According to the Court of Appeals in Scheerer v. Fisher, an opinion released on January 19, 2010, the North Carolina Real Estate Commission rules have no bearing on whether an oral agreement to compensate a real estate broker for services provided is enforceable. In essence, the effect of this decision is that a broker can bring an action to recover compensation for his brokerage services even if the agreement to provide such services was not in writing.
A look at the facts of the Scheerer case shows the import of this rule. In Scheerer, David Scheerer, a broker, informed Jack Fisher, a developer, that two developments, Highland Forest and Indian Ridge Preserve, were for sale. Scheerer had done work for Fisher in the past and apparently thought Fisher would be interested in these two developments. Scheerer was right about that fact and Fisher ended up instructing Scheerer to investigate the cost of developing the two developments and to negotiate terms with the owners of the two developments. On March 20, 2007, Fisher, as a member-manager of an entity named Renaissance Ventures, LLC, executed purchase contracts to buy the two developments. The purchase contracts included a provision that stated the seller of the developments would pay Fisher a two percent (2%) commission. Fisher and Renaissance Ventures orally agreed that Scheerer would be paid another two (2%) percent commission because of his role as the buyer’s procuring agent.
In April 2007, Fisher and Renaissance Ventures unilaterally rescinded the purchase contracts. After the rescission, Fisher negotiated an agreement with Anthony Antonio whereby Antonio would enter into contracts to purchase the developments for a much lower price than Fisher had negotiated and then would assign the contracts to Fisher. Fisher did not inform Scheerer about this arrangement. However, Fisher maintained communications with Scheerer about what Fisher may offer for the developments in the future.
In October 2007, Highland Forest Partners, LLC, a new holding company formed by Fisher, purchased the developments. Fisher did not pay Scheerer or his company a commission for their role in procuring the properties for Fisher.
Scheerer, and his company, Mountain Life Realty, LLC, filed an action against Fisher and Renaissance Ventures for breach of an express contract to pay Scheerer a commission. The trial court granted Fisher and Renaissance Ventures motions to dismiss for failure to state a claim upon which relief could be granted. In this opinion, the Court of Appeals reversed the trial court.
Fisher and Renaissance Ventures based their refusal to pay Scheerer a commission on Rule A .0104(a) of the North Carolina Real Estate Commission Rules. This Rule provides that:
Every agreement for brokerage services in a real estate transaction…shall be in writing and signed by the parties thereto….Every agreement for brokerage services between a broker and a buyer or tenant shall be express and shall be reduced to writing and signed by the parties thereto not later than the time one of the parties makes an offer to purchase…real estate to another…A broker shall not continue to represent a buyer or tenant without a written, signed agreement when such agreement is required by this Rule.
Based on this Rule alone, it is clear that the North Carolina Real Estate Commission takes the position that an agreement to compensate a broker needs to be in writing.
However, the Court of Appeals took a different view on the matter and reversed the trial court in Scheerer. In doing so, the Court of Appeals adopted the reasoning of the Western District of North Carolina in McAlister v Hunter, 634 F.Supp.2d 577 (W.D.N.C. 2009). The Court of Appeals agreed with the McAlister Court and found that a violation of the Rule A. 0104(a) of the North Carolina Real Estate Commission Rules opens a broker to discipline, but has no bearing whether or not an enforceable agreement exists. The Court of Appeals noted that the Real Estate Commission Rules do not state that (i)“no action shall be brought” on an oral contract, (ii) that oral contracts are “void,” “invalid,” or “not valid,” or (iii) that no oral brokerage contract “shall be valid.” As a result, the Court of Appeals recited the fact that oral contracts to compensate real estate brokers for their professional services have never been required to be in writing under the Statute of Frauds in North Carolina and thus need not be in writing to be enforceable.
The Scheerer opinion could serve as a saving grace to preserve a disputed commission for any real estate broker who begins doing work for a prospective client without first securing a written engagement agreement. However, in light of this opinion, it would be wise to expect that the North Carolina Real Estate Commission is going to be strict in enforcing its Rule that is contrary to the conclusion in Scheerer. One would expect that the Real Estate Commission will not think twice about handing down disciplinary action for failure to obtain a written engagement agreement. Thus, in order to be safe and to avoid this potential disciplinary action by the North Carolina Real Estate Commission, brokers would be wise to always get a written engagement agreement for every client as soon as possible.
