yu were unable to prove that Lam knew or should have known the house was substantially smaller than 2,722 SF. Instead, the evidence seemed to show that Lam merely repeated what he was told from the seller and listing agent, and what he discovered by reviewing the HCAD website.

And Lam was correct on this point: unlike California and some other states, under 1992 Texas case law authority Lam had no duty to measure the property or further investigate.

The trial court’s Judgment was affirmed for Kai Lam and Housesold Realty, Inc. See Zhu v. Lam; No. 14-13-00368-CV, Texas Court of Appeals – Houston 14^th District, March 18, 2014. The broker won; the buyers lost; Lam did not breach his fiduciary duty to the Buyers by merely repeating information he had gained from the seller and public sources.

Lessons learned:

1.  Yes it is true that the broker was vindicated. However, a close reading of the appellate decision leads me to think this could have gone badly for the broker just as easily if the damages issue was properly presented.

2.  Don’t offer square footage representations. If you must do so, then clarify in writing that they are not your representations but rather come from the seller, appraiser, landlord, Central Appraisal District records or some other (hopefully public) source. And, that the buyers / tenants should independently verify the data before making any decisions.

3.  I don’t have a third lesson learned. It just felt a little, je ne sais quoi, empty without some text here.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Disclose More. Never Less.

In 2009 Shawn and Stephanie Holloway hired Jeremy Williams, a sales agent with Keller Williams Realty Northeast, to help them sell their existing home and find a new one. M/M Holloway were shown a home owned by Jennifer Blalock – another sales agent with Keller Williams Realty NE.

Following intermediary protocol, Keller Williams Realty NE engaged Tina Martin, also a sales agent with Keller Williams, to assist Jennifer Blalock. Meanwhile Jeremy Williams continued to represent M/M Holloway.

A Contract was signed for the purchase and sale of Blalock’s property. Keller Williams NE was designated as the broker for both seller and buyers. The Holloways were allowed a 10-day inspection period, and so they hired Clint Simon (referred to them by Jeremy Williams) for a termite inspection.

Simon found no visible evidence of active termite infestation or previous infestation, although Simon did disclose his finding of evidence of previous treatment for subterranean termites.

M/M Holloway closed the purchase and soon after closing the Holloways started renovating the property. The contractors discovered extensive termite damage – substantial enough to cause the Holloways to move out.

The Holloways filed a lawsuit against Blalock, Simon and Keller Williams NE. Blalock filed bankruptcy; Simon paid $200,000 to be released. That left Holloways vs. Keller Williams NE.

The trial jury found liability against Keller Williams NE based primarily on a theory of failure-to-disclose under the Texas Deceptive Trade Practices Act. The trial court then converted the jury’s findings into a Judgment.

Keller Williams NE appealed, claiming that the evidence was insufficient to support the jury findings. The point made by Keller Williams NE was that the only means for the jury to find it liable would have been due to the actions (possible failure to disclose) of Jennifer Blalock. And – that Jennifer Blalock was not an agent for Keller Williams NE, because Jennifer Blalock was acting only for herself.

Now of course Jennifer Blalock had signed an Independent Contractor’s Agreement with Keller Williams NE, to perform services as a real estate agent. However, in the Holloway deal Blalock was not acting in an agency capacity but rather as an owner and seller of the property. As such, the ICA was inapplicable and the actions (inactions) of Blalock did not bind Keller Williams NE as no principal-agency relationship was intended by this one, unique transaction.

So the argument went.

The Court of Appeals evaluated evidence that Blalock’s agent did “very little” and instead Blalock represented herself, offered the Property for sale herself, negotiated the sale herself, and sold the Property for her own account.

Thus, no agency relationship existed between Blalock and Keller Williams NE.

Then the Court turned its attention to the question of Keller Williams’ knowledge of the existence of unrepaired termite damage. Again, the evidence did not support the conclusion that Keller Williams knew of the issue, and failed to disclose.

The trial court’s Judgment was reversed in favor of the Keller Williams franchisee.

See Flutobo, Inc., dba Keller Williams Realty Northeast v. Holloway; Nos. 14-12-00104-CV and 14-12-00170-CV, December 16, 2013.

Lessons learned:

1.  If the non-disclosure is significant enough, there will be a claim. If the claim is not resolved, there will be a lawsuit. If there is a lawsuit, the only winners will be the lawyers as attorneys’ fees might eclipse the amount of any judgment. Particularly if there are appeals.

2.  This case is residential in context. But the same rules regarding disclosure and intermediary relationships apply to commercial transactions. There is no difference in Texas law, as TREC makes no distinction between the types of transactions relative to the disclosures that must be made although the DTPA applies only to “consumers.”

3.  Err on the side of disclosing too much, after of course you have obtained your principal’s written authorization. You might need to consider withdrawing if your principal refuses to furnish that consent. Better a blown commission than a lawsuit!

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

No Contract + No License = No Commission

I have been an attorney for almost 30 years now. During that time I have represented REALTORS®, brokers and sales agents, and their industry trade associations. Although Texas law never changed regarding licensure and contractual requirements, the issue of commissions continues to be litigated in every conceivable way in Texas. Inevitably the results are the same.

Here is the latest case demonstrating the futility of attempting to extract a commission from a party that has not signed a Commission Agreement and disputes a lawful obligation to pay it. In this case, the “broker” did not maintain a license from the Texas Real Estate Commission either.

Expo Motorcars, evidently the purveyor of exotic cars in Houston as I determined from their website (check the 2009 Spyker C8 Spider: http://www.expomc.com/invsys/details2.php?id=8685 which can be yours for only $209,995 + TTL), required more space. Jorge Lujan, sales manager at Expo, contacted Peter Jacobson to find a larger parcel. Lujan introduced Jacobson to Michael Kim, president of Expo, and there may have been an oral agreement that Jacobson would be paid a three percent fee if Expo purchased the property Jacobson located.

Jacobson found a property and started negotiations with the owner. As Lujan and Jacobson were meeting at lunch to develop a letter of intent, Kim called to inform Jacobson that his services were no longer required.

When Jacobson ultimately discovered that Expo had moved to the property Jacobson had located, Jacobson demanded his fee. It wasn’t paid, and a lawsuit resulted.

The Houston trial court awarded Jacobson damages of $45,000, based on a $1.5 million purchase price, attorney’s fees, pre-judgment interest and post-judgment interest. Expo appealed.

The Houston Court of Appeals determined that Jacobson’s actions in attempting to locate suitable real estate for purchase or lease required licensure under the Texas Real Estate License Act, if no statutory exemption was applicable. The Court of Appeals further allowed that the TRELA also required a written contract obligating the defendant to pay a real estate commission or fee.

Mr. Jacobson possessed neither a brokerage license nor a written contract. Since there was no applicable exemption (such as the attorney-exemption), the trial court’s judgment in favor of Mr. Jacobson was reversed and rendered instead for Expo and Michael Kim.

See Expo Holdings, LP v. Jacobson, 2010 WL 3307454 (Houston Court of Appeals – 14th Dist. 2010).

Bottom line:

1. Only brokers may lawfully charge and receive commissions or fees for real estate brokerage activity in Texas, assuming some very narrow exceptions are inapplicable.

2. Brokers may not lawfully collect real estate commissions or fees absent a written contract.

3. BTW it is a Class A misdemeanor in Texas if one acts as a broker or sales agent without appropriate licensure, or exemption from licensure. Check Texas Occupations Code 1101.758.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.