Protecting Your Commission: A Cautionary Case Study

By Joseph A. Cerroni, Esq.

THE PROFESSIONAL SERVICE of a Realtor® is invaluable – and agents deserve the right to protect their compensation and reinforce their value.

This article provides a case study illustrating guidelines to Realtors® for protecting their commissions.

THE CASE:

An agent and seller signed the NVAR Exclusive Right to Sell Listing Agreement (Listing Agreement). An offer was obtained and was accepted by the seller. The contingencies were satisfied and preparations were made for settlement. On the date set for closing, the buyer did not appear.

The seller sued the buyer for breach of contract. The seller and buyer entered into a mutual release agreement under which the buyer agreed to settle the dispute by paying the seller’s damages and purchasing the property. The agents had the parties sign an addendum extending the closing date, and the parties went to settlement.

At settlement, the seller refused to pay the real estate commission per the listing agreement. The seller offered agents one-half of the earnest money deposit, as per Section 28 of the contract, in lieu of the full commission. The listing broker refused the offer and the parties agreed to place the disputed commission into escrow with the settlement agent.

ACTION TAKEN:

A lawsuit was filed on behalf of the broker for the real estate commission and attorney’s fees.

In pleadings filed with the court, the seller raised the following arguments: 1) the Listing Agreement had expired; 2) the broker did not obtain a ready, willing and able buyer because the buyer did not go to settlement; 3) the sale was based upon the mutual release and not the sales contract, so no commission was due; and 4) the broker was required to accept one-half of the earnest money deposit as per Section 28 of the contract.

At trial, the listing agent testified, stating he was involved in the transaction from the date the listing agreement was signed until the parties went to settlement. He testified that he stayed in contact with the seller and the buyer’s agent throughout the process and had the buyer and seller sign an addendum extending the settlement date from the original date to the date specified in the mutual release.

In the course of representing the broker, I made the following arguments: a) the Listing Agreement (Section 4) provides it covers any contract offer obtained during the listing period even if the closing occurs after the listing agreement expires; b) neither agent signed the mutual release, so they were not bound by it; and c) case law in Virginia, as per the holding of Kuga v. Chang (399 SE2d 816), holds a broker is entitled to the commission under a general listing agreement if the broker obtains a ready, willing and able buyer even if the buyer later fails to go to settlement, and a broker is not required to accept 50% of the earnest money deposit under Section 28 of the contract. The broker may agree to accept this alternative but is not required to.

After consideration, the court ruled in favor of the broker and awarded judgment in the full amount of the commission specified in the listing agreement, plus attorney’s fees.

TAKEAWAYS: • Stay involved in the case even when a buyer defaults. The buyer may later decide to honor the terms of the contract, and you need to know if this happens. Don’t let the contract expire. In this case, the fact that the agents had the parties sign an addendum extending the closing date likely saved the broker’s right to the commission. • Understand the terms of the NVAR

Listing Agreement. Section 4 of the

Listing Agreement protects the broker in the event the term of the listing agreement expires before settlement.

This provision protects the right to commission as long as the contract was entered into during the term of the Listing Agreement. • Don’t waive your rights to fair compensation in the event a seller decides to terminate the listing agreement early. Writing in a $500 termination fee may not adequately compensate the work you perform on the front end of a listing. Value your time and experience!

Joseph Cerroni is an attorney and a member of NVAR. He can be reached at joe@natsett.com.

Get Involved! APPLY FOR 2021 NVAR LEADERSHIP OPPORTUNITIES

By Diana Costa

NVAR IS AN ASSOCIATION by members, for members – and at the association’s core is a remarkable group of volunteer leaders.

Not only does the Board of Directors govern the association, the member-led committees, forums and groups help shape association policy, plan programs and enhance the member experience. Their dedication is instrumental to the success of Northern Virginia Realtors®.

With 30 volunteer groups equating to over 400 opportunities to serve, there is an interest group, advisory group or governance committee for every member’s interest and expertise. Some volunteer groups require prerequisites, which are outlined in the descriptions found on NVAR’s website, and each appointment serves a one-year term for the following calendar year. Questions? Email dcosta@nvar.com.

Diana Costa is the NVAR associate director of leadership development & executive assistant to the CEO.

To apply, visit NVAR.com/getinvolved and fill out an application. Candidates will be selected to leadership roles by the NVAR President, who is an elected volunteer member. The application period will close on August 31, 2020.

2020-2021 REAL ESTATE BASE PROPERTY TAX RATES

FY 2020-2021 Residential real estate property taxes changed for some Northern Virginia homeowners on July 1. Below is a list of those tax rates for local jurisdictions, as well as transportation surcharge rates for commercial properties in certain jurisdictions.

