Buyer Broker Contract Enforcement: Legal Win, Reputational Risk

For Jeff Lichtenstein securing a $24,000 settlement via arbitration from a buyer who breached a buyer broker agreement signed with Lichtenstein’s firm was a success, as his agent was compensated for their work. However, not everyone is seeing the recent events involving Florida-based Echo Fine Properties as a win. 

In the Wednesday edition of his email newsletter NotoriousROB, industry analyst Rob Hahn wrote that even if you win a lawsuit or an arbitration against a client, you still lose. 

“If you win, you win some money. And you earn a lifetime of bad reviews and negative referrals. If you lose, you don’t win any money and you earn a lifetime of bad reviews and negative referrals,” Hahn wrote. “Does this buyer have friends? Family? Colleagues? People he knows at church? At the country club? Does the buyer have social media? How do you imagine this buyer will be telling the story of this $24,000 payment?”

Word of mouth marketing remains effective

According to Hahn, despite technological developments, word of mouth marketing, especially in real estate remains incredibly effective. 

“We trust what our friends and family and people we know tell us about a company, a product, a restaurant, a service that we know nothing about,” Hahn wrote. “It is why so many brokers, coaches, and experienced agents talk about staying in touch with past clients, providing the highest level of service, and being obsessed about customer experience. So going out and actively creating a negative word of mouth campaign against you strikes me as suicidal.”

Taking action is still understandable

While many in the industry agree with Hahn that being litigious with buyer broker agreements may cause some reputational harm to a brokerage or an agent, they understand why Lichtenstein’s firm took this approach and how the arbitrator arrived at this judgement. 

Summer Goralik, a real estate compliance consultant and a former special investigator for the California Department of Real Estate, said she recalls seeing agents spend hours working with a buyer only for them to be “ghosted” and never compensated during her time answering phones at a brokerage when she was in college. At this time, Goralik said buyer agency agreements were not the norm and she said it is unsurprising that issues arose out of the absence of these contracts.

“But the settlement-era shift changes that dynamic. It not only makes buyer’s agents more accountable, it makes buyers accountable, too. A written contract is a contract. It takes two to tango, and if a buyer knowingly breaches an exclusive agreement, consequences shouldn’t be a surprise,” Goralik wrote in an email. “In that sense, enforcing BBAs feels appropriate; it affirms that a professional’s time and work have value.”

Clarity and context matter

However, Goralik noted that we don’t know how well or clearly an agent explains a buyer broker agreement, noting that some consumers may not fully understand what they are signing.

“In this new model, a buyer can end up owing thousands of dollars even when another broker helped them close,” Goralik wrote. “The arbitrator’s ‘you should have read it’ conclusion may be legally sound, but it doesn’t always feel satisfying from a consumer perspective. Everyone should read what they sign — but clarity and context matter.”

Consumer policy experts, including Wendy Gilch, a fellow at the Consumer Policy Center, shared a similar view, noting that many of the agreements she has seen used by brokers across the country lack clarity around canceling the contract. 

“It’s fair for agents to be compensated for work they’ve done, but some contracts have protection periods that allow agents to collect commission even after the buyer cancels, sometimes on any home purchased for months afterward, regardless of the agent’s involvement,” Gilch wrote in an email. “That doesn’t seem fair.”

A better approach

According to Gilch, a better approach that would be fair to both agents and consumers would be to create cancellation fees tied to the work an agent performs. 

“But when some agents don’t include any upfront costs, it creates a competitive disadvantage for those who do, even if their overall contract terms are more reasonable,” Gilch wrote. “We’ve told buyers for years that using a buyer’s agent is free. Now they’re signing contracts with real financial obligations. This is new territory for a lot of buyers and agents alike, and we are definitely in a learning curve on both sides.”

Back in Florida, Lichtenstein told HousingWire that he and his brokerage have no desire to go into collections. However, he and his team ultimately decided to bring the issue to arbitration because they wanted to protect themselves.

“A buyer agreement is the same type of contract as a listing agreement, and I know plenty of listing brokers who have gone into arbitration over an agreement,” Lichtenstein said. “I don’t know any broker or agent from my company or others that are OK working for free.” 

According to Lichtenstein, while agents know they risk not getting paid for their work if a client does not transact with them during their contract period, he said this experience still hurts. 

“Every real estate agent I’ve ever interviewed and hired wants to get into real estate to help others. Of course, they appreciate the opportunity to earn money, being out in the field and negotiating, but underneath it all is that every journey is a story. To be involved in a home purchase where someone is making memories is incredibly gratifying,” he said. “The feeling you experience when you’ve put in an enormous number of hours, hard work and providing guidance and information to advance a sale and being able to help someone, only for that person to try to cheat you is a terrible feeling.”

Despite this, Lichtenstein maintains he is glad he and his firm fought this, even though they had to go through a “grueling” arbitration process. 

“I hope we never have to deal with one of these again, but if we do, we know our rights and won’t be walked over,” Lichtenstein said.