Reprinted from REALTOR® Magazine May, 2003 by permission of the NATIONAL ASSOCIATION OF REALTORS® Copyright 2003. All rights reserved.
Q: What are the main forms of contract breach in real estate?
Frascona: In real estate, contract breaches can occur in the property listing agreement between the broker and the seller or in the sales contract between the buyer and the seller.
Q: How might a broker breach a listing agreement?
Frascona: A broker or sales associate could violate a listing agreement by failing to advertise a property as agreed. By keeping a listing in-house, even for a short while, instead of placing it with the MLS or refusing to work with a cooperating agent, a broker isn’t fulfilling the fiduciary responsibility to the seller. This is the most common breach of a listing agreement.
Another typical breach occurs when a listing agent discloses confidential information about the seller – a divorce, financial problems, and the like. It may be unintentional, arising from a simple conversation between two sales associates, but it is still a breach of fiduciary duty because it benefits the buyer and creates an undisclosed dual agency.
Even delaying the presentation of an offer could breach a broker’s fiduciary duty under the listing agreement.
Q: What about seller breaches in the listing agreement?
Frascona: The most common breach on the seller’s side is misrepresenting the facts about the property to the broker. A seller could also violate the listing agreement by interfering with the broker’s ability to show the property or refusing to pay the broker’s earned commission.
Q: Are brokers liable for the breaches of their sales associates?
Frascona: Yes. The activities of a sales associate are attributable to the broker or owner. There is a huge downside risk to breaching one’s fiduciary duty, even if it was unintentional and even if no damage was done to the seller. The minimum penalty is loss of full commission. Some companies have had to pay multimillion-dollar penalties. Make sure your people understand their fiduciary duties under the listing agreement.