FY 2020-2021 REAL ESTATE TAX RATES

All rates are per $100 of assessed value.

City of Alexandria ..............................$1.130

Arlington County................................$1.026

City of Fairfax.....................................$1.075 (Old Town Serv. Dist. +$0.06 per $100)

Fairfax County....................................$1.150

City of Falls Church............................$1.355

Town of Herndon................................$0.265 + Fairfax County Tax

Loudoun County.................................$1.045

Prince William County.......................$1.125

Town of Vienna ..................................$0.225 + Fairfax County tax

COMMERCIAL PROPERTY TAX –

TRANSPORTATION SURCHARGE

These amounts are in addition to the general tax rate above.

Arlington County................................$0.125

City of Fairfax.....................................$0.115

Fairfax County....................................$0.125

Updates to Bright MLS Property Condition Definitions

By Matthew L. Troiani, Esq., Daniel B. Harris, Esq. and Stevie Fisher

IN RESPONSE TO SUBSCRIBER FEEDBACK, Bright MLS (Bright) has revised its Property Condition definitions, effective May 12, 2020. The new definitions can be found at NVAR.com/ propertyconditions. According to Bright, “the options will be simplified to match the nationally recognized definitions used by appraisers, making it easier for you to assign the condition of a property, search for properties that meet your buyers’ criteria, and know the condition of a property for CMAs and appraisals.”

While the use of property conditions remains optional, some Realtors® may have concerns over assigning property conditions to their listings for fear of violating the law or the Code of Ethics.

Virginia Code Section 54.1-2131 imposes an obligation on licensees engaged by the seller to treat all parties honestly and not knowingly provide false information. Virginia Real Estate Board Regulation 18VAC135-20-300(9) further prohibits knowingly making any material misrepresentations. However, the question becomes whether using the property conditions is a deliberate misrepresentation of a specific feature or fact regarding the property, or whether these labels are akin to mere “puffery.”

“Puffery,” or “immaterial boasting and exaggerations …rarely qualify as material misstatements under federal and state law.” Xia Bi v. McAuliffe, 927 F.3d 177, 183 (4th Cir. 2019). Some examples of puffery include statements like “superior quality,” “impeccable craftsmanship” or “pristine condition.” These expressions are mere opinions “which cannot rightfully be relied upon” for purposes of a fraud claim. Tate v. Colony House Builders, Inc., 257 Va. 78, 508 S.E.2d 597 (1999). Realtors® who include property conditions in their listings need not worry about violating Virginia disclosure laws or being subject to a buyer’s fraud claim when giving their opinions on the condition of a property.

There is a similar analysis under the Realtor® Code of Ethics. Article 2 of the Code of Ethics states, “Realtors® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” Simply put, a pertinent fact is one that could be a determining factor in a reasonable buyer’s decision to purchase a property. For example, if a Realtor® has knowledge of extensive and unremediated water damage that has been concealed by a seller, the Realtor® could be in violation of Article 2 if they do not disclose the existence of the damage. However, Article 2 also protects Realtors® from any obligation to discover latent defects, so under this same scenario it is not the duty of the Realtor® to discover the water damage.

As the Code of Ethics relate to the MLS property conditions, it is important to consider how a Realtor® could exaggerate or misrepresent pertinent facts while assigning the conditions. Article 2, Standard of Practice 2-5 expressly incorporates state laws and regulations regarding whether factors are pertinent under the Code of Ethics. As discussed above, as a matter of law, a listing agent’s designation of a property condition that is a reasonable opinion would not be a misrepresentation or exaggeration of pertinent facts. On the other hand, if a Realtor® grossly misrepresents the condition of the property, it is possible

for this to be a violation of the Code of Ethics. For example, if a Realtor® states that the condition of a property is “excellent” and the property is actually of a “below average” condition, perhaps one with extensive water damage rather than new construction, this misrepresentation could be a violation of Article 2.

Understanding that some sellers might not feel comfortable with their listing agent advertising their property as “below average,” this field continues to be optional in Bright MLS. In an effort to avoid misleading potential buyers, especially with the rise of purchase offers being submitted sight unseen, Realtors® should have honest conversations with their seller clients about how to properly utilize the Property Condition field and how it might affect the sale of their property so the client can make an informed decision. This way, the Realtor® can remain faithful to their Article 1 obligation to act in the best interests of their client without misrepresenting or exaggerating the condition of the property in violation of Article 2.

While intentional misrepresentations are both illegal and a violation of the Code of Ethics, Realtors® should rest easy when using the new Bright MLS Property Conditions definitions.

Daniel B. Harris, Esq. is the NVAR staff attorney.

Matthew L. Troiani, Esq. is the NVAR vice president of professional development & chief counsel.

Stevie Fisher is the NVAR associate director of professional services.