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Real Estate Brokerage Law and Practice
Copyright 2009, Matthew Bender & Company, Inc., a member of the LexisNexis Group.
PART I General Principles
CHAPTER 2 Overview of Brokerage Practice and the Organization of the Brokerage Industry *
10-2 Real Estate Brokerage Law and Practice § 2.02
§ 2.02 Brokers, Salespersons and Finders--Definitions, Descriptions and Distinctions
[1] Brokers
All states have provided a statutory definition of the term "real estate broker." The National Association of Real Estate
License Law Officials (NARELLO) Model of Real Estate License Law defines "broker" as:
an individual or professional association while acting for another for commissions or other compensation with a promise thereof, or a licensee under this chapter while acting in his or her own behalf who:
(1) Sells, exchanges, purchases, rents, or leases real estate.
(2) Offers to sell, exchange, purchase, rent or lease real estate.
(3) Negotiates, offers, attempts or agrees to negotiate the sale, exchange, purchase, rental
or leasing of real estate.
(4) Lists, offers, attempts or agrees to list real estate for sale, lease or exchange.
(5) Auctions, offers, attempts or agrees to auction real estate.
(6) Buys, sells, offers to buy or sell or otherwise deals in options on real estate or improvements thereon.
(7) Collects, offers, attempts or agrees to collect rent for the use of real estate.
(8) Advertises or holds himself out as being engaged in the business of buying, selling,
exchanging, renting or leasing real estate.
(9) Assists or directs in the procuring of prospects, calculated to result in the sale, exchange, lease or rental of real estate.
(10) Assists or directs in the negotiation of any transaction calculated or intended to result
in the sale, exchange, leasing or rental of real estate.
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10-2 Real Estate Brokerage Law and Practice § 2.02
(11) Engages in the business of charging an advance fee in connection with any contract
whereby he undertakes to promote the sale or lease of real estate either through its listing
in a publication issued for such purpose or for referral of information concerning such real
estate to brokers or both.
(12) Performs any of the foregoing acts as an employee of, or on behalf of, the owner of,
or any person who has a real or equitable interest in, real estate for compensation.
Though not all statutory definitions of the term "broker" are this verbose, these definitions tend to be broadly worded.
As generally defined, a real estate broker is an agent who, for a commission or fee, is employed by a principal to negotiate the sale, purchase, lease or exchange of real property to a third party.n1 A determination of whether a particular
individual is acting within a capacity which is to be considered a "real estate broker" is a factual issue.n1.1
A broker has been said to be an intermediary or middleman whose function and duty is to bring together the buyer and
seller or owner and lessee.n2 There is, however, a distinction between a middleman and a broker, and it has been held
that any person's participation in negotiating a sale makes such a party a real estate broker and not a mere middleman,
regardless of how slight the participation, where such person was employed in connection with the sale.n3
Individuals employed by real estate developers are often found not to be brokers or agents even though their services
may incidentally result in a real estate brokerage transaction. For example, an individual who oversaw the marketing
expenses of a developer in order to save the developer money was not found to be a broker.n4 This individual also was
responsible for marketing the properties by preparing budgets for advertising, creating advertisements, and soliciting
bids for the furnishing of model homes.n5
In the typical brokerage situation there are two contracts involved: (1) the contract between the principal and the third
party and (2) the contract between the broker and the principal. While the broker generally represents the owner or seller in the sale or leasing of real property, a broker may be employed by a buyer or lessee and, in fact, may conceivably
be employed at the same time by both the buyer and seller or owner and lessee.n6
The agency of a real estate broker is special in that the broker's powers are limited and are narrowly restricted within the
terms of that agency.n7 The real estate broker is only authorized to do what is specifically assigned in his or her contract
of employment.n8 If the broker acts outside the scope of the broker's authority, the principal will not be boundn9 and
the broker may be open to personal liability.n10 The authority of the broker ends as soon as the purpose for which the
broker was employed has been accomplished.
In order to recover a brokerage commission, the broker must, initially, prove a contract of employment. Many states
now require the brokerage contract to be in writing.n11 As a general rule, moreover, the states require a real estate broker to be licensed,n12 and the broker cannot recover a commission unless the broker was licensed at the time of rendering the services for which the commission is claimed.n13 This rule is strictly applied. A further prerequisite for recovery of a commission is that the broker be the procuring and efficient cause of a sale.n14
The brokerage business is very labor-intensive. Almost sixty percent of a brokerage firm's gross revenues typically are
paid to brokers and salespersons in the form of fees and commissions. Generally, a firm's principal assets are considered
to be its sales personnel and their knowledge of the local market. With each firm providing a customary range of brokerage services, job mobility of successful brokers and salespeople is fostered, and real estate firms become, in effect,
flexible collections of independent, skilled, semi-autonomous contractors.n15
Because of the relative unimportance of "the firm" when compared to either the MLS or the individual broker or salesperson, a perennial problem faced by all firms is finding and keeping successful brokers and salespersons. Firms compete in terms of the percentage of the total commission that the broker or salesperson will receive for acquiring a listing
or completing a sale.n16 These "internal splits" vary among firms, communities, and according to market conditions.
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10-2 Real Estate Brokerage Law and Practice § 2.02
Typically they range from ten percent to thirty percent to the listing broker, forty percent to sixty percent to the selling
broker or cooperating firm, and the remainder to the firm. They are also frequently progressive--that is, as a broker produces more listings or more sales per year, the percentage he or she receives increases. A successful broker who sells
his or her own listing can sometimes receive seventy percent of the total commission.
The use of brokers and salespersons and their relative importance to the firms can be seen in the internal split structure.
