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On February 1, 2018, GCAAR will be introducing several new agency forms, as well as revised Listing Agreements and Buyer Agency Agreements. The purpose of the changes is to clarify a distinction between the agency relationship and a contractual relationship underlying a listing or buyer agency agreement. The agency relationship established between a broker and a seller or buyer is the “brokerage relationship,” differentiated from the contractual relationship between the parties.

To understand the distinction, one must first look to current Maryland agency law, which freely allows a principal to terminate their relationship with an agent. In the context of a real estate agency relationship, a client may cancel their agency relationship, but that does not terminate the contractual relationship between the broker and client. Consequently, if a seller notifies the broker of cancellation of the agency relationship before the end of the listing, the broker may no longer act as that party’s agent. They must remove the listing from MRIS, take down any signs on the property and cease marketing the home – simply, they no longer serve as the client’s representative. However, the contractual obligations created by the Listing Agreement or Buyer Agency Agreement, including, for example, the payment of the real estate commission, may survive termination of the agency relationship.

GCAAR is releasing three new forms on February 1, 2018 that allow for bifurcated termination of the agency and contractual relationships. The first form is “Notice of Termination of Brokerage Relationship,” which is designed for either a buyer or seller to end the agency relationship, but NOT the contractual relationship. The next form is “Termination of Listing Agreement,” which is intended for a seller to use in cancelling not only the agency relationship, but also the contractual relationship. That form contemplates the payment of a mutually agreed-upon amount of money from seller to the broker in consideration of termination of the contractual relationship. Conceptually, the broker may want reimbursement for previously incurred marketing costs before agreeing to terminate the contractual relationship. The final form is “Termination of Buyer Agency Agreement,” which is intended to cancel the contractual relationship between a buyer and broker, and has a blank space to designate any compensation to be paid by the terminating buyer to the broker in consideration of cancellation.

Because the bifurcated concepts are likely to be confusing to consumers, any financial consequences resulting from a termination should be agreed upon at the time of execution of the Listing or Buyer Agency Agreements. For example, a listing agreement might provide that the seller can cancel the agency relationship and the contractual agreement, upon the reimbursement of proven out-of-pocket marketing expenses plus a cancellation fee of a stated amount. Alternatively, the termination of the contractual agreement could be permitted without cost to the seller or buyer. The key is that consumers and agencies should reach an agreement at the commencement of the relationship, in order to avoid future disagreements or ethical risks.

CONTACT

Matthew D. Alegi
Danielle M. Dolch
David M. Kochanski
Marc D. Lipman

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For more information regarding our Residential Real Estate Settlements Group or our general real estate transactions and litigation practice, please contact the Group Chair at 301-230-6574 or settlements@shulmanrogers.com.

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.