When you hear the words lawsuit and real estate in the same sentence, it is usually in relation to a buyer or seller taking one of the other people involved in the sale to court. It might be a buyer suing a seller, or perhaps it’s a seller taking their agent to court, but rarely do you hear of a real estate agent suing the buyer or seller. In fact, can a real estate agent sue you? If they can, what can a real estate agent sue you for?
Just as any person or entity is entitled to file a lawsuit against another, a real estate agent can sue you, whether you’re their client or another party to a sale. When a real estate agent does sue, it’s usually over a breach of contract or because they feel a commission has been incorrectly withheld.
The thing that’s important for you to know is that whether you are a buyer or a seller, it is possible to find yourself on the wrong end of a lawsuit by a real estate agent.
However, there are ways to minimize the risk. All you need is to remember and implement the basic knowledge I’m going to share with you right now, and you should be able to sail through the purchase process without ever having to see the inside of a courtroom.
Can A Real Estate Agent Sue You?
A real estate agent can try to sue you in precisely the same way that anyone can try to sue anyone else. The keyword in that sentence is “try” because although we are living in an ever more litigious society, courts are, in general, less than enthusiastic about allowing frivolous lawsuits to fill up their already overburdened dockets.
Let me make one thing clear.
Although a real estate agent can sue you, you won’t find marauding herds of litigation hungry real estate agents out there, just waiting for the chance to take you to court. In fact, the time, money, effort, and impact on their professional reputation involved in suing a client far outweigh the benefits of instigating a lawsuit in all but the most difficult situations.
Reasons Why A Real Estate Agent Might Sue You
For the purpose of this article, I’m going to ignore any random, one-off reasons why a real estate agent might decide to sue you. So, for instance, a real estate could, theoretically, attempt to sue you for defamation if you spoke badly of them online. However, it is challenging to prove that damages have occurred and win such a case, so while it is possible, it’s so unlikely I have excluded this and any other similarly unlikely scenarios.
There are only a small number of more likely reasons why a real estate agent might sue you, and they fall into three broad categories.
This is the most frequent issue that gives rise to lawsuits between real estate agents and their clients, but what is “procuring cause?”
When a buyer is connected to a seller, the person responsible for that connection is considered the procuring cause. This means that it is this person who made the sale happen. This can be one of a number of people:
- The Buyers Agent: If a buyer is using a buyers agent and their agent takes them to a viewing, makes an appointment for a viewing, takes them to an open house, or takes any other action that connects the buyer and the seller, that agent is the procuring cause.
- The Open House Agent: If a buyer doesn’t have an agent and attends an open house, then the open house agent has a reasonable claim as the procuring cause. This can also raise issues of dual agency. If the buyers do have an agent, it is essential for them to let the open house agent know to avoid any problems further down the line.
- The Listing Agent: When a buyer sees a home and contacts the listing agent directly, that listing agent then has a claim to the commission for the procuring cause. Again, this can raise the problems that can arise around dual agency.
How Conflicts Can Arise
For buyers who have an agent, conflicts over procuring cause can happen when the buyer contacts listing agents, or sellers directly, or when they attend open houses without they agent or without making it clear they have an agent.
Some buyers then believe that they have done the work of finding the property so their real estate agent should not be entitled to commission.
For sellers, the same situations give rise to conflicts, but in reverse. If, for example, a seller ends up accepting an offer from a family member, and their agent has had no part in this, then a seller might believe they are entitled to withhold either all or portion of a commission.
In any of these scenarios, whether or not your real estate agent is likely to sue depends on how much work they have put in up until that point and how much the commission is worth.
“Entitled Commission” VS. “Commission On Offer”
Note that the person who is the procuring cause is not entitled to a commission, nor are they entitled to a commission of a fixed amount or a set percentage of the sales price. Instead, the procuring cause is entitled to the commission on offer. This is an important point. Because, for instance, the owners of some “For Sale By Owner” properties do not offer a commission, while other sellers may be offering an unusually small commission, it is variable.
Therefore, if it is documented and clear from the start that the person who is the procuring cause will receive, for example, a 1% commission, they cannot sue at a later date for a 3% commission.
