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On February 2, 2023, Massachusetts’s Supreme Judicial Court (“SJC”) upheld a real estate broker’s right to recover lost commissions after her clients breached an oral exclusivity contract and purchased a home on their own. The decision, Biping Huang v. Jing Ma, clarifies that exclusive broker contracts need not be written to be enforceable and that brokers benefitting from such a contract may recover lost commissions in the event of their clients’ breach.
The plaintiff broker entered an oral contract providing she would serve as the exclusive broker for a term of one year with the defendant clients. The clients were permitted to search for homes on their own but were required to refer any home they found to the broker and to notify all other agents they dealt with of the arrangement within the exclusive contract’s one-year term. Between May 2016 and February 2017, the broker showed at least 10 properties to the clients, assisted with mortgage applications, among other services.
Ultimately, the clients located a home listed by another brokerage. The clients did not refer this home to the broker, but instead began negotiations with the other firm as their representative. On February 18, 2017, the sellers accepted the clients’ offer of $999,000 for the property. On February 20, 2017, the clients informed the broker of the purchase by email, terminating their contract, thanking Huang for her efforts, and gifting her an Amazon gift card.
The broker sued for, among other things, breach of contract and recovery of commissions she would have earned had she participated in this purchase. The trial court granted summary judgment to the clients because the exclusivity contract was not in writing, which the Appeals Court overturned.
On further appellate review, the SJC held that summary judgment should not have been granted. The SJC clarified that real estate broker exclusivity contracts need not be in writing to be enforceable, and that the value of lost commissions is the appropriate measure of damages. In refuting the opinion of the dissenting Appeals Court justice, who felt that such damages would provide a windfall to the broker, the SJC emphasized the broker’s substantial services to the clients in this case. If the clients, after benefitting from those services, were able to escape their obligations to the broker, the broker would be deprived of contractual compensation for the value she provided. Accordingly, the SJC declined to adopt a rule whereby real estate brokers are barred from recovering expectation damages if their contract does not explicitly entitle them to such damages, whether or not they participate in the final transaction.
Questions remain. The SJC remained silent as to whether this holding would apply to a broker who performed little to no services for their clients, and likewise emphasized that the oral contract at issue in this case was clear and detailed, rather than sparse and potentially disadvantageous to the clients, as is frequently so in the preexisting case law. Regardless, buyers and sellers of real estate in Massachusetts should be prepared to pay commissions to their exclusive brokers, even if that broker is not present at closing.