First, the ability of inexperienced salespersons to obtain the listings of friends and relatives usually is reflected in the
relatively low split given for listing the first several properties. The relative importance and difficulty of converting a
prospective buyer to an actual buyer is reflected in the larger split given for that function. Furthermore, the progressively higher splits for increasing numbers of transactions per year reflect the rewards reaped by those individual brokers
and salespersons with the ability to quickly obtain listings from or make sales to people outside their circle of friends
and relatives.
The fees and commission paid to brokers and salespersons by clients are almost always contingent in nature. The contingent form of payment is a major inducement for the broker or salesperson to persuade the buyer and seller to complete the transaction. It also facilitates the use of marginally productive salespersons and part-timers because their time
is viewed by many as being "cheap" or even "free" to the firm.
Profiles of representative real estate brokers have been compiled from surveys conducted by the Realtors' associations.
The typical Realtor-broker is a man approximately forty-eight years old who has been associated with the real estate
business for at least ten years, having worked for at least two different brokerage firms, who specializes in selling single-family homes, who works more than forty hours per week. While this picture has remained somewhat constant over
the years, there is a trend toward Realtor(R) brokers who are more highly educated. By 1987, 66.1% of the Realtor-brokers had some level of college education. While organized real estate and full-time real estate brokers generally
believe part-time brokers are less able to give quality service to consumers, almost forty-five percent of the firms use
them.
The various state licensing requirements are not considered serious barriers to entry. The numbers of licensees have
been found to vary according to various indirect measures of demand when comparing different market areas, and the
numbers of licensees both in absolute numbers and as a percentage of population have generally increased.
There are no accurate statistics on the number of brokers and salespersons actively involved in brokerage, as opposed to
the total number of licensees registered with the states. Most observers believe the number of licensees greatly exceeds
the number of people actually engaged in brokerage. Local surveys attempting to measure the actual percentage of licensees who are full-time practitioners, however, have produced results ranging from approximately thirty percent to
eighty percent of licensees.
Brokers are generally considered to be in a fiduciary relationship with their principals, requiring a high degree of loyalty
and good faith. Brokers, moreover, have a duty not to act negligently with respect to their principals' interests.n17 As a
consequence, if the principal should sustain a loss due to the broker's negligence, the broker may be held personally
liable.n18
[2] Salespersons
A salesperson, as distinguished from a broker, is defined by most statutes as an agent of the broker,n19 receives his or
her commission from the brokern20 and is precluded from receiving compensation from any third party for services
rendered in a transaction. The salesperson may not collect a commission directly from the broker's clients. A salesperson's right to a commission, if any, must be enforced against the broker and this right is not affected by the broker's litigation against the buyer or seller.n21 While a state's statute of frauds usually requires that principal's agreements authorizing or employing an agent or broker to purchase or sell real estate for compensation be in writing, there is usually
no prohibition of oral agreements between brokers or between a broker and a salesperson or agent to share a commission.n22
Salespersons must be associated with a broker. Most licensing statutes provide that the salesperson's license is held by
his or her broker.n23 Typically, salespersons work as independent contractors of their broker; however, it is possible for
them to be employees.n24
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10-2 Real Estate Brokerage Law and Practice § 2.02
For a discussion of statutes of frauds in relation to real estate broker employment contracts, see § 2.03[3] infra.
[3] Finders
A broker may be employed as a "finder," i.e., his or her job may be to find a prospective purchaser, introduce the parties
and leave the negotiations, etc., to the buyer and seller.n25 "Finders" may be exempt from real estate licensing requirements if none of the functions of a broker are performed.n26 In California, for example, it has been held that one acting
merely as an intermediary or middleman in finding and introducing two parties to a real estate transaction does not act
as a "broker" for purposes of the state's real estate licensing laws.n27 However, if the "finder" takes any part in the negotiations, no matter how slight, he or she will be considered a "broker" and must be licensed to collect a commission.n28 Of course, whether a broker was employed as a "broker" or as a "finder" will at times be a question of fact depending upon the agreement between the parties.n29
It has been stated that the distinction between a broker and a middleman is significant in the determination of whether a
fiduciary relationship existed between the middleman and the principal.n30
At least one court has refused to recognize a "middleman" exception to the real estate broker's duty of full disclosure,
stating that there is no exception for finders or middlemen who merely bring parties together to negotiate a contract, and
who have no power to, and do not, negotiate the terms on which the principals deal.n31
The descriptive term--"finder" or "middleman"--does not mean the exclusion of the party from the operation of licensing requirements applicable to brokers.n32 It is the activity that counts, not the name. The activity of the party may
bring that party within the licensing law even if that party uses the self-description of "finder" or "middleman," as the
discussion below points out.
A "middleman" has been defined as a person who "is employed for the mere purpose of bringing the possible buyer and
seller together so that they may negotiate their own contract."n33 The middleman has only limited authority and has no
power to, and does not, negotiate the terms of the transaction for the principals.n34
Likewise, a "finder" is an intermediary who contracts to find and bring the parties together but leaves the negotiation of
the transaction to the principals.n35 Since a middleman or finder is merely involved in introducing the parties to each
other, it follows that there is no fiduciary relationship to the principals.n36
The limited role and liability of a middleman is perceived by the courts as constituting a narrow exception to the general
principle that one who participates, for compensation, in assisting the negotiation or consummation of a real estate
transaction is a broker and is liable as a broker. If the person has engaged in any negotiation to consummate the transaction, the person is viewed as a broker, not a mere middleman or finder.n37 The reason for this limitation is apparent: all
brokers are involved in bringing the parties together and, if a more liberal interpretation of the terms "middleman" or
"finder" were sanctioned, the exception would swallow the rule. A broader construction would be inconsistent with the
principle that the imposition of duties and responsibilities upon brokers, including licensing requirements, is to protect
the public from unqualified and unscrupulous people.n38 As one court explained:
The essential feature of a broker's employment is to bring the parties together in an amicable frame
of mind, with an attitude toward each other and toward the transaction in hand which permits their
working out the terms of their agreement. They may reach that agreement without his aid or interference.
