In August 2024, as many in the real estate industry prepared for the terms of the National Association of Realtors’ (NAR) commission lawsuit settlement agreement to go into effect, industry professionals began wondering how agents would handle breached buyer agency agreements and if lawsuits would ensue.
Fast forward 13 months, and this issue has become top of mind for many industry professionals. In Facebook groups and at conferences, agents are discussing whether they can and if they should sue homebuyers who signed a buyer agency agreement with them, but ultimately purchased a home without the agent, by either working directly with the listing agent or a homebuilder.
Real estate agents claim they are being cut from deals
Under the terms of NAR’s settlement agreement, homebuyers must sign a buyer agency agreement with their agent prior to touring a property together unless state law dictates otherwise.
While this agreement may pertain only to a certain property or be as short as 24 hours, real estate agents are most often aiming to eventually have the client sign an exclusive buyer agency agreement (aka a buyer broker agreement), which can last up to several months.
These agreements not only outline the services the buyer’s agent will provide the client with, but also how much the client will pay the agent for providing these services. However, agents are claiming that buyers are breaching their agreements and cutting them out of the deal.
Agents are taking to social media
“Just found out one of my clients went straight to the builder and closed on a home I didn’t even know they toured,” one agent wrote on Facebook. “We had a BBA [buyer broker agreement] in place. Is that even enforceable[?]”
According to legal experts whether or not the buyer agency agreement is enforceable depends on a few things.
“It comes down to procuring cause,” Marx Sterbcow, the managing attorney at Sterbcow Law Group, said. “If the consumer goes directly to a builder via their website or a direct call, and they meet with the builder’s staff with no agent around and there has been no contact with the agent, then it would be hard to argue procuring cause, so there’s not really a case.”
How can you show procuring cause?
In order to show procuring cause, legal experts say agents must show that they did some things related to this particular transaction to help the consumer purchase the property.
“With a new build, clear procuring cause would be me, as your agent, reaching out to D.R. Horton, KB Homes or Lennar and saying ‘I have a client that is interested in purchasing new construction in this area, what do you have?’ With that, it is clear that the agent made that introduction and that they participated in communicating with that homebuilder.”
Seeing that the aggrieved agent on Facebook didn’t even know their client had toured the new construction property that the client ultimately purchased, it might be challenging for them to show procuring cause.
Just because you can, doesn’t mean you should
But even if things were different, and the agent had better legal standing to sue a buyer over a broken agreement, that doesn’t mean they necessarily should.
“For me to ever consider suing a buyer over a buyer brokerage agreement, the violation of the terms of that agreement would have to be so egregious that I would have had to have spent months and months and hours and hours and significant energy worth the risk involved in taking them to court,” Mike Crowley, the broker-owner of Spokane Home Buyers, wrote in an email. “I would be risking the reputation of my office and business.”
Due to the potential reputational harm, Jeremy Walker, the CEO of the Alabama Association of Realtors, says it would be unlikely that an agent would sue a client over a breach of contract.
“We are unaware of any lawsuit that has been filed in Alabama,” Walker said. “But when you think of the optics of a potential lawsuit, the optics are really poor for the industry as a whole if agents file lawsuits against consumers for exercising their ability to choose which agent they work with and how they go about purchasing a home.”
Crowley added that he regularly asks brokers about this issue and the responses he receives reflect what Walker has seen in Alabama.
“I ask managing brokers if any of them have yet to sue a buyer over a buyer brokerage agreement, and have yet to find one that says yes,” Crowley wrote.
What does the future hold for buyer broker agreements lawsuits?
While many industry professionals maintain that these types of lawsuits are rare and that they don’t expect to see an uptick, despite this recent litigious interest from agents, Charles Cain, an attorney and title industry professional and the president of Alliance Solutions, isn’t quite as convinced.
“In the two states where we have seen buyer broker agreements for years, Arkansas and Vermont, agents have brought actions in the past,” Cain said. “I know in Arkansas that some of these actions are pretty aggressive — they will take a judgement and file a lien on the house.”
Although Cain sees the potential for more agent-buyer litigation on the horizon, like the other industry professionals, he believes agents and brokers should really consider the optics before they file a lawsuit.
“Yes, there is clearly some historical precedent in places to file these kinds of lawsuits, but I think in those cases there has been really strong arguments on the buyer broker’s side. It is like ‘Look, we did all the things that we said we were going to do and then at the last minute you decided to cut us out,’” Cain said.
“In the age of Yelp and Google reviews, you need to have a strong case before you risk someone ruining your business by claiming that you didn’t make them aware that a certain home or new construction was an option.”
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