A Disgruntled Developer Tries to Get Back Commissions Already Paid to Agents

by | BiggerPockets.com

A Miami-Dade County, Florida developer, Related Group, has filed multiple lawsuits in the past month against real estate brokerages seeking the return of commissions on deals that fell through. The amount in controversy, which exceeds $460,000.00, is tied to commissions advanced by Related Group to the named-defendant brokerages on at least 19 sales contracts in the Hallandale Beach Club Tower III project. Related Group is alleging breach of contract in these actions for the brokerages’ failure to return commissions paid on deals that never closed.

Apparently, is it routine practice for Related Group to pay commissions once prospective buyers have given a deposit, rather than waiting until the transaction formally closes. Under Florida law, the commissions are paid to the broker of record, who then pays the agent of record in accordance with the agent and broker’s agreed upon compensation split. The broker registration agreements that Related Group supposedly filed along with the lawsuits state that a commission is to be earned only upon the close of title. At least one of the attorneys involved for a particular defendant has stated to the media that there is no language in the broker registration agreement that states a commission must be refunded if the buyer fails to close. In addition, the defendants have stated that the developer never returned the deposit monies to the buyers who backed out of the deals; therefore, they are questioning the developer for trying to recover commissions for deals in which Related Group kept the deposits. Whether or not this point is relevant and valid as a potential defense is something that will have to be determined in court.

Many of the brokerages involved as defendants are unable to return the commissions, as they were already paid out to individual agents on contracts that were executed several months ago if not more. A number of agents participating in those past deals no longer work for the brokerages, making it even more difficult for the brokerages to try and return the money. Regardless, the collective sentiment of the defendants in these related lawsuits appears to be that the developer is not entitled to a return of the commissions. Further, the defendants are questioning the loyalty and business judgment of the developer, who has reaped millions of dollars over the years from the efforts of the brokerages in successfully closing numerous deals. There is no doubt that these lawsuits will have a chilling effect on brokerages doing business with Related Group in the future. At a minimum, brokerages would be wise in the future to place an advanced commission in escrow until a deal successfully closes, to insure that an agent doesn’t prematurely spend his/her portion.

This case presents an interesting twist on the types of lawsuits that have been filed recently during this volatile residential market. Much of the litigation surrounding residential real estate across the country has centered on foreclosure actions and cases involving buyers who want to void agreements of sale while retaining deposit monies. Whether or not Related Group succeeds in its efforts against these defendants, both developers and agents will have to re-examine their business relationships, and specifically, the practice of advancing commissions.

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  1. Can’t imagine why anyone would pay a commission out prior to closing. Also, those deposits should have been kept in an escrow account, unless of course it was stated that the deposits were non-refundable.

  2. Very interesting. Lots of problems arising from this down real estate cycle, huh? It appears you have a builder that was trying to provide an incentive to agents by offering “early” commissions. Not a bad thing, but very risky. Then you have agents who accept this, but arent’t willing to pay it back when their buyer doesn’t close. Why? Because they’re hurting, too. But it would seem to me that the agent is then unethical, no? I know of other industries where the salesman is fronted the monies, but is then debited the commission if the deal doesn’t go to completion. Why would this be any different? Not that I am on the side of the builder, but you would think that these agents are the unethical ones here.

    Steven Boorstein

  3. A clarification about commissions to those who think it’s ridiculous that anything was advanced:

    Realtors were pitched these pre-construction projects back in 2003-2004-2005 and asked to bring prospective buyers. Buyers had to put 20% down and wait for three years for the project to be completed. At the time, Related paid the realtors a fraction of the commission (usually 25% with the first 10% deposit at signing, another 25% with the 2nd 10% deposit about three months later, and would disburse the remaining 50% at closing, which they have not paid).

    The brokers being sued by Related right now dedicated a considerable amount of time and effort into getting these buyers, who at the time (three years back) were interested in buying.

    Related didn’t advance commissions without getting something substantial in return (20% deposit). Moreover, they are keeping the deposits of those who right now are unable or unwilling to close, which makes up several times for the commissions disbursed.

    The lawsuit is ridiculous and will backfire. Brokers did their part of the job and got Related millions of dollars which allowed it to undertake the projects. They already paid taxed on the money and spent it. They also were not paid 100% of the agreed commission, but typically only about half. Related should be content with not having to disburse the remaining half. But boy are they greedy…

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