Indeed, in a transaction of any magnitude, the terms would never be settled beforehand or negotiated finally by the broker ... .
This does not mean that the broker has not negotiated the transaction ... . If the statute does not apply
to such a situation, then it is a toothless enactment. Every unlicensed broker will make the same argument that the plaintiff here has made, that he did not have to bring the parties to actual agreement upon
all the details, that that phase was something for the parties themselves to determine. In short, every unlicensed broker will be enabled to carry on his business just as he did before the statute came into existence, simply by calling himself a finder, an originator, an introducer, instead of a broker. This would be
an absurd limitation of the statute and one unfounded in reason or policy.n39
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10-2 Real Estate Brokerage Law and Practice § 2.02
[4] Cases Addressing the Broker and Middleman/Finder Dichotomy
In one Utah case, a corporation entered into a written "finders agreement" under which another corporation was afforded the right to act as finder for the purchase of property from the corporation and was to receive a percentage of the
sales price. The would-be "finder" thereafter brought an action to recover the agreed-upon compensation, with the court
granting summary judgment to the defendant on the ground that the plaintiff's activity was real estate brokerage and the
plaintiff could not recover as the plaintiff was not licensed.n40
In an Illinois case, a plaintiff, not licensed as a broker, attempted to recover a fee for services in the negotiation of a
commercial lease by claiming that he acted merely as a finder.n41 The facts were that the defendant-seller contacted the
plaintiff and asked him to look for a tenant for her store building, without discussion at any time of the fee to be paid for
such service. The court denied recovery, reasoning that the negotiation of a store lease is a form of real estate brokerage,
and the plaintiff was precluded from receiving compensation for having done so without benefit of license.n42
Of major importance is the decision of the Supreme Court of California in Batson v. Strehlow.n43 In Batson, a real estate agent, accused of improper conduct, sought to avoid the return of a commission by labeling himself a middleman.
There, the guardian of an incompetent's estate mailed a real estate listing to a large number of brokers. The listing described the property, offered to sell it on specified terms and solicited bids. The listing offered to pay a commission to
the real estate broker who submitted the accepted bid, provided that the sale was completed after court approval had
been obtained. The defendant-broker submitted a bid on behalf of a development company in which he and his wife
owned all of the shares. The bid was the highest one received and was accepted after court approval. The defendant was
paid a commission. Thereafter, an action was commenced to recover the commission. The proof showed that the development company, in whose name the bid was submitted, did not provide the consideration for the purchase of the property. The money was provided by the defendant-broker and business associates. In fact, after the sale, the property was
conveyed by the development company to a partnership consisting of the broker and his two associates. The plaintiff's
theory of recovery was that the defendant was not a broker in the transaction but a principal. The defendant countered
with the contention that he was entitled to a commission, not as a broker, but as a middleman who had brought the parties together.
The Supreme Court of California unanimously concluded that the defendant was a broker, not a mere middleman. The
court declared that the distinction between a finder or middleman and a broker often turns on whether the intermediary
was invested with authority or duties beyond merely bringing the parties together.n44 In Batson, at all times the defendant was referred to or described as a broker and, under applicable provisions of the California Probate Code, only a
bona fide agent or broker could receive compensation for securing a purchaser for property owned by an estate.n45
Thus, the compensation paid the defendant was lawful only if he were a bona fide agent or broker. Moreover, disregarding what the defendant was called, the court declared that "the role he played" was that of a broker.n46 The court
did not explicitly describe what particular conduct engaged in by the defendant was broker conduct. Although there
were no face-to-face negotiations with the seller, who relied upon written bid submissions, the defendant apparently
engaged in the preparation of the bid that was accepted. Bid preparation necessarily would entail the use of judgment
and discretion and the investment in the bid preparer of at least limited authority to speak for the bidder. Hence, there
was sufficient activity on the part of the broker that evinced that his role was not merely that of "bringing the parties
together."n47
The Batson case was followed in the subsequent California case of Whitehead v. Gordon n48 which involved a proceeding by a broker to review the revocation of his brokerage license. The proof revealed that the broker, on two occasions, submitted offers to purchase realty from estates. The offers were submitted in the name of the broker's brother-in-law, with the relationship of the offeror to the broker undisclosed. The broker received commissions from the estates and, afterwards, title to the subject properties was transferred to corporations in which the broker had substantial
interests. The trial court annulled the revocation of the license. Though the court acknowledged that there had been an
attempt to deceive, it reasoned that the deception was "unnecessary." The broker owed no duty to the sellers, as the
broker had been acting solely as a middleman. The California Court of Appeals reversed,n49 citing Batson. As in Batson, the court concluded that the activities involved in Whitehead constituted real estate brokerage and, consequently,
the obligations imposed by law upon brokers attached.
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10-2 Real Estate Brokerage Law and Practice § 2.02
Another California case, Montoya v. McLeod,n50 involved a constructive fraud action which was brought by a couple
against a licensed real estate salesperson who had solicited a loan on behalf of her employer, an investment broker. The
court determined that the salesperson, acting in her capacity as "investment counselor," was not a mere "middleperson."
The court noted that the salesperson had negotiated the loan and executed a promissory note in the couple's favor, which
established an agency (fiduciary) relationship despite the absence of a written agency agreement.
In sum, courts have severely limited the concept of a non-broker middleman or finder. While broker liability may fairly
be disclaimed where the intermediary does no more than introduce the parties to each other, any greater activity on the
part of the intermediary will likely result in the conclusion that the intermediary was a broker and liable as such. Given
the stated principle of protecting the public from the consequences of improper acts by unscrupulous intermediaries, the
courts will resolve even doubtful cases by holding the intermediary to be a broker.
