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Oral Agreement and Realtor Commission

In the ever-evolving landscape of residential real estate, the recent Massachusetts Supreme Court case, Huang v. Burbridge, has significantly changed how exclusive buyer agency agreements are enforced. For real estate agents and clients, it’s crucial to understand the implications of this decision and how it affects the payment of commissions. This comprehensive blog post will break down the case’s details, discuss the Court’s ruling, and highlight the key takeaways for real estate agents in the 21st-century market.

The Background of Huang v. Burbridge

The case involved an exclusive buyer’s agency agreement between real estate agent Amy Huang and her clients, the Burbridges. What distinguishes this case is that the exclusive agency agreement at issue was simply an oral agreement. It was never reduced to writing. Under the agreement, Huang was to serve as the Burbridges’ exclusive agent in their search for a new home. Huang’s services included searching for properties, coordinating showings, and providing guidance throughout the home-buying process.

However, a dispute arose when the Burbridges found a property independently and subsequently purchased it without involving Huang. According to the court opinion, Huang has worked extensively with these buyers, showing them at least ten properties over a ten-month period. The buyers argued that they had no obligation to pay Huang a commission for the property because they had found it on their own. The buyers then closed on the home in May of 2017.

Huang filed a lawsuit, claiming the Burbridges breached the exclusive buyer’s agency agreement, which stipulated that any properties the clients found on their own should be referred to Huang, and she should be given the opportunity to represent them in the transaction. The trial Court granted summary judgment in favor of the Burbridges, but Huang appealed the decision.

The Massachusetts Supreme Judicial Court’s Decision

The Court found that the oral agreement was clear and specific, setting out the parties’ respective obligations. In return for the agent’s services, the agent would be paid. Furthermore, the Court emphasized that the older cases relied upon by the Appeals Court were distinguishable, as they involved different contractual language and predated the advent of buyers’ agents, multiple listings, and the Internet’s widespread display of such listings. 

Although the buyer argued there was no agreement as it wasn’t in writing, the Court relied on an exception to the Statute of Frauds barring oral agreements. The Court stated “the Statute of Frauds expressly states that it “shall not apply to a contract to pay compensation for professional services of . . . a licensed real estate broker or real estate salesman acting in their professional capacity.” G. L. c. 259, ยง 7. Thus, oral agreements with brokers are permitted.” The Court continued “we thus have a reciprocal exchange of benefit and detriment constituting consideration, and therefore an enforceable contract. See Miller v. Cotter448 Mass. 671, 684 n.16 (2007).”

“It is a fundamental principle of contract law that, in the event of breach, the injured party should be put in the position they would have been in had the contract been performed, if possible.” Situation Mgt., 430 Mass. at 880. Huang was therefore entitled to the contracted for commission. 

The Modern Real Estate Market

The Court’s decision acknowledged the significant changes in the residential real estate market brought about by the Internet and modern technology. The Internet has transformed how buyers search for homes and how real estate agents operate. The Court recognized that exclusive buyer’s agency agreements must reflect the new realities of the 21st-century market, including the growing prevalence of buyer’s agents and the ubiquity of online property listings. The Court stated that “Buyers of residential real estate may of course choose to attempt to find a house on their own, including drawing on the vast resources of the Internet, or they may seek the assistance of an exclusive broker, but if they choose the latter, they must abide by the express terms of their contractual agreement.”

The Importance of Contractual Obligations

The Huang v. Burbridge decision underscores the importance of adhering to contractual obligations in the context of agency agreements, whether written or oral. Both clients and agents must comply with the terms of their agreement. This means that clients must abide by the agreement even if they find a property independently as was the case here. For agents, this means fulfilling their contractual obligations and statutory duties, including undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality, and accountability.

Key Takeaways for Real Estate Agents

  • Understand Your Agreements: Familiarize yourself with the terms of your exclusive agency agreements and ensure they are clear and specific, outlining both the agent’s and client’s obligations.
  • Educate Your Clients: Clearly communicate the terms of the exclusive buyer’s agency agreement to your clients and explain their responsibilities, including the process they should follow if they find a property on their own.
  • Uphold Your Duties: As a real estate agent, it’s crucial to uphold your contractual obligations and fulfill your significant statutory and regulatory duties to your clients, ensuring a successful and ethical working relationship.
  • Stay Informed About Legal Developments: Keep abreast of legal developments and Court decisions that may impact your profession and how you conduct business, like the Huang v. Burbridge case.

Conclusion

The Huang v. Burbridge decision has far-reaching implications for real estate agents and their clients, emphasizing the importance of adhering to the terms of exclusive agency agreements. As a real estate agent, it’s essential to understand the impact of this landmark ruling, adapt to the evolving market, and uphold your contractual obligations and duties to your clients. By staying informed about legal developments and fostering clear communication with your clients, you can ensure a successful and ethical working relationship that benefits both parties.

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