This is the second episode in our new video series covering Risk Management principles. The prior episode delves into a broker’s exposure to liability caused by an error, omission or misunderstanding brought about by the activities of the broker or their agents.

This episode covers the occupational hazard of a dispute with a client or other participant during the listing period, and terminating the agency to eliminate the broker’s exposure to future claims.

Known and unknown claims

For brokers and agents, providing real estate brokerage services to members of the public is a rewarding profession. That said, the occupational hazard of a dispute with a client or other participant will inevitably surface to cause a moment of hesitation for a broker or sales agent. Even when brokers and agents fulfill all of their agency duties, act diligently and cooperate fully with the client and other parties, disputes may arise.

Unless the conflict with the client or other party is resolved at the earliest possible moment, the continuing aggravation takes a toll on a broker’s time and effort – and possibly cash reserves.

Also, disputes with a client tend to make continued representation of the client less effective. During an extended dispute, the broker or agent may be rendered incapable of logically making normal discretionary decisions in the course of fulfilling their agency obligations owed to the client.

Worse, the unreasonable interference of an uncompromising client creates a stressful condition which can easily lead to errors in an agent’s judgment.

As always, disputes need to be put to rest quickly.

Otherwise, they may turn into correspondence with attorneys, or worse, litigation. When a settlement is not promptly resolved so the employment can continue on sound footing, the agency relationship needs to be terminated.

To terminate an agency relationship due to a dispute, a release and waiver is entered into by all parties concerned.

Agency disputes arise during one of three periods in the representation of a client:

  • the marketing period beginning on the client employment and authorization of the broker and their agent’s to sell, locate, finance, lease or manage a property. The marketing period normally ends on the client’s entry into an agreement to sell, buy, finance or lease the property in question;
  • the escrow period beginning on the client’s entry into a purchase agreement, mortgage agreement or lease. The escrow period typically ends on the close of escrow, the transfer of possession or the failure of the transaction to close; or
  • the post-closing period following the closing of the purchase agreement, mortgage or lease transaction.

Marketing period disputes

Misunderstandings sometimes occur regarding the extent of the marketing services a client expects of their broker and the broker’s agents. The client’s extraordinary expectations may have existed before entering into the employment agreement. Or they may originate when the agent explained what will be done to market or locate property. Further, outside influences during the marketing period may cause the client to believe the agent ought to be doing more.

Conversely, a seller may become uncooperative in the marketing of the property.

For example, the seller may refuse to hand over property information needed by the seller’s agent to effectively locate a buyer willing to make an offer on the property.

Reports a seller needs to provide to contribute to a better marketing package given to prospective buyers, include:

Without proper disclosure of fundamental property information, prospective buyers cannot ascertain the value of the property and distinguish it from other properties they are considering.

Terminating the agency

To resolve disputes when a compromise is unattainable, it is prudent to consider terminating the agency.

When the client unilaterally withdraws the property from the market, cancels the employment or continues to interfere in the sales effort without justification, the client owes the broker the fee due under the employment agreement. However, to justify collection of their fee when the client interferes, the seller’s agent needs to have diligently performed the brokerage services owed the seller under the listing, whether or not a buyer has been located.

To formally end the agency relationship with a client, a release and cancellation of employment agreement is prepared and entered into. The resolution negotiated by the broker may be a mutual cancellation of the listing given in exchange for the client’s payment of a fee. [See RPI Form 121]

The consideration for cancellation ranges from payment of the entire fee due under the listing on cancellation, to an agreed on lesser amount. For example, the client may agree to pay a fee when the client relists the property with another broker or sells the property, leases it, etc., during a fixed period after the mutual cancellation of the listing. [See RPI Form 121]

On entering into a release and cancellation agreement, the broker’s exposure to future claims based on a purported failure of agency duties is eliminated.