[5] Broker Activities Versus Marketing Activities
Another scenario where a seller tries to avoid paying compensation arises when a developer engages an unlicensed party
to handle the marketing of the developer's project. If the developer subsequently reneges on the parties' compensation
agreement, the developer may allege that payment of the compensation would violate a statutory prohibition against
paying real estate commissions to an unlicensed person.n51
This argument was asserted in Schickedanz Bros.-Riviera, Ltd. v. Harris.n52 The compensation agreement contained an
incentive bonus based on maintaining marketing expenses below a certain percentage of gross real estate sales. The duties of the unlicensed parties involved the preparation of budgets for advertising, the creation of advertisements, and the
solicitation of bids for the furnishing of model homes.n53 In holding that providing oversight of the marketing budget
and paying for these services with a fee incentive did not transform the services into brokerage services, the court contrasted its decision with an earlier decision where an unlicensed individual was deemed to be a real estate broker or
salesman. In the prior case, however, a telephone solicitor was paid not only an hourly rate, but also a $3 bonus for each
person whom she successfully solicited to visit the developer's property. The fact that this individual had direct contact
with the purchasers was a factor in the decision, as was the fact that she played an active part in the procurement of
identified prospective customers.n54 In contrast, the unlicensed parties in the case before the court merely provided
oversight of the marketing budget. The fact that a fee incentive was tied to keeping marketing expenses below a certain
percentage of real estate sales did not transform those services into brokerage services. The court stated that it was the
nature of the services rendered, rather than a characterization of whether purchasers of real property are directly or indirectly procured by the services, which distinguished the cases.n55
FOOTNOTES:
(n1)Footnote 1. See Section 2(4) of the NARELLO Model License Law, ch. 6 infra .
California: Horning v. Shilberg, 130 Cal. App. 4th 197, 203, 29 Cal. Rptr. 3d 717, 723 (2005) .
New York: In 1992, New York R.P.L. § 440(1) [Definitions] was amended to provide that in connection
with the sale of a business, the term "real estate broker" shall not include a person, firm or corporation
registered pursuant to the provisions of New York's General Business Law, Article 23-A or federal securities laws.
Michigan: G.C. Timmis & Co. v. Guardian Alarm Co., 468 Mich. 416, 427-428, 662 N.W.2d 710,
716-717 (2003) .
Wyoming: In Walter v. Moore, 700 P.2d 1219 (Wyo. 1985) , the Wyoming Supreme Court held that the
vendor's daughter-in-law, who was not acting as a real estate broker in the transaction, was not liable for
fraud even though the purchasers discovered after the sale that they could not install a septic tank or
build a new home on the land as they has planned because of zoning regulations. Seller placed an advertisement in the classified section of the newspaper to sell her house trailer and river-front property. The
purchasers purchased the property after seeing the advertisement and seller stated to them that her
daughter-in-law was a real estate agent who would assist in the details of the transaction. The real estate
agent mentioned that she would assist the purchasers as a favor to her mother-in-law and that she was not
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10-2 Real Estate Brokerage Law and Practice § 2.02
accepting a commission on the sale. Approximately six months after the purchasers had moved onto the
property, the septic system stopped working. Subsequently they were informed by a sanitation engineer
that the property was in a floodplain zone which precluded the installation of a septic system. Building a
new home on the land was also precluded. Accordingly, they brought suit against the real estate agent for
fraud. The court stated that the agent could not be held liable in fraud, because she had not acted as a
broker in the sale.
(n2)Footnote 1.1. See Kidd v. Mull, 595 S.E.2d 308, 317-318 (W. Va. 2004) .
(n3)Footnote 2.
Alabama: Ex Parte Ledford, 761 So. 2d 990, 995 (Ala. 2000) (a real estate broker brings together those
selling real estate and those buying it and assists in the negotiation of the sale-purchase transaction).
See:
California: Ryan v. Walker, 35 Cal. App. 116, 169 P. 417 (1917) .
Minnesota: In Relocation Realty Servs. v. Carlson Cos., 264 N.W.2d 643 (Minn. 1978) , it was held that
a company was a "real estate broker" within the purview of the state licensing statute, where the company provided services to employers in transferring and relocating executive personnel and held itself out
to be engaged in the purchase and sale of real estate for a fee.
Cf. Horning v. Shilberg, 130 Cal. App. 4th 197, 204, 29 Cal. Rptr. 3d 717, 723 (2005) (person acting
on his or her own behalf in a real estate transaction is not a broker within the meaning of Cal. Bus. &
Prof. Code § 10131.).
(n4)Footnote 3. See West v. Touchstone, 620 S.W.2d 687 (Tex. Civ. App. 1981) writ of error refused no reversible
error (Sept. 28, 1981), rehearing of writ of error overruled (Oct. 28, 1981).
See also Preach v. Rainbow, 16 Cal. Rptr. 2d 320 (Cal. Ct. App. 1993) (where a person alleged to be a finder engages in not only bringing the parties together, but also in negotiations, his actions constituted those of a broker, not a
finder).
(n5)Footnote 4. See Schickedanz Bros.-Riviera v. Harris, 800 So. 2d 608, 611 (Fla. 2001) .
(n6)Footnote 5. See Schickedanz Bros.-Riviera v. Harris, 800 So. 2d 608 (Fla. 2001) .
(n7)Footnote 6. See Section 20(14) of the NARELLO Model License Law, ch. 6 infra .
(n8)Footnote 7. See:
California: Van Nguyen v. Hung Tran, 157 Cal. App. 4th 1032, 1038, 68 Cal. Rptr. 3d 906, 910 (2007)
(broker is a special agent with limited powers).
