Seller/Buyer Conflict:

Shhhh!!!  My Wife is My Broker

by Brett M. Woodburn, Esq.

As one of the attorneys responsible for handling calls on PAR’s Legal Hotline, I frequently hear exclamations like “Can he do that?” or “Is that legal?” or my personal favorite, “That’s not fair!”

In a case decided earlier this year by the PA Superior Court, a buyer’s broker accepted a cooperating broker’s commission that was paid at settlement. Why is that such a big deal? That’s how real estate transactions are supposed to work, right? In this instance, the buyer’s broker was also the buyer’s wife and did not disclose this to either the Sellers or to the Listing Broker.

The Sellers, trustees who controlled the residential real estate, listed it with a broker at $1.6 million. The Listing Broker placed the property in the MLS and offered a cooperating broker’s fee. A Buyer, through his agent, contacted the Listing Broker to negotiate the sale of the home. The Buyer’s Agent represented that Buyer was pre-approved for financing and the parties agreed to a sale price of $1.45 million. As the settlement date approached, Buyer was not able to obtain financing. Admitting that he was not pre-approved, Buyer asked for an extension of the settlement date in order to secure financing. To sweeten his request, Buyer agreed to pay Sellers $75,000 if he could not get financing and the mortgage broker with whom Buyer was working paid Sellers more than $2,200 for the delay caused by rescheduling settlement. Sellers agreed to the extension; the property settled and commissions were paid according to the split offered in the MLS.

Two years after settlement, Sellers learned that the Buyer’s Broker was the Buyer’s wife and his agent was his mother-in-law (who, incidentally, was not licensed).

Question: If Sellers sold the property at the agreed price and time, then why was there a law suit?

Answer: Sellers were angry that Buyer’s wife received part of the commission.

Sellers sued Buyer, his broker and agent, claiming that Sellers endured a host of wrongs because of this subterfuge. The claims most pertinent to REALTORS® and licensees in general stemmed from claims that Sellers were victimized by fraudulent and negligent misrepresentations because Buyer did not tell Sellers that he was married to his Broker! Sellers sought to recover for violations of the Real Estate Licensing and Registration Act (RELRA), Real Estate Settlement Procedures Act (RESPA) and Unfair Trade Practices and Consumer Protection Law (UTPCPL).

The Court dismissed all claims.

In dismissing the RELRA claims, the Court noted that violations of RELRA support disciplinary action but alone do not furnish a basis for a civil suit. The Court also dismissed the claims under the UTPCPL because the consumer protection laws were created to help a consumer, in other words, a buyer. Sellers did not “buy” any services from Buyer or Buyer’s Broker. Similarly, the Court dismissed the claims that RESPA was violated because Sellers did not purchase any settlement services from any of the defendants. Sellers tried to argue that they were protected by the UTPCPL and RESPA because they did purchase services from the defendants – they authorized their Listing Broker to pay a cooperative fee through the MLS. The Court recognized what occurs in almost every real estate transaction: sellers contract with a listing broker and negotiate a fee.To argue that by authorizing the Listing Broker to pay a cooperating fee somehow evolved the Sellers into purchasers of the Buyer’s Agent’s services is absurd. The Court recognized this and dismissed the claims.

Brett Woodburn is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of Mr. Woodburn’s practice is dedicated to representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He is also one of the voices of the Legal Hotline. To see the other members of Caldwell & Kearns and the Legal Hotline visit www.caldwellkearns.com.