Broker-Agent Breakups Happen: Real Estate Sales Agents Don’t (and Maybe Shouldn’t) Have Team Loyalty
In recent years, relationships between real estate brokers and agents seem to have gone the way of those between star athletes and their sports teams. The days when players like John Elway, Joe Montana, Tom Brady, Tim Duncan, Larry Bird, Magic Johnson, Derek Jeter and Mickey Mantle spent most, if not their entire careers with a single team are a distant memory. Today’s elite players seem to have less (if any) team and town loyalty than those of past eras. Instead, they move around in pursuit of big money or chase championships by joining “superteams.”
The same is true of real estate agents, who may choose to “take their talents” to another brokerage many times through out their careers. Put into sports terms, agents don’t always have “team loyalty.”
Broker-Agent Breakups Can (But Don’t Have to Be) Acrimonious
The reasons agents leave their brokerages are countless, and range from the innocuous (better split, their buddy moved there, another brokerage offers support and training more aligned with the agent’s needs, etc.) to the malignant. On occasion, the separation is smooth, but often it is filled with conflict. Disputes about clients, listings, commissions and trade secrets often arise between an agent and their former brokerage. So too do hurt feelings and a sense of betrayal.
I have handled many, many broker breakups (on both the brokerage and the agent side) and find that they all have one thing in common – the outcome turns on 2 factors: (i) the clarity and strength of the Independent Contractor Agreement (“ICA”) and (ii) the emotional intelligence /practicality of the parties. Another constant about these disputes is that they are costly, distracting and bad for the clients (who never want to get dragged into the fight)..
The Independent Contractor Agreement Sets the Rules of Broker Breakups
A well drafted ICA that is negotiated and understood on the front end — back when the parties liked each other and thought they would be a great “fit” and make lots of money together – solves many breakup problems long before they arise.
Problems happen when the ICA is poorly drafted, overly subjective, or simply misunderstood. When this occurs, things can get nasty. With the clients hanging in the balance, contentious broker breakups are bad for almost everyone involved.
Biggest Point of Dispute in Broker Breakup: Who “Owns” the Client?
The most common dispute is over who “owns” the clients – the buyers and sellers that both the agent and the broker are here to serve. Do the listings, pending contracts and buyer representation agreements go with the agent to their new brokerage, or remain with the broker from whom the agent is departing?
This is a tough one. As described below, clients typically desire to work with the agent they know. However, applicable law and certain contractual agreements say that the agent and the client cannot contract directly.
Clients Usually Have “Player Loyalty” – Not “Team Loyalty”
In the real world, real estate clients are most often attracted to a brokerage by an agent. Whether the client comes from the agent’s “sphere,” is referred or is recruited through the agent’s marketing efforts, the client usually wants to work with that individual. Although there may occasionally be brand loyalty (“team loyalty”) where the brokerage is concerned, I believe that consumers of professional services (real estate agents, lawyers, bartenders, personal trainers) like to do business with people they know and like. This is one of the principles upon which I have built my business.
If Joe, your favorite bartender changes jobs and moves to the bar down the street, there’s a decent chance you will follow because you know and like Joe (and he knows how you like extra olives in your favorite cocktail) and don’t have a relationship with the bar’s owner. The same psychology led me to root for (or even care about) the Tampa Bay Buccaneers for the two years that my favorite football player was their quarterback. This is called “Player loyalty” and it is sometimes the opposite of team loyalty.
The same is usually true in real estate. The client almost always wants to continue working with the agent they know, like and trust, no matter which broker’s jersey the agent is wearing. This is particularly true when there is a personal connection between the client and the agent (personal friends, family, church friends, your kid’s teacher, etc.).
Texas Law and TREC Rules Prevent a Broker from Being Cut Out
Agent loyalty is great (for the agent), but there’s a major catch where real estate brokerage is concerned. The business of brokerage is highly regulated in the United States. In Texas, the Texas Real Estate License Act and TREC Rules establish that a broker is an indispensable component to any relationship between a client and an agent. In fact, the laws and rules prohibit an agent from contracting directly with client, and from providing real estate brokerage services or receiving compensation (including real estate commissions) outside the sponsorship of a licensed real estate broker.