Kentucky: Garnes v. Murphy, 239 S.W.2d 453 (Ky. 1951) .
New Jersey: Sammarone v. Bovino, 395 N.J. Super. 132, 139, 928 A.2d 140, 144 (App. Div. 2007) , cert.
denied, 193 N.J. 275, 937 A.2d 977 (2007) .
Washington: Peoples Nat'l Bank v. Brown, 37 Wash. 2d 49, 221 P.2d 530 (1950) .
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10-2 Real Estate Brokerage Law and Practice § 2.02
(n9)Footnote 8. See Martin v. Vincent, 181 Mont. 247, 593 P.2d 45 (Mont. 1979) .
See also Peebles v. Sneed, 207 Ark. 1, 179 S.W.2d 156 (1944) (a broker's authority is such as is specifically conferred on him either expressly or by necessary implication).
(n10)Footnote 9. See, e.g.:
Illinois: In Schermerhorn v. Department of Registration & Ed., 185 Ill. App. 3d 883, 542 N.E.2d 42
(1989) , review denied, 128 Ill. 2d 672, 139 Ill. Dec. 522, 548 N.E.2d 1078 (1990) , cert. denied, 495
U.S. 948, 110 S. Ct. 2208, 109 L. Ed. 2d 534 (1990) the court upheld a decision of the Department of
Registration and Education placing real estate licensees on probation for two years for improperly commingling funds when they took money from a property management account, placed it in commercial
paper investment, and deposited interest on the investment into a separate operating account used for the
benefit of the licensees' corporation. The court stated that the interest earned on the investment should
have been deposited into the company's tax account for property management customers and not in the
company's operating account. Accordingly, the licensees violated the Real Estate License Act for commingling the money or property of others with their own.
North Dakota: Hudson v. Wells and Dickey Co., 31 N.D. 395, 154 N.W. 193 (1915) .
(n11)Footnote 10. See Cryder Well Co. v. Brown, 257 Iowa 296, 136 N.W.2d 519 (1965) , holding a real estate
agent personally liable for the cost of a new well where the agent contracted for the well without authority from the
owners to do so. See ch. 3 infra for a detailed discussion of the broker's duties and liabilities.
(n12)Footnote 11. For further treatment of the various states which now require written brokerage agreements, see
§ 2.03[3] infra.
(n13)Footnote 12. A discussion of licensing statutes is found in ch. 6 infra .
(n14)Footnote 13. See, e.g.:
Georgia: Northside Realty Assocs, Inc. v. MPI Corp., 245 Ga. 321, 265 S.E.2d 11 (1980) (defendant
agent was not entitled to a commission upon the sale of realty where it was not a licensed broker either at
the time the subject property was listed for sale or at the time it negotiated and signed the sales contract).
Texas: David Gavin Co. v. Gibson, 780 S.W.2d 833 (Tex. Ct. App. 1989) , where the court held that an
unlicensed broker was not entitled to a commission. There, an individual hired an unlicensed broker to
assist in locating and acquiring an automobile dealership. The unlicensed broker located a dealership and
brought the parties together in fulfillment of his contract. The sale never closed and the broker sued for
his commission. To determine whether a commission is earned on the sale of property, consisting in part
of real estate, the court examined the laws governing a real estate commission. In Texas, the broker selling real estate must possess a real estate broker's license. The contract was not deemed divisible for the
purpose of enabling the unlicensed broker to collect a fee for the sale of the business but not the real estate. The court applied the rule that if one part of a contract is illegal, the entire contract is void and the
unlicensed broker does not collect any commission.
Ackerman & Co. v. Cox, 768 S.W.2d 475 (Tex. Ct. App. 1989) (the failure of the broker to allege in
his pleadings that he was a duly licensed real estate broker at the time the services were commenced necessitated the denial of any commissions).
Utah: Diversified General Corp. v. White Barn Golf Course, Inc., 584 P.2d 848 (Utah 1978) .
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10-2 Real Estate Brokerage Law and Practice § 2.02
(n15)Footnote 14. See, e.g.:
Georgia: Nestle Co., Inc. v. J. H. Ewing & Sons, 153 Ga. App. 328, 265 S.E.2d 61 (1980) (broker may
be deemed the "procuring cause" of a sale when he shows that negotiations were initiated through his efforts and that he performed every service required by his employment).
Louisiana: Farnsworth, Samuel Ltd. v. Grant, 470 So. 2d 253 (La. Ct. App. 1985) .
See also:
South Dakota: Kahler, Inc. v. Weiss, 539 N.W.2d 86 (S.D. 1995) (the term "sale" may be given a narrow
or broad meaning depending upon the circumstances and the parties' reasonable intentions).
See ch. 4 infra for a discussion of when the broker's commission is earned.
(n16)Footnote 15. Salespersons and agents are not always considered independent contractors. See Re/Max v.
Wausau Ins. Cos., 162 N.J. 282, 744 A.2d 154, 158 (2000) (sales agents were employees for purpose of calculating
workers' compensation premiums).
(n17)Footnote 16. See, e.g.:
Connecticut: Lerner v. Ceslik, 17 Conn. App. 369, 553 A.2d 1142 (1989) , in which the court held that a
real estate agent satisfied the requirements for entitlement to the 25% listing and sales commissions set
forth in her contract with her employer by bringing the property to the owner's attention, and was therefore entitled to recover the 25% sales and listing commissions.
Wisconsin: Stauffacher v. Portside Properties, Inc., 150 Wis. 2d 242, 441 N.W.2d 328 (1989) , where
the court held that where the term "accrual of a listing agent's right to a commission" was used in an independent contractor agreement, it was sufficiently ambiguous in determining when the agent was entitled to a commission to defeat a motion for summary judgment.
