In our last article, we drew on a court ruling that demonstrated how a seller/client may be obligated to pay a broker's commission absent a written listing agreement, (employment contract), with the seller. In this article, we examine whether a broker who represents a buyer may be entitled to a commission even if the buyer buys a different property than the one shown to them by the broker, again, absent a written employment contract between the broker and buyer. For the answer, we look to the Manhattan case, SPRE Realty, Ltd. V. Dienst, May 20, 2014, Appellate Division, Supreme Court. The lower court ruling in favor of the broker took place on October 1, 2013.
The Appeals Court stated the following: "In this appeal, we must determine whether the plaintiff broker has alleged facts sufficient to establish its entitlement to a commission on the sale of real estate, where it expended significant effort locating an apartment for buyers who abandoned the transaction and purchased another apartment in the same building 18 months later." It further stated: "In addition, we take this opportunity to clarify the standard
by which a broker may be found to have been the 'procuring cause' of a real estate transaction."
The court determined that the buyers retained the broker to help them purchase a luxury residence in Manhattan. It further determined that even though the parties did not have a written agreement, they did have an understanding that the broker would receive a commission after finding them a residence that met their expectations. The broker showed the buyers several residences in Manhattan over the next 18 months, and around October 2007, showed them a condominium unit under construction. After the buyers expressed an interest in the unit, the broker brought them to meet with the developer, and the broker negotiated terms of the purchase on the buyer's behalf. The agreement was for two units for $11.5 million. A contract exchanged between the two attorneys representing the seller and buyer contained the same terms as negotiated by the broker. The broker searched for architects who could meet the buyers' design requirements and subsequently arranged a meeting with an architect and the developer at the buyers' summer home in Sag Harbor. In late August 2008, the buyers changed their minds and said they were no longer in the market for a new home. A few months later, according to the court, the broker contacted the buyers to inquire if they had any renewed interest in purchasing a home but did not receive a response. The court further stated that the broker continued "in good faith" to assist the buyers in their search for a commercial property to be used as an antique store. They repeatedly confirmed they were no longer seeking to purchase a residence and had no interest in the building where the unit they originally agreed to purchase was located. Despite these assurances, in February 2010, they purchased a different pair of units in the same building. The broker filed a lawsuit for a commission in May 2013 for breach of an implied contract and unjust enrichment on the part of the buyers. The buyers countered that they never signed a contract of sale for the first units, and the broker was not involved in the purchase of the units they did buy.
The court disagreed. It stated, in part: "A broker may be entitled to a commission where the buyer authorizes the broker to submit an offer to the seller but subsequently fails to execute or arbitrarily refuses to enter into a contract of sale." The court also said: "Even if SPRE [the broker] is unable to prove that it was the procuring cause, it may be able to prove that the defendants [buyers] terminated its activities in bad faith and as a mere device to escape the payment of the commission." The court also gave credit to the broker's contention that the units the buyers ultimately purchased were "substantially identical" to the units that the broker had procured for them.
On May 20, 2014, the Appellate Court unanimously upheld the lower court's decision of the October 1, 2013 ruling in favor of the broker with costs.
While in the past, it has been most common for real estate brokers to represent sellers, this is changing. It has now become, even in the Hamptons real estate market, more common for brokers to represent buyers.
John is a St. John's University graduate, licensed Real Estate Broker, DOS Certified Instructor, and real estate consultant. He previously taught at NYU, LIU, and The Cook Maran Real Estate School, which he helped found.