Should Broker Get Part of Deposit from Failed Sale?

Introduction to the Issue

The question of whether a real estate broker should receive a portion of a deposit from a failed sale is complex and depends on the specifics of the agreement between the broker and the seller. This issue arises when a buyer defaults on a sale, and the seller retains part of the deposit as per their agreement. If the property is later sold to another buyer, the broker’s entitlement to a share of the retained deposit from the first failed sale becomes a point of contention.

Understanding the Listing Agreement

The first step in resolving this issue is to review the listing agreement signed by the seller and the broker. In Florida, as in many other jurisdictions, the courts look to the language of this agreement to determine the broker’s rights in the event of a buyer’s default. If the agreement explicitly states that the broker is entitled to a portion of any forfeited deposits, then the broker may have a valid claim to part of the deposit retained by the seller from the first buyer who defaulted.

General Guidelines and Legal Precedents

While each situation is unique, general guidelines for handling such claims are relatively consistent. The courts have established that brokers have certain fiduciary duties, including loyalty, full disclosure, and accounting, which can impact their right to compensation. If a broker fails to disclose their intention to claim a share of a forfeited deposit before the second sale closes, it could weaken their position in claiming part of the deposit.

Impact of Fiduciary Duties

The law imposes these fiduciary duties on brokers to protect the interests of their clients. If a broker’s actions or omissions affect the transaction, their right to compensation can be affected. For instance, if a broker did not fully disclose all terms of the potential sale, including their own compensation structure, it could lead to disputes over forfeited deposits.

Common Clauses in Listing Agreements

Most listing agreements include a clause that allows the broker to receive a portion of the deposit from a failed sale. However, these agreements often limit the total commission the broker can receive from the listing to a percentage of the purchase price, typically ranging from 3% to 6%. If such a clause is present in the agreement, the broker’s claim to part of the deposit may be limited by the full commission they received at the successful closing.

Conclusion

In conclusion, whether a broker is entitled to a portion of a deposit from a failed sale depends on the terms of the listing agreement. Sellers should carefully review their agreements to understand their obligations and the broker’s rights in the event of a buyer’s default. It is also crucial for brokers to ensure transparency in their dealings, including clear disclosure of their compensation terms, to avoid disputes over forfeited deposits.

FAQs

Q: What determines a broker’s entitlement to a forfeited deposit?

A: The broker’s entitlement is mainly determined by the language of the listing agreement between the broker and the seller.

Q: Can a broker claim a share of a forfeited deposit if the listing agreement is silent on the issue?

A: Generally, if the agreement is silent or unclear, the broker is not entitled to any part of the deposit.

Q: How do fiduciary duties impact a broker’s right to compensation?

A: Fiduciary duties such as loyalty, full disclosure, and accounting can impact a broker’s right to compensation, especially if their actions or omissions affect the transaction.

Q: What should sellers do to understand their obligations regarding forfeited deposits?

A: Sellers should carefully review their listing agreements and seek legal advice if necessary to understand their obligations and the broker’s rights in the event of a buyer’s default.

Q: I hired a broker to sell my house in Florida. The first buyer backed out, so we agreed that I’d keep part of their deposit. I kept working with the same broker, and eventually, someone else bought the place. The broker got their full commission from that sale. Now the broker is asking for half of the deposit from the first buyer who bailed. Am I supposed to give that to him? — Paula

A: Whether a real estate broker is entitled to a portion of a forfeited deposit depends mainly on what is written in the agreement between the broker and the seller.

While every situation is unique, the general guidelines for handling these claims are relatively consistent.

The first step is to review the listing agreement you have with your broker.

In Florida, courts examine the language of the agreement to determine whether a broker is entitled to a share of a deposit in the event of a buyer’s default. If the agreement clearly states that the broker will receive a portion of the deposit in the event of a buyer’s default, then the broker may have a valid claim.

On the other hand, if the agreement states that the broker is only paid if the sale closes, or if it remains silent on the issue, the broker is generally not entitled to any part of the deposit.

The courts have also denied brokers’ claims to forfeited deposits when there is no written agreement or when the agreement is unclear.

The law imposes certain duties on brokers, such as loyalty, full disclosure, and accounting. These fiduciary duties can impact a broker’s right to compensation, particularly if the broker’s actions or omissions affect the transaction.

If the broker did not disclose their intention to claim a share of the deposit before the second sale closed, that could also weaken their position.

In your situation, whether your broker is entitled to half of the deposit from the first buyer who defaulted will depend on the terms of your listing agreement. If the agreement explicitly gives the broker a share of forfeited deposits, the broker may have a valid claim.

Most of the listing agreements I have seen in my practice include a clause allowing the broker to receive a portion of the deposit received from a failed sale, but limit the total commission they can receive from the listing to a percentage of the purchase price, usually 3% to 6%.

If your listing agreement has this common clause, your broker will be limited to the full commission he received at the successful closing, and would not be entitled to a part of the deposit you retained from the failed attempt.

Board-certified real estate lawyer Gary Singer writes about industry legal matters and the housing market. To ask him a question, email him at gary@garysingerlaw.com, or go to SunSentinel.com/askpro.