By: Bobby Kethcart
The Statute of Frauds is a BIG deal in real estate transactions and litigation. (This is our second post about it already…) We know it requires (most) agreements related to real estate to be in writing—agreements for the sale of an interest in real property, agreements for a lease of longer than one year, agreements authorizing or employing a broker or agent to buy or sell real property for compensation or a commission, and even some agreements to pay referral commissions if they can’t be performed in less than a year. We also know that the Statute of Frauds only requires the written agreement to be signed “by the party to be charged,” i.e., the person against whom the agreement is to be enforced.
So, Broker works for Client for several years. Broker shows several properties to Client. Broker has Client sign a “Buyer-Broker Agreement,” naming Broker as Client’s exclusive broker to locate a property in a certain area, let’s say Paradise Valley. Client signs the exclusive Buyer-Broker Agreement. During the term of the agreement, Client buys a property in Paradise Valley, but through another broker.
Upset, Broker sues Client for a commission, since Broker was Client’s exclusive broker for that area. There was an exclusive broker agreement. It was in writing. It was signed by Client (“the party to be charged”). Simple application of the Statute of Frauds, Broker wins and gets the commission. Right?
Not so fast, my friend.
In Young v. Rose, 230 Ariz. 433, 286 P.3d 518 (App. 2012), the Arizona Court of Appeals held no. There, the buyers [the Roses] signed the broker/agent’s “Buyer-Broker Agreement,” naming the broker/agent [Young] as the buyers’ “exclusive real estate agent” in connection with the buyers’ efforts to locate a property to purchase in the 85018 and 85253 zip codes. The buyers manually signed the agreement, but the agent did not. Instead, when the agent received an email from the buyers with the signed Buyer-Broker Agreement attached, the agent responded with an email back to the buyers saying “Thank you.” From anecdotes, this seems to be pretty common.
The buyers later bought a property in the 85253 zip code through another agent. The first broker/agent sued to recover a commission.
On appeal, the Court of Appeals held that both the buyers and the agent were required to sign the agreement for it to be enforceable. While the Statute of Frauds requires a broker employment agreement to be signed only by “the party to be charged,” a real estate broker licensing and regulation statute, A.R.S. § 32-2151.02(A), requires “all real estate employment agreements” to be “signed by all parties to the agreement.” The Court of Appeals held this statute needed to be “read together” with the Statute of Frauds. Thus, because the broker/agent had not manually signed the “Buyer-Broker Agreement,” the broker/agent would not be entitled to a commission, unless the agent’s “thank you” email was deemed an electronic signature of the agreement. The Court of Appeals returned the case to the trial court on this issue. But the court also noted that there is significant debate about whether an email qualifies as an electronic signature. So the agent was left on tenuous ground.
Some might say that this decision screams “Technicality!” After all, what if the agent had received the email, printed the Buyer-Broker Agreement signed by the buyers, signed it herself, put it in her file, and never told anyone about it? Presumably, she would now be entitled to the commission, and the presence or absence of the signature didn’t matter at all because no one except the agent knew one way or the other.
But the decision also highlights the strict requirements on real estate broker employment and commission agreements in Arizona. And it reconfirms that the best practice is to make sure that all parties to real estate agreements—including brokers and agents where indicated—sign the actual agreement. Unless and until the Court of Appeals approves of email signatures, relying on an email exchange to try to establish that someone has electronically signed an agreement is shaky.