(n18)Footnote 17. See, e.g.:
Louisiana: Tres' Chic in A Week, L.L.C. v. Home Realty Store, 993 So. 2d 228, 231-32 (La. Ct. App.
2008) .
Missouri: Gallaher-Smith-Feutiz Realty, Inc. v. Circle Z Farm, Inc., 545 S.W.2d 395 (Mo. App. 1976) .
Wyoming: Kelly v. Roussalis, 776 P.2d 1016 (Wyo. 1989) , where the court held that a real estate agent
acting on behalf of a friend was not relieved of the high standard of care required of real estate agents,
and was thus subject to liability to the friend for malpractice. In Kelly, the agent attended a foreclosure
auction with a friend and bid for him on a piece of property. Both parties mistakenly believed that the
agent had previously shown the property. After the property was paid for, it was learned that the friend
had purchased a different piece of property. It was established that the agent had available to him the information necessary to discover the mistake. Instead of confirming the identity of the property being sold
at the auction, the agent assumed it was the property he had previously shown. The trial court found the
agent liable in tort. On appeal, the agent relied on the fact that he was acting as a friend when he attended
the foreclosure auction, and that the standard of care he owed was not the high standard ordinarily expected of real estate agents. The appellate court rejected this argument, holding that even if agent's services were volunteered or gratuitously undertaken, his conduct must be measured against a standard
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10-2 Real Estate Brokerage Law and Practice § 2.02
more demanding than mere reasonableness. On the facts in the present case, the court added, there was
no doubt that the agent had been negligent in the handling of his friend's purchase. He was therefore liable for malpractice. In addition, the court held that the broker's right to control the agent created a master-servant relationship. The broker was therefore liable for the agent's malpractice committed while the
agent acted within the scope of his employment.
(n19)Footnote 18. See, e.g., Veach v. Meyeres Real Estate, Inc., 599 P.2d 746 (Alaska 1979) .
See ch. 3 infra for a discussion of the duties and liability of the broker.
(n20)Footnote 19. Bedow v. Watkins, 539 N.W.2d 414 (Minn. App. 1995) (a real estate sales agent is a person who
is not a broker and therefore has to be connected to a broker in order to deal legitimately in real estate).
(n21)Footnote 20. In DiLorenzo v. Sbarra, 124 A.D.2d 446, 507 N.Y.S.2d 548, 1986 N.Y. App. Div. LEXIS 61432
(3d Dept. 1986) , the court found that where a real estate salesperson did not expressly consent to a commission loan
agreement between the broker and the purchaser, the salesperson's commission was owed to him. The commission was
made at the closing and substituted the purchaser's debt for the broker's commission due from the seller. The broker
maintained that the salesperson agreed to the postponement of his own commission because he was silent during the
contract closing. The court, however, found that the salesperson was unaware of the transaction because he arrived at
the closing long after the exchange of checks had occurred. Moreover, he could not have impliedly consented to the
arrangement.
In New York, where a real estate salesperson leaves the service of a real estate broker, the broker must file a termination of association notice, the fee for which is $10. The salesperson's license may be endorsed to a new sponsoring broker upon establishment of a new record of association with the Department of State, the filing fee for which is also $10.
(n22)Footnote 21. See Corris v. White, 29 A.D.2d 470, 289 N.Y.S.2d 371, 1968 N.Y. App. Div. LEXIS 4300 (4th
Dept 1968) .
(n23)Footnote 22. See, e.g., Lane v. Floyd, 213 Ore. App. 215, 159 P.3d 1240 (2007) , review denied, 344 Ore.
43, 178 P.3d 247 (2008) Fowler v. Taylor, 554 P.2d 205 (Utah 1976) .
(n24)Footnote 23. See, e.g., City of Washington v. Barnhart, 93 S.W.3d 743, 745 (Mo. Ct. App. 2002) , citing Mo.
Code Regs., Ann. tit. 4, § 250-4.050(2). Axtmann v. Chillemi, 2007 ND 179, 740 N.W.2d 838, 845 (N.D. 2007) .
(n25)Footnote 24. See Mo. Rev. Stat. § 339.010.2. Walker v. Johnson, 278 Ga. App. 806, 812, 630 S.E.2d 70, 76
(2006) , reconsideration dismissed, overruled in part, Kleber v. City of Atlanta, 2008 Ga. App. LEXIS 396, at *15 (Mar.
28, 2008) (on other grounds) Cf. Kakides v. King Davis Agency, Inc., 283 F. Supp. 2d 411, 416 (D. Mass. 2003) applying federal and Massachusetts law (agent was an independent contractor); Carson v. Seacoast Realty, Inc., 2003 Del.
Super. LEXIS 386, at *14-*15 (Del. Super. Ct. Oct. 3, 2003) aff'd, 2004 Del. LEXIS 371 (Del. Aug. 23, 2004) (real estate salespersons are excluded from the definition of employee under Delaware workers' compensation laws); Fayne v.
Vincent, 2004 Tenn. App. LEXIS 508, at *8-*10 (Tenn. Ct. App. Aug. 5, 2004) (real estate agent was an independent
contractor).
(n26)Footnote 25. See, e.g., Fuller v. Alberts, 382 So. 2d 113 (Fla. DCA 1980) ; PKG Associates, Inc. v Dubb, 306
A.D.2d 333, 760 N.Y.S.2d 681, 682 (2d Dept. 2003) . Brochu v. Santis, 939 A.2d 449, 453 (R.I. 2008) .
