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FORMS GUY
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A Tangled Web
BY: WILL MARTIN | GENERAL COUNSEL
DEAR FORMS GUY, An agent in my firm named Wally had an exclusive buyer agency agreement with a buyer. After the agreement had been in effect for three months and Wally had shown the buyer umpteen different properties, the buyer called Wally and told him that she didn’t like the “vibe” and just felt like she needed to make a change. Wally tried to persuade the buyer to see the agreement through the 90 days remaining on the term of the buyer agency agreement, but the buyer wouldn’t change her mind. A few weeks later, Wally noticed that one of the properties he had shown this buyer was under contract. Turns out, an agent with a different firm named Eddie was the buyer agent on the contract. Wally called Eddie for more details and Eddie revealed that the buyer who Wally had originally shown the property to had contacted Eddie about becoming her new buyer agent. Wally asked Eddie if he understood that Wally had not agreed to a termination of the exclusive buyer agency agreement, and Eddie said that he did. Wally then told Eddie that his refusal to recognize the sanctity of the agency agreement was a violation of Article 16 of the REALTOR® Code of Ethics, and that Wally was going to file an ethics complaint against Eddie with the local association. In addition, I contacted the broker-in-charge of Eddie’s firm today. I told her that I think Wally is the procuring cause, and that if the sale closes and her firm is paid the compensation offered by the listing agency, I intend to file a request for arbitration with the local association to recover the fee from her firm. This BIC said that the buyer could work with whomever she chooses, and that since she had chosen to work with Eddie, her firm rather than our firm would be entitled to the compensation offered in MLS if the deal closes. What do you think about this, Forms Guy? SINCERELY, June
DEAR JUNE: Wow—that’s some question! Lots of moving parts. I normally only answer questions about forms but what the heck— it’s a new year! I’ll give it my best shot. Sincerely, Forms Guy JUNE: Thank you! FORMS GUY: June, your question involves several related, but different issues. There’s a legal issue about a principal’s right to end the agency relationship with an agent. There’s an ethical issue about the circumstances under which a REALTOR® has the right to enter into an agency agreement with someone who has been represented by another REALTOR®. And there’s a contractual issue
about entitlement to compensation offered in MLS. Let’s take them one at a time, okay? JUNE: Okay. FORMS GUY: First, regarding a principal’s right to end the agency relationship with an agent, there is an important distinction between the rights and duties of the parties under the law of agency and under the law of contract. Under agency law, either the principal or the agent has the power to terminate the agency relationship at any time, even though they have previously agreed that the agent’s authority will continue for a definite period. If the principal exercises this power, the agent has no right to continue
Contact Will Martin at wmartin@ ncrealtors.org if you have a question or a suggested discussion topic for Forms Guy.
acting for the principal, and could be subject to liability for continuing to hold himself or herself out as the principal’s agent if it causes loss to the principal. JUNE: But if that’s so, what use is an agency agreement? FORMS GUY: That’s a fair question, June. Just because a party has the power to terminate the agency relationship doesn’t mean they also have the right to terminate the contract by which the agency relationship was established. Under contract law, if either party’s termination of the agency agreement is a breach of the agreement, that party may be held liable for any damages that the non-breaching party may be able to prove. JUNE: So what does that mean as far as Wally’s agency agreement with the buyer? FORMS GUY: The way I see it, the buyer agency agreement between your firm and the buyer ended when the buyer clearly indicated to Wally that she didn’t want Wally to be her agent anymore. It doesn’t sound as though the buyer had any cause to terminate the agreement, and if that’s so, the buyer’s decision could be characterized as a breach of contract. JUNE: So are you saying that my firm should go after the buyer for damages? FORMS GUY: No, not necessarily. The point I am trying to make is that in my opinion, the buyer’s action in making a change of agents, even though it may well have been ncrealtors.org • INSIGHT 25