A look at the facts of the Scheerer case shows the import of this rule. In Scheerer, David Scheerer, a broker, informed Jack Fisher, a developer, that two developments, Highland Forest and Indian Ridge Preserve, were for sale. Scheerer had done work for Fisher in the past and apparently thought Fisher would be interested in these two developments. Scheerer was right about that fact and Fisher ended up instructing Scheerer to investigate the cost of developing the two developments and to negotiate terms with the owners of the two developments. On March 20, 2007, Fisher, as a member-manager of an entity named Renaissance Ventures, LLC, executed purchase contracts to buy the two developments. The purchase contracts included a provision that stated the seller of the developments would pay Fisher a two percent (2%) commission. Fisher and Renaissance Ventures orally agreed that Scheerer would be paid another two (2%) percent commission because of his role as the buyer’s procuring agent.
In April 2007, Fisher and Renaissance Ventures unilaterally rescinded the purchase contracts. After the rescission, Fisher negotiated an agreement with Anthony Antonio whereby Antonio would enter into contracts to purchase the developments for a much lower price than Fisher had negotiated and then would assign the contracts to Fisher. Fisher did not inform Scheerer about this arrangement. However, Fisher maintained communications with Scheerer about what Fisher may offer for the developments in the future.
In October 2007, Highland Forest Partners, LLC, a new holding company formed by Fisher, purchased the developments. Fisher did not pay Scheerer or his company a commission for their role in procuring the properties for Fisher.
Scheerer, and his company, Mountain Life Realty, LLC, filed an action against Fisher and Renaissance Ventures for breach of an express contract to pay Scheerer a commission. The trial court granted Fisher and Renaissance Ventures motions to dismiss for failure to state a claim upon which relief could be granted. In this opinion, the Court of Appeals reversed the trial court.
Fisher and Renaissance Ventures based their refusal to pay Scheerer a commission on Rule A .0104(a) of the North Carolina Real Estate Commission Rules. This Rule provides that:
Every agreement for brokerage services in a real estate transaction…shall be in writing and signed by the parties thereto….Every agreement for brokerage services between a broker and a buyer or tenant shall be express and shall be reduced to writing and signed by the parties thereto not later than the time one of the parties makes an offer to purchase…real estate to another…A broker shall not continue to represent a buyer or tenant without a written, signed agreement when such agreement is required by this Rule.
Based on this Rule alone, it is clear that the North Carolina Real Estate Commission takes the position that an agreement to compensate a broker needs to be in writing.
However, the Court of Appeals took a different view on the matter and reversed the trial court in Scheerer. In doing so, the Court of Appeals adopted the reasoning of the Western District of North Carolina in McAlister v Hunter, 634 F.Supp.2d 577 (W.D.N.C. 2009). The Court of Appeals agreed with the McAlister Court and found that a violation of the Rule A. 0104(a) of the North Carolina Real Estate Commission Rules opens a broker to discipline, but has no bearing whether or not an enforceable agreement exists. The Court of Appeals noted that the Real Estate Commission Rules do not state that (i)“no action shall be brought” on an oral contract, (ii) that oral contracts are “void,” “invalid,” or “not valid,” or (iii) that no oral brokerage contract “shall be valid.” As a result, the Court of Appeals recited the fact that oral contracts to compensate real estate brokers for their professional services have never been required to be in writing under the Statute of Frauds in North Carolina and thus need not be in writing to be enforceable.
The Scheerer opinion could serve as a saving grace to preserve a disputed commission for any real estate broker who begins doing work for a prospective client without first securing a written engagement agreement. However, in light of this opinion, it would be wise to expect that the North Carolina Real Estate Commission is going to be strict in enforcing its Rule that is contrary to the conclusion in Scheerer. One would expect that the Real Estate Commission will not think twice about handing down disciplinary action for failure to obtain a written engagement agreement. Thus, in order to be safe and to avoid this potential disciplinary action by the North Carolina Real Estate Commission, brokers would be wise to always get a written engagement agreement for every client as soon as possible.
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