Pitfalls in real estate brokerage

REAL Estate Practitioners, long-time Brokers particularly, will agree that the realty brokerage practice is not all a “bed of roses” as they say. Although successful Real Estate Brokers and Salespersons in reaching the apex of their career and equated reaping financial rewards with millions in commissions and professional fees, few people know and realize that they have to go through many pitfalls in real estate brokerage.

On the part of the Real Estate Broker, the following may have been the experiences he/she had gone through: After the Broker has worked on putting together the papers, data and other presentations including stirring up interest in the property, the owner finds fault with certain conditions in the brokerage agreement because:

1. The owner says new price or value unfolded by the Broker on the property and decides not to sell the property after all; or

2. With the new information on the property discovered by the Broker, the owner has found or prefers to sell the property on “direct buyer only” arrangement.

3. After the preparation for listing is completed in excellent presentation with the facilities of a well established Broker, the owner finds another Broker/Agent who will naturally be able to handle the sales negotiations for a less fee or commission.

It could also happen that after the Broker had listed and worked on prospective buyers, the owner connives with one of them to effect a “direct sale” and thereby eliminates the Broker by:

1. Waiting for the expiry date of the Agency, and if necessary, the “safety period or hold-over clause period.”

2. By effecting the sale after the original period or extension if any, of the Agency to a relative or “dummy” of a buyer whose name was duly reported by the Broker to the owner.

At times, before or after consummating the sale, it is found out that there are previous legal attachments or liens on the proceeds of the sale effected before the Broker could collect the commission or fee. Moreover, he/she is under obligation to pay or has in fact paid the share of Cooperating Brokers and/or Salespersons in addition to the usual and other expenses and advances in connection with the negotiations on the sale of the property.

After the Broker has worked on the property or found a buyer, it turned out that there were undisclosed defects like “squatters” or burdened with some physical encumbrances. The effect on the Broker includes the following:

1. Loss of investment in the prospective transaction by way of expenses;

2. Loss of expected income;

3. Waste of time and effort; and

4. Loss of prestige in attending the brokerage business and profession. On the part of the Client or Owner, there are times when representations on the property, conditions of the transactions or the negotiations by the Broker are incomplete, inaccurate or incorrect. This usually happens when the Agent turns out to be unlicensed or licensed only on the basis of “paper qualifications.”

Sometimes the Agent is an inexperienced amateur with inadequate or totally without the necessary knowledge and training. There is also a situation wherein service facilities, office or place of business is lacking. In view of these pitfalls, an investment made by or transaction made in behalf of the client or owner in such cases may result in: the property acquired being not as valuable as the purchase was led to believe and there were undisclosed or owner’s rights, contractor’s liens, inadequately explained liens or encumbrances and co-owner’s rights, tenants or occupants rights, etc. which resulted in costly delays, including litigations and court cases.

Properties sold by the client or owner who invited Brokers on “open listings” or the so-called “first come, first served” basis, are discovered to have conflicting claims on commission or fees by two or more Brokers/Agents who “contacted” the buyer.

It may also happen that sudden changes in economic conditions, shifts in development trends adversely affect the uses, income or value of some properties the owner had invested in; or sudden changes in government’s policy particularly as to community development and financing adversely affect the owner’s investment and investment purposes.

These are but few of the situations or circumstances that both the Broker/Agent on one hand and the Client/Owner on the other hand had experienced or will experience as real estate transactions are done.

What is foremost, especially in the new landscape of real estate practice under RESA, players must be aware of their role in assuring a smooth flow of real estate deals, all for their benefit.