For this reason, no matter how close the client and agent may be, the client is contracted with the broker (only), and the broker “owns” the listing agreements and buyer’s representation agreements with the client. But this is not the end of the story if an ICA is in place (and it darn well better be!).
How ICAs Address Break Ups
Most ICAs, whether promulgated or “custom,” have provisions that speak to what happens to the clients and files upon termination. Since ICAs are binding contracts, these provisions control how the remaining business between the departing agent and the brokerage is to be conducted.
Thoughtful ICAs usually address topics such as whether the agent will be compensated for services performed prior to the separation but for which commissions have not yet been received, whether the agent will be permitted to continue working on pending transactions or existing listings, whether the agent may use information gleaned during the relationship, and whether the agent may contact the brokerage’s clients and remaining agents.
The TexasRealtors promulgated ICA form contains the following language:
Services to Prospects: Upon termination of this agreement, all negotiations and other brokerage services with prospects commenced by Associate before termination will be assumed by Broker. Associate will cooperate with Broker to provide for an orderly transition and assumption of such service by Broker.
Associate’s Obligations upon Termination: At the time this agreement ends, Associate must:
(1) cease all negotiations and other dealings that concern Broker’s real estate business commenced by Associate before this agreement ends; (2) provide Broker a written list of all current listings and pending sales and leases; (3) turn over to Broker all files related to Broker’s real estate business and that Associate may have or control; and (4) turn over to Broker all Broker’s personal property including but not limited to keysafes, signs, equipment, supplies, manuals, forms, and keys.Files: Associate may not remove any files related to Broker’s real estate business from Broker’s office or electronic database without Broker’s prior knowledge and consent. Associate is entitled to copies of relevant documents concerning pending transaction in which Associate has a bona fide interest. Broker will not unreasonably withhold copies of such documents.
Nasty Brokerage Breakups Are Bad for Almost Everyone
When agents and their former brokers fight, almost everyone loses.
The clients lose because their transactions and representation are often left in a state of “limbo” while the parties duke it out. They also lose because the professional who is supposed to be working on helping them buy, sell or lease real estate (whether the “old ” broker or the agent) is distracted with fighting and not focused on providing the highest quality of representation. In extreme cases, the clients can become witnesses compelled to testify in court proceedings between the broker and agent.
The broker loses because he or she is distracted with the fight. Instead of training, recruiting, educating and finding new business, the broker suddenly finds that she spends most of her time with lawyers, hunting for “evidence” that the departed agent committed some misdeed, and defending herself to the other agents or real estate community who has learned about the dispute. When the dispute plays out on social media, the drama really gets intense. It cannot be overlooked that the broker’s other agents are also observing closely, knowing that one day they might leave. Frequently, they perceive the fight as an indication of how they could be treated upon departure, and sometimes the dominoes start falling resulting in agent exodus.
The agent loses too. There’s nothing like joining a new brokerage to get a fresh start on the path to growing a real estate business. That’s almost impossible to do when the former broker calls the agent’s new broker, threatens to sue them, files a TREC Complaint or worse… The agent also risks losing the client’s loyalty. After all, the client just wants (perhaps needs) to buy or sell. No matter how much they love the agent they aren’t usually willing to endure financial harm to show player loyalty. Plus, they have another friend that’s an agent with no drama.
Notice how I said “almost” everyone loses when real estate agents have acrimonious breakups with their broker? Any guesses about who rarely loses anytime there is a nasty breakup or other legal dispute?????? The lawyers.
When Parties Are Reasonable, Real Estate Brokerage Breakups Should be Negotiated on Fair and Reasonable Terms
I’m not suggesting that either party walk away from the breakup dispute empty handed. Real estate is a tough business, and too often hard work is not compensated.
Instead, the broker and the departing agent should think practically about all of the negative consequences discussed above, and decide that this sort of battle is not right for their business. When reasonable minds, practical personalities and clear ICAs come together, broker breakups can be negotiated in a way that allows the client to be best-served and permits the agent and broker to move forward positively.