Who Can Receive A Real Estate Sale Commission
The exact wording varies from state to state. Still, basically, only a licensed real estate broker can receive a commission or any other form of payment for handling a real estate transaction.
Where a real estate agent who is not also a broker carries out this work, the payment is made to their supervising broker, who then pays them, minus any costs demanded by the brokerage.
This system ensures that any payment involved in a real estate transaction goes through the same channels and is recorded in the documentation of the sale.
Other Commission Disputes
The other disputes that may arise, tend to center around:
- How much commission the agent was expecting vs. how much they are getting.
- Sellers who decide to change the amount of commission they are offering either mid-scale or at closing.
- Issues around a buyer wanting to purchase a home where the seller is offering zero or minimal commission to the buyer’s agent.
Other Contract Issues & Disputes
Real estate agents have been known to sue their clients because:
- A buyer pulled out of the sale at the last moment, for no good reason, and so their agent did all of the necessary work but will now receive no commission.
- The agent had multiple contacts with the buyer or seller, carried out significant work with that person, and the client then swapped to another agent.
- Buyers or sellers break a clause in the contract, without cause.
Generally speaking, in this category, a real estate agent might sue a client, or someone they reasonably believed to be a client, if the agent has carried out work as part of the sales process and can show they have a legitimate claim to receive payment.
How Do You Avoid Being Sued By Your Real Estate Agent?
It is easy to minimize the risk of coming to legal blows with your real estate agent.
Be Ready To Buy Or Sell
First of all, be sure you want to buy or sell in the first place and don’t work with an agent if you are just “window shopping.” Real estate agents rely on their commissions and having someone carry out work for you when you know there won’t be a sale at the end of it is unfair.
Even if you do not sign a contract with an agent, in some states, if an agent can show they have been carrying out a certain amount of work, they have a legitimate claim to being your agent. This is called an implied agency.
Interview Plenty Of Agents
Before you sign up with a particular agent, interview plenty of potential agents, make sure they know the first meeting is just an interview, and follow-up to say yes or no to them.
When you are interviewing, ask about their standard contracts and commission rates, establish whether commissions are negotiable, and be crystal clear about all costs payments and clauses, so both you and your chosen agent are on the same page.
Have A Written Agreement
Both buyers and sellers should have a written agreement with their real estate agent. These agreements are usually exclusive for a fixed time period and have all of the clauses about duties, rights, responsibilities, and payments. Be sure to read it thoroughly before you sign and ensure there is a clear “What to do if one of wants to get out of this contract” clause.
You should also have an agency disclosure, which will describe the ways in which the agent can and will operate.
When You’re Interested In A Property
Never call the listing agent directly, even if it is only to ask for more information. Have your agent make the call, and they will probably learn more about the property than you would anyway.
The same goes for responding to online or newspaper ads, for sale by owner lawn signs, etc. Call your agent, give them the details and let them do the leg work and research the home. Then you can get together and decide if you want a viewing – which your agent should also set up.
Open House Policies
If you attend an open house without your agent, make it clear to the hosting agent that you have representation and hand them your agent’s card. Sign the guest book with your name and the name of your agent next to your own and then ask that all communications go through your buyer’s agent.
Don’t Back Out For No Reason
I’m not talking about an unfavorable appraisal or a home inspection that reveals faults. Instead, I mean a situation where your offer has been accepted, and you have gone down the purchasing path, but you choose to withdraw from the sale for a reason not covered by a contingency clause.
Because a buyer’s agent contract is usually written in such a way that they are fulfilled when the buyers offer to purchase is accepted. Therefore, from a legal perspective, a buyers agent can be entitled to their commission once the buyer and seller have signed on the dotted line, even if the buyer later backs out.
It is rare for a real estate agent to sue their client, but it does happen. Most disputes are about commissions, but it is relatively easy to protect yourself from getting into an awkward position. You just need to have a clear contract and ensure you both abide by the terms.
More Helpful Real Estate Information From Real Estate Experts
A Lawsuit May Not Be The Answer – Paul Sian
Lies Real Estate Agents Tell You To Get Your Listing – Bill Gassett
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
Check out the Full Author Biography here.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.