August 18, 2024

The Florida Realtors has posted on its website its Exclusive Buyer Brokerage Agreement as the contract form for Florida Realtors to ask/encourage/require prospective buyers to sign before showing them a house for sale. Prospective buyers would think that’s great. I’d like a real estate agent who only represents buyers on my side, rather than someone on the seller’s side. But that’s not what “exclusive” means in this case.

I teach law students to read the entire contract before drawing conclusions from the title. So, let’s read this Exclusive Buyer Brokerage Agreement. Go ahead and download it here. I read it. It doesn’t say that the Realtor represents only buyers. And it also doesn’t say that the Realtor will represent only the prospective buyer who signs the buyer broker agreement. In fact, paragraph 4(b) says, “Consumer understands that Broker may work with other prospective consumers who want to acquire the same property as Consumer.” That’s exactly the opposite of what the prospective buyer wants.

Then why does the title say “exclusive”? Here’s why: paragraph 5(a) says the buyer must conduct “all negotiations and efforts to locate suitable property only through Broker”. What this means is that the person who signs the Florida Realtors Exclusive Buyer Brokerage Agreement is legally bound to use only that Realtor to show them houses for sale. That prospective buyer cannot use zillow.com or realtor.com or redfin.com or trulia.com or the newspaper to find and visit homes for sale, unless they plan to pay the Realtor a commission if they end up signing a purchase contract. That’s right. The prospective buyer would still owe the Realtor a commission if a contract for purchase is signed. Where does it say that? Paragraph 7 says, “Broker’s commission is earned when…Consumer…contracts to acquire real property.”

Well, so far, reading the Florida Realtor’s Exclusive Buyer Brokerage Agreement tells us that the prospective buyer must use only the named Realtor to show them houses and that the buyer is obligated to pay the Realtor a commission if the buyer signs a purchase contract that the seller accepts. Does it get any worse than this for the buyer? Yes. According to this contract form, the Realtor’s commission is earned when the contract for purchase is signed. This means that the buyer must pay that commission even if there is no closing. So, if the purchase contract falls through for some reason, even if not the buyer’s fault, the buyer could still owe the Realtor the commission.

For those interested in fairness to buyers, the Florida Realtors did not post on its website any buyer broker contract form that was not “exclusive”. This means that it is up to each person who wants to buy a house and not be tied to the onerous restrictions of the Florida Realtors Exclusive Buyer Brokerage Agreement form to negotiate their own buyer broker agreement with the Realtor. This is because the National Association of Realtors requires all Realtors who represent a buyer to have a written agreement with the buyer. It does not need to be exclusive, but the only form provided by the Florida Realtors is the exclusive form.

You may have read the Tampa Bay Times newspaper article on August 14, 2024 entitled “Buying a Home in Florida Just Got More Complicated Thanks to New Rules” about the big change in residential real estate brought about by the 2024 settlement of the antitrust case against the National Association of Realtors. This is one of those changes. 

Are you confused? You’re not alone. I’m a board certified real estate lawyer, and this is one of the most far-reaching changes in my fifty years of practice. Generally, only the seller paid commissions to Realtors. The Realtors on each side shared the commission paid by the seller. After August 17, 2024, the buyer may be legally liable to pay commission to the Realtor on the buyer side of the deal. Now it’s all a matter of contract negotiation. Not just negotiating a contract for purchase with the seller. Now the prospective buyer must negotiate a contract with the buyer broker. That’s not a bad thing. It’s actually good for buyers to engage a real estate agent. Just see my page Buying a Home on this website.

But Buyers Beware: Read the entire buyer broker agreement, and call your lawyer before signing.

It is also available as a free ebook on Apple Books (Mac, iPhone, iPad), Google Books, Google Play Books (Android), Barnes and Noble Nook, and Amazon Kindle and as a $12 paperback on Amazon and Barnes and Noble.

This is my fourth free ebook published this year. My first three ebooks “How To Form a Florida LLC or Limited Liability Company”, “How To Form a Florida Business Corporation”, “How To Form a Florida Nonprofit Corporation” were published earlier this year.

“Florida Real Estate Sales Contracts: A Collection of Forms for Lawyers” includes 192 pages of legal forms and checklists to provide an aid in drafting contracts for sale of Florida real estate and includes related forms such as contract addendum forms, amendment to contract forms, assignment of contract forms, and termination of contract forms.

These free ebooks are primarily directed to lawyers because Florida real estate sales contracts and the formation of legal entities are based on Florida Statutes and case law so having a law degree is really a starting point in drafting them. If you are not an attorney, please engage an attorney to review any contract before you sign it or use it.

Please note that these free ebooks are provided for educational purposes only and are not legal advice and do not create an attorney-client relationship.