A broker was entitled to the reasonable value of his services under a quantum meruit theory, where a commercial
purchaser, although not expressly agreeing to a brokerage contract, (1) evinced a willingness to pay the broker a finder's
fee for information leading to the purchase of a 3-million-dollar commercial building, (2) the purchaser accepted the
broker's services with a reasonable opportunity to reject them and with the knowledge that the broker expected a commission, (3) the broker was the procuring cause of the sale and (4) the broker supplied the purchaser with information
about the subject property with the expectation that the purchaser would pay a brokerage fee, and the purchaser himself
admitted at trial that he always intended to compensate the broker for his services. Given these circumstances, denying
the broker a commission would unjustly enrich the purchasers. Weichert Co. Realtors v. Ryan, 128 N.J. 427, 608 A.2d
280 (N.J. 1992) . See ch. 12 infra for a discussion of "finders."
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10-2 Real Estate Brokerage Law and Practice § 2.02
(n27)Footnote 26. See, e.g., Berchenko v. Fulton Fed. S & L Ass'n, 244 Ga. 733 , S.E.2d 643 (1979). But see
Amedeus Corp. v. McAllister, 2009 Colo. App. LEXIS 221, at *7 (Colo. Ct. App. Feb. 19, 2009) (Colorado's statutory
definition of real estate broker does not recognize any distinction between a broker and a finder.).
(n28)Footnote 27. See Tyrone v. Kelley, 9 Cal. 3d 1, 106 Cal. Rptr. 761, 507 P.2d 65 (1973) .
(n29)Footnote 28. See:
Federal: Shinberg v. Bruk, 875 F.2d 973 (1st Cir. 1989) , in which the court held that: (1) under New
Hampshire Law, a finder of real estate is treated as a broker rather than a finder and is required to comply
with the real estate licensing law in order to obtain a commission; and (2) under Massachusetts law, one
who assists or directs in the procuring of prospects intended to result in the sale, exchange, purchase,
leasing or renting of any real estate, is required to comply with the state licensing statute in order to obtain a commission. In Shinberg, plaintiff was an attorney but was not licensed as a real estate broker. A
Massachusetts buyer agreed to pay the attorney a finders fee of 10% of the purchase price of any real estate that attorney found in New Hampshire that was suitable for a shopping mall development. Attorney
found a potential site, notified buyer, met with the seller and introduced the two parties. Buyer and seller
conducted the negotiations and attorney did nothing further. Buyer purchased the land and refused to pay
the attorney a finders fee. The district court found that the attorney could not recover under either New
Hampshire or Massachusetts law. In affirming, the appellate court applied New Hampshire law but noted
that attorney would not be entitled to a commission under either state's law. The court rejected attorney's
argument that under New Hampshire law he was a finder as opposed to a broker and was therefore not
required to be licensed in order to receive a finders fee. The court stated that a finder is a special type of
broker that deals in personal property (e.g., securities, mergers, mortgage financing, business acquisitions). Therefore, under New Hampshire law, a finder of real estate is treated as a real estate broker, and
an unlicensed broker is barred from recovering a commission under the state's licensing statute. Under
Massachusetts law, a broker is defined, inter alia, as one who "assists or directs in the procuring of prospects ... intended to result in the sale, exchange, purchase, leasing or renting of any real estate.'' The
court found that the attorney's services fell within this definition. Therefore, in order to receive a finders
fee, he was required to comply with the licensing requirements imposed.
California: Rees v. Department of Real Estate, 76 Cal. App. 3d 286, 142 Cal. Rptr. 789 (1977) .
New York: Berg v. Wilpon, 180 Misc. 2d 956, 692 N.Y.S.2d 600, 602-603 (1999) .
Texas: David Gavin Co. v. Gibson, 780 S.W. 2d 833 (Tex. Ct. App. 1989) ; West v. Touchstone, 620
S.W.2d 687 (Tex. Civ. App. 1981) .
For a discussion of licensing statutes, see ch. 6 infra.
(n30)Footnote 29. Whether a person acted as a finder or a broker is a question of fact, requiring examination of
the broker's conduct after the introduction of the principals of the transaction. Thus, where a purported finder involved
himself in negotiations after the principals were introduced, that involvement constituted activities beyond the permissible scope of a finder and required a real estate license. Preach v. Rainbow, 16 Cal. Rptr. 2d 320 (Cal. Ct. App. 1993) .
See also Fisch's Parking, Inc. v. Independence Hall Parking, Inc., 638 A.2d 217 (Pa. Super. 1994) , in which the court
held that a consultant hired to find a buyer for a parking lot was not a real estate broker. The consultant did not engage
in negotiations regarding the sale, confined himself to communicating information between the parties, and was retained
because of his expertise in managing parking lot operations.
(n31)Footnote 30.
California: Batson v. Strehlow, 68 Cal. 2d 662, 68 Cal. Rptr. 589, 441 P.2d 101 (1968) .
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10-2 Real Estate Brokerage Law and Practice § 2.02
New Mexico: Watts v. Andrews, 98 N.M. 404, 649 P.2d 472, 474 (1982) .
(n32)Footnote 31. See Property House, Inc. v. Kelley, 68 Haw. 371, 715 P.2d 805 (1986) reconsideration denied,
68 Haw. 688 (Haw. 1986) .
(n33)Footnote 32. See Berg v. Wilpon, 180 Misc. 2d 956, 692 N.Y.S.2d 600, 602-603, 1999 N.Y. Misc. LEXIS 249
(1999) . See also Swor v. Tapp Furniture Co., 146 S.W.3d 778, 782 (Tex. App. 2004) (The fee for handling a sale that
includes real estate is considered a real estate commission. The definition of real estate broker covers compensation
labeled as a finder's fee.).
(n34)Footnote 33.
California: McConnell v. Cowan, 44 Cal. 2d 805, 285 P.2d 261 (1955) .
New Mexico: Barber's Super Markets, Inc. v. Stryker, 84 N.M. 181, 188, 500 P.2d 1304, 1311 (N.M. Ct.
