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This is the third episode in our video series covering a licensee’s authority to act on a client’s behalf under a written listing agreement. The third episode covers an agent’s right to a fee under the written employment agreement with their broker.

Two distinct legal aspects under a listing agreement

The relationship created between the client and the broker by a listing agreement has two distinct legal aspects:

  • an employment relationship; and
  • an agency relationship.

The employment relationship established on entering into a listing agreement specifies the scope of activities the broker and the broker’s agents are to undertake in the employment and authorizes the broker to carry them out.

On the other hand, the agency relationship is imposed on the broker by law as arising out of the representation authorized by the employment. Agency carries with it the fiduciary duty of loyalty and full disclosure owed by the broker (and their sales agents) to the client. [See RPI Form 305]

As a fiduciary, the broker’s and agents’ conduct under the employment are equated to the conduct required of a trustee acting on behalf of a beneficiary. This fiduciary duty, also called agency, precedes commencement and survives the termination of the employment relationship. [Calif. Civil Code §2079.16]

Also, an oral agreement to perform brokerage services on behalf of a client imposes an agency law obligation on the broker and agents to act as fiduciaries — no differently than had a writing existed. However, the client’s oral promise to pay a fee does not entitle the broker to enforce collection of the fee due from the client – buyer or seller – when working for a client without a written listing agreement.

An agreement employing a broker to purchase or sell real estate, lease a property for over one year or arrange mortgage financing is controlled by contract law.

For a broker to enforce a promise from a client to pay a fee, the fee agreement needs to be:

  • in writing; and
  • signed by the client. [CC §1624(a)(4)]