Littleton Family Law and Real Estate Blog (Vol 1. 59)
by Craig Franklin Chambers, Esq. June 14, 2015
The Littleton Lawyer.
Can you fire your real estate broker? As a Colorado real estate attorney and broker focusing in family law and residential real estate transactions in Denver, Littleton, Highlands Ranch, South Jeffco, and the surrounding areas, I am often asked this question.
The issue arises when a consumer hires a real estate broker as either their listing or selling broker, and then becomes dissatisfied with the broker's performance. Perhaps the seller takes the home off the market during the listing period and then finds a buyer on his own. Or a buyer stumbles into an open house and wishes to buy a home directly from the owner or through another broker.
When you hire a real estate broker, you sign a standard Colorado Real Estate Commission-approved listing agreement as either a buyer or a seller with the broker's firm. The listing agreement has a set term, which the parties negotiate, usually between four and six months.
Under the standard listing contract with the broker, if you enter into a real estate transaction during the term of the listing agreement, you owe the broker a commission, which is usually between 5-6% of the sales price, 2.8% reserved to pay the broker who brings the buyer.
If you are hiring a broker to help you find a home, you owe him the 2.8% success fee which is agreed in the agreement with the broker.
If a property goes under contract with you as a party while you are under contract with a broker, when the deal closes, you owe the commission as set forth in the agreement between you and the broker.
The legal term under the contract is that you owe the broker a commission if he is the "procuring cause" of the real estate deal. The "procuring cause" is the broker who brought forth or caused the transaction to occur. Because you signed the listing agreement, as either a seller or a buyer, the broker you employed is considered the procuring cause whether or not he is involved in the sale. And you owe the commission whether or not you include the broker in the transaction.
If you are unhappy with the broker, my first advice is to contact the broker or the employing broker for the real estate firm, and ask that the listing agreement be released. Real estate brokers rely on word of mouth and goodwill to get their business, and most don't want a hostile or unhappy client. The release needs to be in writing.
If the broker won't cooperate, you may wish to impose on your new broker to pay a referral fee to the current broker in exchange for the release. This is a fair compromise to compensate the old broker for his work while you move on to work with the new broker. The referral fee agreement should be from the new broker's firm to the old broker's firm, and it should be in writing.
If the brokerage firm still won't sign the release, you are stuck with the broker until the listing agreement expires. You can utilize the services of another broker, or enter into a transaction without the broker, but if you, do are still owe the original broker the commission as per the terms of the agreement you signed.
If you sign a listing a new broker, and still exclude your current broker from the real estate transaction during the term of the listing agreement, you legally owe two real estate commissions --- one to the old broker and another to the new broker. This could be a substantial sum of money, and it very important that you understand how real estate commissions work and the terms of the listing agreement you sign.