There is no magic form of disclaimer clause wording for as-is contracts in Florida, but a 2022 Pinellas County, Florida case shows the importance of contract drafting (and contract reading) and what can happen if certain words are missing in a disclaimer.

In NM Residential, LLC v. Prospect Park Development, LLC, 336 So.3d 807 (Fla. 2d DCA 2022), the Pinellas County trial court dismissed a lawsuit that made fraud claims arising from a purchase and sale agreement, basing the dismissal on the as-is disclaimer clause in the contract, but the appellate court reversed because “Florida Supreme Court precedent requires that to foreclose liability for fraud the parties must expressly stipulate that any fraud that might have been committed cannot form the basis of a claim.”

The court quoted Oceanic Villas, Inc. v. Godson, 4 So.2d 689 (1941), and said, “[T]he contract must do more than merely agree ‘that no fraud had been committed’ — i.e., disclaim the making of fraudulent statements upon which the other party has relied — but must rather ‘recognize that fraud may have been committed and stipulate that such fraud, if found to have been committed, should not vitiate the contract.’”

Now that’s pretty strong wording to put into a contract that should be read by the buyer before it is signed. Would you sign a contract if it it had a disclaimer clause that said the other side is not liable even if it committed fraud, and that fraud might actually have been committed? I suppose this type of wording appears in website terms of service agreements and other types of contracts that we all “agree” to every day, but selling real estate seems to me to call for a higher level of mutual agreement.

And, I think this case stands for that concept: if you want the buyer in a Florida real estate deal to be prevented from suing the seller for fraud, then the contract disclaimer clause needs to make it clear that there might have been fraud, and even if so, the buyer waives that fraud claim.

Maybe this is another one of those peculiarities in Florida law.

The bottom line: we need to both read and draft our disclaimer clauses in as-is contracts for sale of Florida real estate very carefully. Perhaps it’s the first clause to read, right after the price.

For additional information, see the free ebook “Florida Real Estate Sales Contracts” by Florida Bar Board Certified Real Estate Lawyer James W. Martin.

1. Clear Contract. Litigation is less likely with a clear contract, so the lawyer can assist in preparing and negotiating a clear contract for sale of the real estate. Sometimes this is done with a standard form, such as the FR/Bar form issued by The Florida Bar and Florida Realtors or the FAR forms issued by the Florida Realtors. The lawyer often prepares addenda to these standard forms to clarify aspects of the transaction. Sometimes, however, the lawyer prepares a form specifically for the particular transaction rather than using a standard form that has many provisions that are not applicable to the particular case or that are more favorable to the buyer. Unlike others parts of the real estate sales team, lawyers are trained in the art and use of legal words and the drafting and interpretation of contracts.
2. Deadline Follow-up. All contracts for the sale of real estate should include deadlines for such matters as inspections, financing, title insurance, surveys, closing, etc. To avoid litigation, it is important to comply with these deadlines. The lawyer can assist the seller in scheduling contract deadlines in order to achieve the goals of getting paid and avoiding litigation.
3. Limit Liability in Contract. Deed and Closing Documents. Legal documents often contain representations and warranties that are binding upon sellers after the closing in a way that may obligate the sellers to pay damages to the buyers even years after the closing. Since the seller’s goals are to get paid (and stay paid) and avoid litigation, it is often important to limit the seller’s representations and warranties in contracts. Lawyers know which warranties and representations are standard and which are not, which can be negotiated out and which must stay.
4. Cashier’s Check or Wire Transfer at Closing. The seller should accept only a cashier’s check or a wire transfer of net proceeds at the closing. If the seller accepts a closing agent’s escrow check, then the seller accepts the risk if the check fails. While most closing agencies are reputable, there is no way to tell whether its escrow check will be honored by your bank. If it is not, the seller loses and the buyer gets to keep the deed. So, it is essential that the seller only accept a cashier’s check or wire transfer at closing.

Therefore, the seller of Florida real estate, whether it is residential or commercial, should always engage a Florida lawyer to assist in the transaction.

For additional information, see the free ebook written by Florida lawyer James W. Martin on Florida Real Estate Sales Contracts.

The lawyer can help the buyer prepare and negotiate a purchase contract, then advise the buyer through the buyer’s due diligence inspection period, and then read the deed, title insurance commitment, and other closing documents on behalf of the buyer. 

Specifically, the real estate buyer’s lawyer can do the following:

Due Diligence Period. The buyer’s lawyer can assist in preparing and negotiating a contract for purchase of the real property that includes a due diligence inspection period with broad wording to allow the buyer to check for obvious (patent) and non-obvious (latent) defects.  These might be in the building, land, air or water.  They could be environmental, structural, mechanical, electrical, or otherwise. The buyer might remember the Latin saying, Caveat Emptor, which means “Let the buyer beware.”  This meant that the seller was not obligated to tell the buyer about defects known by the seller.  While this ancient rule of law has changed with regard to residential real estate, it still applies in Florida to commercial real estate, so it is even more important for commercial real property buyers to do their due diligence inspections.  However, it is still important for residential buyers to inspect for defects because sellers are not obligated to tell about defects that sellers are not aware of so the buyer might discover something unknown to the seller.  In addition, if the residential seller fails to disclose a known defect and is liable to the buyer for not doing so, the seller might not have enough money left to pay the buyer damages for the nondisclosure. If the buyer does not discover the defect until after the closing, then it is too late to back out of the transaction without expensive litigation.

