Real estate commission disputes—determining if a broker is entitled to a commission, which broker gets paid, how much, and when—can happen to the most experienced agents and brokers. There are many common examples of real estate commission disputes in Arizona. They can range from a client that cancels a listing early to a property that goes into foreclosure to verbal agreements on commission splits to a client that attempts to not pay the full commission. Many of these can be avoided with proper contracts and business practices, but every agent and broker should be prepared for a possible commission dispute in one form or another. Here are some important things to understand about real estate commissions and agreements in Arizona.
Arizona Laws for Real Estate Employment Agreements
To establish in Arizona that a real estate commission is owed compensation for services rendered, a valid listing agreement or employment agreement must be in place. Arizona Revised Statutes 32-2151.02 defines what all real estate employment agreements must include. For starters, they are required to be written in clear and unambiguous language. All the terms of broker and agent compensation must be detailed. The agreement must have a definitive start and end date and be signed by all parties. Real estate employment and compensation agreements are not assignable without the express written consent of all parties. A real estate licensee cannot attempt to get an employment agreement from a party that is already subject to an existing real estate employment agreement unless that party agrees in writing that the new agreement could expose them to substantial additional commission payments. It is essential that all agents and brokers be aware they have the responsibility and duty to explain the implications of any real estate agreements to all parties.
Common Commission Disputes in Arizona
One of the most common commission disputes for real estate brokers is the premature cancellation of a listing or purchase contract. Many real estate contracts are written with a liquidated damages clause that expressly covers this possible scenario. As a broker, you should consult with an experienced attorney to make sure that any liquidated damage clauses in your real estate contract are valid and enforceable. Arizona law has multiple legal precedents upholding the validity of liquidated damages clauses in real estate employment agreements. Focus Point Properties v Johnson (2014) is one of the most recent cases where an owner was held liable for the full commission to the broker for early cancellation of a real estate listing agreement. These clauses typically detail that an owner that prevents the completion of a sale or rental by default will be held responsible for the entire sale or rental commission.
All real estate agents and brokers should be aware that commission agreements must be in writing to be enforceable. This is particularly important if you expect the agreement to last more than one year. Whether the listing agreement, lease agreement, or referral agreement are going to last more than a year, you will need to put all details of the agreement in writing. If a client decides they do not want to pay a full commission on a completed sale, purchase or lease, then you will want to retain the services of an experienced real estate attorney as soon as possible. Generally, these disputes will fall under Arizona’s statute of frauds and, although these agreements appear to be written contracts, Arizona courts commonly interpret them as employment contracts such so that any claims must be filed within one year of the agreement date. There can be some exceptions with commission disputes where the agreement for a lease lasts more than one year.
MacQueen & Gottlieb has significant experience with real estate commission disputes in Arizona. Our firm can draft valid and enforceable real estate employment agreements that will provide proper protections for your real estate business. Our attorneys can also help pursue the appropriate legal remedies available in any potential real estate commission disputes. Contact us today at 602-533-2840 to schedule an initial consultation or make an appointment online.