Agent Out $7,000 Due to Verbal Agreement

A recent decision from Ontario’s Divisional Court serves as another reminder for real estate agents to get their Buyer Representation Agreements in writing. In this case, it cost the buyer’s alleged agent $7,192.50 in commission.

The transaction related to a shopping plaza which included a gas station and convenience store. The property was listed by Remax.

An agent for Realty Canada Inc. (“Realty”) had placed an advertisement about the plaza in the Business Exchange magazine. As a result of the advertisement, the agent received a telephone call from a potentially interested buyer. This potential buyer visited the plaza and made a number of inquiries of the agent, who in turn contacted Remax and obtained information from Remax for the interested buyer.

The agent at Realty gave evidence at trial that she had come to an oral agreement with the potential buyer to represent him as his agent. However, the agent at Realty never had the potential buyer sign a Buyer Representation Agreement.

Within 5 days of having first contacted the agent at Realty, the potential buyer contacted the Remax listing agent directly. The Remax agent asked the buyer whether he was being represented by another agent. The buyer stated that he was not. The Remax agent had the buyer sign a Buyer Representation Agreement and proceed to discuss terms with the vendor, prepare the offer, negotiate the price and closing date and carry out all due diligence work with the potential buyer.

About two months after the closing, the agent at Realty contacted the Remax agent and indicated that she was representing the buyer.

The trial judge found that the Realty agent performed services that benefited the buyer and ordered the Remax agent to share the commission with the Realty agent as co-operating broker. On appeal, the Divisional Court reversed the decision and allowed Remax to keep the full 10% commission.

The Divisional Court noted that although the Realty agent did introduce the buyer to the property, the Realty agent failed to obtain a signed Buyers Representation Agreement from the purchaser and failed to advise Remax prior to the closing that she was acting for the purchaser.

The Divisional Court noted that the Realty agent may have a separate claim against the purchaser but that the Remax agent earned his co-operating broker’s share of the commission because of his own work independent from Realty’s.

Whether the buyer would have ever agreed to sign a Buyers Representation Agreement with Realty, if asked, is unknown. However, the case illustrates how costly it can be for agents to rely on oral agreements and to not have a potential buyer commit to a Buyers Representation Agreement early on, and certainly before the agent begins performing services for the potential buyer.

 

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