Clear Contract. The buyer’s lawyer can assist in drafting a clear contract that gives the buyer what the buyer expects to buy in the transaction. Sometimes this is done with a standard form such as the FR/Bar forms issued by the Florida Bar and Florida Realtors or the FAR forms issued by the Florida Realtors. The lawyer often prepares addenda to these standard forms to clarify aspects of the transaction on behalf of the buyer that might otherwise be unfavorable to the buyer. Sometimes, however, the lawyer prepares a form specifically for the particular transaction rather than using a standard form that has many provisions that are not applicable to the particular case. Unlike real estate brokers, lawyers are trained in the art and use of words and the drafting and interpretation of contracts.

Deadline Follow-up. All contracts for the purchase of real property should include deadlines for such matters as inspections, financing, title insurance, surveys, closing, etc. To avoid breaching the contract, it is important to comply with these deadlines. The lawyer can assist the buyer in scheduling contract deadlines.

Read Closing Documents and Include Protections. Legal documents can be written to include representations and warranties that are binding upon sellers after the closing in a way that may obligate them to pay damages to the buyer even years after the closing, but sellers try to avoid this wording so that any discovered defects are the buyer’s sole problems. If the buyer does not have an attorney the buyer may not have the benefit of including this wording in the contract, deed and other documents.  Since the seller’s only goals are to get paid (and stay paid) and avoid litigation, it is important to include seller’s representations and warranties in contracts and deeds. Lawyers know which warranties and representations are standard and which are not, which can be negotiated in and which are more difficult to include.

Cost-Benefit of Legal Advice. The benefits of having a lawyer come at a cost: legal fees. Buyers who do not have lawyers do not pay legal fees; at least, not unless or until a breach or defect is discovered. Legal fees in litigation are expensive because it is fueled by opposing parties with opposing claims and positions. Legal fees paid to a buyer’s lawyer to advise the buyer before signing a contract to purchase and before closing on the contract are much less than legal fees in litigation. There is no crystal ball to determine in advance whether a particular deal will result in litigation so it is best to hire a lawyer to assist in assessing and minimizing the risks of the purchase transaction to the extent possible.

Therefore, the buyer of Florida real estate, whether it is residential or commercial, should always engage a Florida lawyer to assist in the transaction. Otherwise, there is really no one on the buyer’s legal side.

For additional information, see the free ebook written by Florida Bar Board Certified Real Estate Lawyer James W. Martin on Florida Real Estate Sales Contracts.

Retired Villanova law professor Michael Walsh, writing in ALI-ABA The Practical Lawyer (Aug 2010), notes that there are 1 million words in the English language, far more than the 500,000 Cantonese words, 250,000 Spanish words, and 100,000 French words. He also notes that a word must appear 25,000 times and be understood by 100 million people before it counts as part of the language. We are adding a new word to English every hour and a half.

Many of these new words are created by kids or their technology. Words like lol, texting and bff. Of course, we grownups have our own new words, like subprime and TARP.

The point is, Florida contract lawyers need to draft contracts using words people know. The best way to avoid litigation over contracts is for the parties to be able to read and understand the contracts before they sign them. So, we need to avoid the 39,200 words that our kids don’t know. Because they are the ones who will one day read and sign those contracts.

The case is Commercial Interiors v. Pinkerton, which was released the week of September 28, 2009, by the Florida Fifth District Court of Appeal as Case No. 5D08-1493. The contract between Pinkerton and Commercial Interiors had an arbitration clause that required disputes be submitted to an arbitrator. A dispute arose. It went to arbitration. One side claimed the contract was invalid. The arbitrator disagreed. That side filed in state court, and the state court judge agreed that the contract was invalid. Then the other side appealed, and the appellate court decided that id did not matter whether the arbitrator applied the law correctly or not. The arbitrator’s decision stands, good or bad.

“An award of arbitration may not be reversed on the ground that the arbitrator made an error of law.” This is what the court quoted from a 1989 Florida Supreme Court opinion. It noted that, “Arbitration, after all, is a form of alternative dispute resolution.” And so it is. I just don’t like that you cannot appeal when the arbitrator makes an error of law.

What’s the best way to avoid this? Do not write arbitration clauses into contracts. Do not sign contracts with arbitration clauses in them. If you have a choice, that is.