Don’t Touch That Deposit: Court Rules Escrow Duty Trumps Real Estate Commission Dispute

by Rich Vetstein on September 16, 2010 · 1 comment

in Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Litigation, Realtors

Agents: Don’t Mess With A Buyer’s Deposit

Yesterday an interesting case came down involving a nasty tug-of-war between listing brokers and an exclusive buyer’s agent, with the buyer’s six figure deposit caught in the middle. The case is Zang v. NRT New England and can be read here.

In the case, the seller signed the standard exclusive listing agreement with the listing broker which provided for a 5% commission, and cooperation with buyers’ brokers, with an equal split of the commission. Mr. Zang, a potential buyer, showed up at an open house for the condominium, unaccompanied by a broker.  The buyer made an offer through the listing agent, but an agreement couldn’t be reached.  The buyer then hired an exclusive buyer’s agent who submitted a second offer.  The offer was ultimately accepted by the seller, and the parties proceeded to sign a purchase and sale agreement.

The listing broker, however, was none too pleased that the buyer’s broker had entered the picture at the final hour looking for a commission. The listing agent even left a few amusing voicemail messages for the buyer, asking him whether “you think that it’s really fair that [the buyer’s agent] should come in at this late date and capture half of the commission… and what does Alan [one of the listing agents] get for all of his work? Nothing. But, you know, I guess that’s money in your pocket.”

The buyer posted a $122,500 deposit (10% of the purchase price) upon the execution of the purchase and sale agreement. The agreement provided that the listing agent would act as escrow agent and that a 5% commission would be paid by the seller to the listing agent and the buyer’s agent, split equally. In short, the seller’s net sales proceeds were to be reduced by $61,250, of which $30,625 was to be paid to the buyer’s agent at closing.

After the closing, however, the listing agent refused to pay the buyer’s broker his commission, and refused to disburse the remaining escrow deposit, essentially holding it hostage.  Big no-no, said the Appeals Court.  While the listing agent may have a legitimate dispute over the commission, the court ruled, its fiduciary duties as escrow agent took precedence. The listing agent had no right to retain the buyer’s money, and was contractually obligated to disburse it according to the purchase and sale agreement, period.  The court did not sanction this sort of self-help by the listing agent.  And the court let stand the buyer’s claims for 93A/consumer protection violation which carries triple damages and attorneys’ fees.

So the lesson for real estate agents here is don’t mess with a deposit even if you feel you have a legitimate beef over a commission.  It’s not worth it, and it will subject you to liability.

  • Yikes talk about cutting your nose off despite your face! The sad part about this is that the listing agent probably would have won the case if they followed proper procedures. It seems to me that the listing agent would win a procuring cause case.

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