BFV Perspectives, Commercial Real Estate, Georgia Business Disputes, | Aug 16, 2017

Hiring A Real Estate Broker: Terms of the Engagement

In prior posts, I highlighted general concepts associated with retaining a real estate broker professional and described different types of engagements. Now, let’s review some of the features often present in a real estate broker engagement agreement:

Duration: How long is your Broker being hired to represent you in the purchase, sale, or lease transaction? The circumstances of the type of transaction, the geographical market and a variety of other factors will dictate the appropriate length of the engagement.

Most listing agreements will also contain what is known as the Protected Period (commonly referred to as a ‘tail’). This is a window, after the end of the listing term that captures any transaction that occurs as a result of activity that occurred during the formal listing term. Therefore, a buyer who finds your property at the end of the listing period and closes after the listing expires, but during the protected period, triggers a commission.

Exclusivity: This concept is very important, especially for a buyer or lessee. For example, typically, the exclusivity language will entitle the broker to compensation for any property you purchase or lease during the term of the agreement, regardless of who located the property.  From the perspective of the client, this may initially seem unfair, yet there are many reasons it makes sense.  But, there are means to make exceptions.  For example, identify up front the particular properties for which the broker’s exclusivity may not apply.  For an engagement agreement to be enforceable, it must have a clear termination date.

Limitation of Liability:  Engagement agreements often include language Disclaimer:   This clause provides that the maximum liability of the broker is the amount of the real estate commission paid to the broker.  Excluded from this amount is that portion of the commission paid to any cooperating broker or retained by the listing broker.  Provisions like this have been challenged and upheld by courts.

Financial Consideration:  The engagement agreement should be very clear what the broker’s compensation is, and how it is calculated.  Do not be shy about clarifying the precise conditions under which the broker gets paid.

Scope of Agency:  This contemplates a scenario where your broker may represent the other side of the transaction (i.e., both buyer and seller) and how that tension is dealt with.

Duties Generally:  What are you expecting the broker to do for you? Do you anticipate their role to be limited to writing up contracts, or more full service? Take this opportunity to clarify. The same is true of marketing. As a seller or lessor, what is the broker prepared to commit to the transaction. There are specific Georgia statutes that describe the broker’s duties. The law allows for an engagement agreement to expand on the statutory standards.

The old adage ‘look before you leap’ is certainly true when it comes to real estate transactions. That diligence begins with a thorough understanding of the engagement agreement.

Next time, we will review issues to consider in a real estate purchase contract.

BFV Perspectives, Commercial Real Estate, Georgia Business Disputes, | Aug 16, 2017
Charles H. Van Horn
Charles H. Van Horn

Chuck Van Horn resolves business disputes. A shareholder at Berman Fink Van Horn, Chuck’s areas of concentration include business and commercial litigation.