Daily Development for Wednesday, January 17, 2007

by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

BROKERS; COMMISSIONS; BUYERS’ BROKERS;  “TAIL AGREEMENTS:”:  A real estate broker is entitled to receive its commission if he or she substantially complies with the contract and if the other party receives substantially the same benefit it would have received from literal performance of the terms of the contract. 

Reece & Nichols Realtors v. Zoll, 201 S.W.3d 516 (Mo. Ct. App. 2006):

The defendant in this case entered into an exclusive buyer agency agreement with Reece & Nichols pursuant to which Reece & Nichols would locate a home in the Kansas City area and assist in the negotiations on behalf of the buyer.  Reece & Nichols would receive a 3.5% commission on the purchase price of the home and a $160 administrative commission.  Reece & Nichols found a house for Ms. Zoll and negotiated a real estate contract with the seller, which was contingent upon the bank approving Ms. Zoll for a loan.  One day prior to closing, the bank denied the loan due to a past child support order against Ms. Zoll. 

Two weeks after the cancellation of the contract, the seller informed Ms. Zoll, without consulting Reece & Nichols, that she had removed the house from the market.  The seller asked Ms. Zoll if she wanted to rent the home The parties entered into a limited on-year landlord-tenant arrangement which was neither a rent-to-buy nor a lease option contract. 

Reece & Nichols learned of the arrangement and notified Remax (as agent for seller) and Ms. Zoll that it expected to be paid a commission on the “sale” when it closed. 

Ms. Zoll was later approved by the bank for a loan.  She and the seller executed a new real estate contract but retained the negotiated terms under the first contract, including the purchase price.  Reece & Nichols filed suit against Ms. Zoll for breach of contract. 

The circuit court found in favor of Ms. Zoll, and Reece & Nichols appealed, arguing that Ms. Zoll was liable for the commission under the Agreement because she purchased a home in Kansas City that Reece & Nichols had shown her within 180 days after the Agreement terminated. 

Ms. Zoll argued that she is not liable because Reece & Nichols did not comply with the terms to extend the Agreement.  To comply literally with the Agreement, Reece & Nichols was required to submit a written description of the house shown to Ms. Zoll either in person or by mail within 7 days after the Agreement terminated in order to receive its commission on the home. 

Reece & Nichols argued that the benefit of the extension provision only required timely notice and cited supporting authority.  The appellate court agreed.  The court noted that a broker is entitled to its commission if it substantially complied with the contract, and it stated that “substantial compliance” would occur if there  is only a slight deviation and “if the other party received substantially the same benefit it would have from literal performance.”  Because Ms. Zoll received a copy of Reece & Nichols’ letter to Remax which contained a written description of the house prior to the termination of the Agreement, she did receive timely notification and was obligated to notify Reece & Nichols that she was purchasing the house so that it could seek its commission.  Thus, the court reversed and remanded, ordering the trial court to enter judgment in favor of Reece & Nichols. 

Comment 1: This is a relatively unusual situation involving a tail period on a buyer broker contract, but the principle would be the same for a seller broker contract.  Of course, where there is debate about whether a broker introduced a buyer to a house, then punctilious compliance with the notification procedures might be more important.  But here there is no question about the fact that the broker in fact introduced the parties, was involved in the negotiation of the deal that the parties actually consummated and, in short, did everything that the buyer agreed to pay the broker for.

Apparently the deviation from the contract was that Reece & Nichols filed its demand letter to Remax (with copy to Zoll) before the buyer broker agreement expired, rather than after.  The court held that Zoll was fully on notice of Reece & Nichols claim when she bought the house, and enjoyed the benefit of its services. 

Comment 2: The buyer’s commission obligation typically would be satisfied out of the seller’s proceeds if the buyer coops with a multiple listing broker. The court’s description of the buyer broker contract includes that feature.  If the original seller lists the property and controls the amount to be paid to cooperating brokers?  One assumes all this gets disclosed to the buyer before contract, and the buyer can bargain about that and refuse to buy.

Comment 3: Just to pull an Andy Rooney - is the editor the only one angered by this new practice of brokers (at least in his area) to add “junk fees” to their already inflated commissions?  We can say that brokers have more responsibilities in the modern era, but that’s largely because of consumer protective legislation or legislation promoted by the NAR to insulate brokers from consumer lawsuits.  And we can say that brokers now have bigger offices and more overhead - but that’s their business choice.  Housing prices have tripled in many markets in the last decade, and continue a steady rise over time, but the broker’s commission has not remained a percentage of the sale price but in some cases the percentage has gone higher.  Well, everything costs more these days - but why do the brokers nickel and dime with these little fees?  Makes them look more like mortgage brokers.  Isn’t seven percent of $500,000 enough? 

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