App.) cert. denied, 84 N.M. 180, 500 P.2d 1303 (1972) .
(n35)Footnote 34. Barber's Super Markets, Inc. v. Stryker, 84 N.M. 181, 500 P.2d 1304, 1311 (N.M. Ct. App.
1972) cert. denied, 84 N.M. 180, 500 P.2d 1303 (N.M. 1972) .
(n36)Footnote 35.
Federal: Bittner v. American-Marietta Co., 162 F. Supp. 486, 488 (E.D. Ill. 1958) .
California: Tyrone v. Kelley, 9 Cal. 3d 1, 8-9, 106 Cal. Rptr. 761, 765-766, 507 P.2d 65, 69-70 (1973) .
Illinois: Kilbane v. Dyas, 33 Ill. App. 3d 439, 441-442, 337 N.E.2d 217, 220 (1975) .
Utah: Sachs v. Lesser, 163 P.3d 662, 670, 2007 UT App 169 (2007) , rev'd, 2008 UT 87, 2008 Utah
LEXIS 197 (Utah 2008) (on other grounds).
(n37)Footnote 36. See Langford v. Issenhuth, 28 S.D. 451, 463, 134 N.W. 889, 893-894 (1912) .
(n38)Footnote 37. See Kilbane v. Dyas, 33 Ill. App. 3d 439, 442, 337 N.E.2d 217, 220 (1975) .
(n39)Footnote 38. See Diversified Gen. Corp. v. White Barn Golf Course, 584 P.2d 848, 851-852 (Utah 1978) .
See also Kavian v Vernah Homes Co., 19 A.D.3d 649, 650, 799 N.Y.S.2d 75, 76, 2005 N.Y. App. Div. LEXIS 7326
(2005) (licensing requirement protects public from inept, inexperienced, or dishonest persons who might perpetrate or
aid in perpetration of fraud); Arnold v. Bowman, 2005 Tenn. App. LEXIS 363, at *33 (June 23, 2005) , appeal denied,
2005 Tenn. LEXIS 1054 (Dec. 5, 2005) (Real Estate Broker License Act of 1973 was created to protect public from irresponsible or unscrupulous persons dealing in real estate).
(n40)Footnote 39. Baird v. Krancer, 138 Misc. 360, 362-363, 1930 N.Y. Misc. LEXIS 1650, 246 N.Y.S. 85, 88
(N.Y. Sup. Ct. 1930) , cited with approval in:
Illinois: Kilbane v. Dyas, 33 Ill. App. 3d 439, 441-442, 337 N.E.2d 217, 220 (1975) .
New Jersey: Corson v. Keane, 4 N.J. 221, 225-226, 72 A.2d 314, 316 (1950) .
Utah: Diversified General Corp. v. White Barn Golf Course, Inc., 584 P.2d 848, 850-851 (Utah 1978) .
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10-2 Real Estate Brokerage Law and Practice § 2.02
(n41)Footnote 40. Diversified General Corp. v. White Barn Golf Course, Inc., 584 P.2d 848, 850-851 (Utah 1978)
. For another Utah case discussing the difference between finders and brokers see Sachs v. Lesser, 163 P.3d 662,
670-71, 2007 UT App. 169 (2007) , rev'd, 2008 UT 87, 2008 Utah LEXIS 197 (Utah 2008) (on other grounds).
(n42)Footnote 41. Kilbane v. Dyas, 33 Ill. App. 3d 439, 337 N.E.2d 217 (1975) .
(n43)Footnote 42. 33 Ill. App. 3d at 442-443, 337 N.E.2d at 220-221 .
(n44)Footnote 43. 68 Cal. 2d 662, 68 Cal. Rptr. 589, 441 P.2d 101 (1968) .
(n45)Footnote 44. 68 Cal. 2d at 668, 68 Cal. Rptr. at 594, 441 P.2d at 106 .
(n46)Footnote 45. 68 Cal. 2d at 671, 68 Cal. Rptr. at 595-596, 441 P.2d at 107-108 , citing Cal. Prob. Code §
760.
(n47)Footnote 46. 68 Cal. 2d at 670, 68 Cal. Rptr. at 595, 441 P.2d at 107 .
(n48)Footnote 47. 68 Cal. 2d at 669, 68 Cal. Rptr. at 594, 441 P.2d at 106 .
(n49)Footnote 48. 2 Cal. App. 3d 659, 82 Cal. Rptr. 778 (1969) . See also Wilson v. Donze, 692 S.W.2d 734 (Tex.
App. 1986) .
(n50)Footnote 49. 82 Cal. Rptr. at 780 .
(n51)Footnote 50. 176 Cal. App. 3d 57, 221 Cal. Rptr. 353 (1985) .
(n52)Footnote 51. See Fla. Stat. § 475.42(1)(d).
(n53)Footnote 52. See 800 So. 2d 608 (Fla. 2001) .
(n54)Footnote 53. 800 So. 2d 608, 608-609 (Fla. 2001) .
(n55)Footnote 54. See Schickedanz Bros.-Riviera, Ltd. v. Harris, 800 So. 2d 608, 610-11 (Fla. 2001) , discussing
Alligood v. Florida Real Estate Commission, 156 So.2d 705 (Fla. Dist. Ct. App. 1963) .
(n56)Footnote 55. See Schickedanz Bros.-Riviera, Ltd. v. Harris, 800 So. 2d 608, 611 (Fla. 2001) .
* This chapter was revised by Charles J. Jacobus, Esq., a partner in the law firm of Jacobus, Boltz, Melamed & Witherspoon, Houston, Texas. Sections 2.06 and 2.07 were written by Sandra Bullington, who has contributed additional
updates throughout the chapter.
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