I

CHAPTER II

THE REAL ESTATE BROKER

N the majority of cases, in the purchase of land, improved or unimproved, the serv

ices of a broker will be employed. Either the seller will enlist the help of the broker or the purchaser will do so. It is important, in any event, that the intending purchaser understand the more fundamental of the rules having to do with the employment of the broker and with his rights to compensation.

There is a very general impression, I fear, on the part of most laymen, that the broker in a real estate transaction does not earn his commission unless and until the deal is actually consummated and title passed. In the absence of a specific agreement to this effect this is not ordinarily the case. As a general rule a broker is held to have earned his commission, and to be entitled to recover it, when he has brought the parties together and they have agreed on the terms of the purchase and sale. The fact that thereafter, for some reason not the fault of the

broker, the sale is not consummated does not ordinarily affect his right to recover his commission. He is considered to have earned this commission when the minds of the parties metwhen they were in agreement on all the essential terms of the transaction.

While this rule of law is fair and reasonable, it is in many cases likely to result in hardships to the purchaser or to the seller, as the case may be. I have in mind a recent case in which a broker brought together the owner of the property and an intending purchaser. The parties had numerous conferences and discussed in general the terms on which the sale was to be made. The owner, who had employed the broker, claimed, however, that he was not satisfied on all of the terms and that he did not agree to all of the conditions proposed by the purchaser. The broker claimed that the parties had, in fact, agreed upon all essential terms and contradicted the claim of the owner on this point. Unfortunately for the owner, the proposed purchaser sided with the broker and supported the latter's contention. The result was that the owner, who had not in fact considered that the deal was closed, was nevertheless legally adjudged liable to the broker for his commission and forced to make payment of it to him.

It must not be supposed, however, that a broker can recover a commission unless there has been some agreement with respect to his employment. This agreement need not be in writing, nor need it be what is ordinarily termed an express agreement, that is, an agreement in specific specified terms. It It may be implied as well as direct. An agreement however, direct or implied, there must be, if the broker is to secure a recovery. For example, where a broker comes to an owner of property and states that he has some customers who are interested in purchasing the property, and nothing is said with respect to the broker's commission, it has been held that the broker acted under these circumstances for the purchaser and not for the owner, and that he could not recover his commission from the latter. If the owner, however, employs the broker and the latter produces a purchaser ready to purchase the property on the terms which the owner has authorized, the commission is earned. The fact that the owner does not then carry through the sale does not defeat the right of the broker to his compensation.

If an intending purchaser or seller desires really to protect himself from any misunderstanding with respect to the broker's compensation, he can do so by a specific agreement cover

ing the terms on which the compensation is to be paid. A wise precaution, and one which will remove the danger of disputed claims for brokerage, is to insert in the agreement with the broker a provision to the effect that no brokerage shall be earned, or paid, unless and until the sale actually is consummated and title passed and closed. A provision of this kind is entirely proper and the broker will ordinarily gladly accede to it, if it is proposed in the first instance, when he is employed. It will obviate a possible future claim by him that he caused the minds of the parties to meet, and that the sale thereafter failed through no fault of his and that his commission was therefore earned. It is obvious of course that, in any event, where the sale fails as the result of some fault of the broker, the latter cannot claim his commission even if he has brought the parties together in substantial agreement prior to that time. He cannot be allowed to recover a profit on a transaction which has failed of consummation by reason of some act or omission on his part.

In many instances, the broker will secure an option for his principal for a short specified period. The securing of the option cannot be considered as tantamount to a closing of the deal, so as to entitle the broker to his commission.

The option is merely a firm offer for a specified period. It does not ripen into a contract unless and until it is accepted, and exercised, by the party to whom it is granted.

The broker, with respect to the obligation to act in good faith, is in the same position as any other professional adviser or agent. His employer has the right to expect that he will act in absolute good faith, that he will give to his employer the benefit of all information which he has, and will use his best efforts in his employer's interests. It follows from this that the broker cannot properly act where he has a personal interest in the matter, aside from his commission, unless his principal is advised of the facts and agrees to them. For the same reason, he is not entitled to accept a commission from both the seller and the purchaser without the consent of each of them. To allow him to do so would be to place him in the position of trying to represent two employers with conflicting

interests.

It has been claimed by some that the purchaser himself must pass on the value of the property which he is acquiring and that a false statement, by the seller, of the value of the property will not necessarily give the purchaser the right to rescind the sale and refuse to take title.