Breached Agency in sale of $250K Contract Position

2 Replies

Hoping to get some feedback from you all-

I negotiated the terms of purchase with a Seller who owned a portfolio of real estate. The Seller had a Listing Agent, but they were doing nothing to market the properties. I valued the portfolio at $1.9M and was able to get the Seller down to a purchase price of $1.65M. The Seller agreed to a $10,000 Earnest Money Deposit that would become non-refundable after 10 days, a 60-day Due Diligence period, and a 30-day Closing. We had a Purchase Agreement drafted up and I could sign it at my discretion. 

I waited to sign the Purchase Agreement and began reaching out to Brokers at big-name firms across the country. I found one who said he could bring a Buyer in at $1.9M, and that the Buyer would purchase my Position for $250K. I told this broker I would pay him $100K when my Position was purchased and did not want to execute the Contract Position until he committed to bringing in said Buyer. Broker insists I must hold a Position before he will sign a Representation Agreement. He also insists on making the Representation Agreement Exclusive. So I execute the Purchase Agreement with the Seller, deposit my $10,000 Earnest Money, and then execute an Exclusive Representation Agreement with my Broker/his firm a day later. The Representation Agreement stipulates a $1.9M purchase price, $100K commission, with a 180-day length. 

The Broker has difficulty bringing a Buyer at $1.9M and ends up bringing me a Buyer at $1.7M. We are close to the end of the Purchase Agreement's 60-day Due Diligence period, so I tell the Seller I will need more time because I'm working on bringing another Buyer into the deal. The Seller Agrees, however the Seller and I do not sign a document allowing an extension. My Contract is not cancelled on the 60-day Date. 

Fast forward 6 days: I accept and sign a Purchase Offer for my Position from this new Buyer for $60,000 ($50,000 + my $10,000 Earnest Money). We are 6 days past the 60-Day Date of the Contract, meaning the Seller could cancel at any time based on the fact that I still hadn't provided financing. Still, he hasn't because he knows I am bringing in another Buyer. 

Now it gets fun!

My Broker ends up approaching the Seller in his office the very next day after I accepted the Offer on my Contract Position and tells them the following:

• He has been working with me and has a Buyer ready to purchase at $1.7M

• He knows my Contract can be cancelled at any time

• He will provide the Seller with the new Buyer's information (allowing Seller to cancel my contract) if the Seller will agree to pay him the 6% commission he had planned to pay his Listing Brokers, AND allow him to keep the $10,000 Earnest Money I would forfeit in the event of a cancelation. 

The Seller tells my Broker to leave his office and immediately calls his Listing Brokers. The Seller's Listing Brokers (furious) call my Broker and I immediately. I missed the call and no return calls to the Seller or Listing Broker were answered. My Broker didn't miss the call, and ended up agreeing to split the Listing Broker's commission (50/50 break on $100,500) and keep my $10,000 Earnest Money forfeiture in exchange for the Buyer's info. 

I was none the wiser. Calls to my Broker over the next few days regarding the status of my Contract Position purchase are met with "it's good, should be done soon" etc.

My Purchase Contract is cancelled by the Seller 3 days after he is approached in his office by my Broker (and when my Broker negotiated this fraudulent commission split). When canceling, the Seller alleges that I failed to provide financing. My Broker claims he has no idea what is going on, and I later learn that the Buyer my Broker brought to me was told by my Broker (after I had accepted his offer to purchase my Position) that I instead had decided not to sell my Position and was walking away from the deal completely. 

My Broker was to have deposited the $1,000 Earnest Money for my Contract Position in his firm's Escrow Account, so I never had the funds in my hand, and my guess is that he was easily able to return them to the Buyer without anything looking out of place.

The Buyer who offered to purchase my Position ends up Purchasing the Subject Properties  3 months later. He is represented by my Broker, and purchases for $1.675M.


I'm about to sue my Broker (and his firm) until their eyes bleed. Also will be submitting a full report of this to the RE Commissions in every state that my Broker is licensed, but wanted to hear what you all thought about this situation as well...

I wonder if not having an extension signed could hurt you? I know here a verbal agreement can sometimes be upheld as a contract but burden of proof and all that. I would hate that for you. Good luck!

@Rob Smith

Another harsh lesson in the realities of the world. You risked a lot by not extending the P&S when it clearly would have made a difference in your position.

I hope you have success Rob, but I also hope you've learned a valuable lesson on the necessity of not cutting corners when it comes to contracts. I'm all but certain you won't make that mistake again so all is not lost, but unfortunately, education is always expensive.

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