Buyer owes $24K after breaching buyers broker agreement, arbitration finds

Since the implementation of mandatory buyer broker agreements via the business practice changes outlined in the National Association of Realtors’ (NAR) commission lawsuit settlement agreement, many have wondered what happens if a buyer breaches a contract. 

Jeff Lichtenstein, the broker-owner of Florida-based Echo Fine Properties, found out when his firm entered into arbitration with a buyer after they bought a property with the help of another brokerage, despite signing an exclusive agreement with Echo Fine Properties. 

Since August 17, 2024, when the business practice changes went into effect, Lichtenstein said his firm has completed 381 buy side transactions, and they have ultimately looked into three contracts for issues. 

“For the brokerage community, if the Buyers Broker Agreement (BBA) is written up and executed properly and the Buyer purchases, it means we will get compensated for the work we have done. That is reassuring on our end and a sigh of relief as most every other profession gets paid as they do their job and with health and 401k benefits,” Lichtenstein wrote in an email. “Our pay structure is by choice, and we get out of it what we put into it. But, getting compensated is something we expect at the end of a deal.”

According to Lichtenstein, at the end of 2024, he and his team were alerted by a mortgage broker that a buyer the mortgage professional knew was working with Echo Fine Properties had just presented another offer with a different buyer’s broker. He said they immediately notified the buyer of the issue; however, the buyer ignored the communication, resulting in Echo filing for arbitration after the transaction had closed. 

Buyer signed an amended buyer broker agreement

During the discovery related to the arbitration, Lichtenstein said his firm found that the day after they had alerted the buyer to the issue, one of the buyers signed an amended buyer broker agreement, swapping out the name of the original buyer for that of his mother. Three weeks later, another amendment to the contract saw things reversed with the mother’s name swapped for that of the original buyer. 

Through arbitration, the arbitrator concluded that the buyer broker agreement used by Echo Fine Properties is unambiguous, and its terms were clearly stated. Additionally, the arbitrator found testimony from the buyer that he did not read the agreement before signing it, that the 180-day protection period for the agreement is “excessive,” and that the agent from Echo Fine Properties provided little to no benefit or help were unpersuasive. 

Due to the arbitrator’s findings, the buyer was found to have breached his contract by entering into a purchase agreement without the involvement of his Echo Fine Properties agent and subsequently refusing to pay the commission Echo Fine Properties was entitled to based on the buyer broker agreement. As a result, the arbitrator awarded the brokerage $24,000 due to the breached contract. This sum represented the 3% commission agreed upon in the buyer broker contract on the purchase of the $800,000 property. 

Lichtenstein noted that even if only 1% of transactions have an issue, in a year with just 4 million existing home sales, that could potentially mean 40,000 arbitration cases a year, involving a purchaser owing a commission to a brokerage. 

“We have no desire for this, but collections is appearing to be a new category for brokerage houses as a result of the BBA,” Lichtenstein wrote. “For purchasers, if you’ve committed to a Realtor, then don’t try to pull a fast one. Understand how much work is involved. The brokerage community takes a client on with no guarantee of being paid unless one buys a home. Agents put in a tremendous amount of time and their knowledge and that work is what educates a client and helps to get a deal over the finish line.”