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Are Your Real Estate Brokerage Agreements Compliant? New Maryland Law May Require Changes

Posted April 29, 2024 at 12:23 PM

Business & Tax, News & Events, Real Estate

New legislation set to take effect on October 1, 2024, may require Maryland real estate brokers to revisit and revise their brokerage agreements.

Current Law:
Current law (pre-October 1, 2024) requires that a brokerage agreement include the following (the “Original Five Requirements”):

  • a definitive termination date that is effective automatically without notice from the client;
  • a statement of the amount of compensation to be paid to the broker and whether the broker is authorized to receive the compensation from a person other than the client;
  • a statement whether the broker is authorized to cooperate with other brokers and share compensation with the other brokers and the amount of the compensation;
  • an explanation of the events or conditions that will entitle the broker to a commission or other compensation; and
  • a provision providing for the cancellation of the brokerage relationship by either the client or the broker.

New Law:
Under Senate Bill 542, which revises Section 17-534 of the Maryland Real Estate Brokers Act, the requirements for a brokerage agreement differ depending on the type of client.

When Client is Seller or Lessor:
For brokerage agreements between a broker and a seller or lessor, the Original Five Requirements still apply with some slight modifications:

  • In addition to the language of Original Requirement No. 3, the brokerage agreement must describe the amount of compensation that may be shared as a “percentage of the purchase price, a specific dollar amount, or a combination of both.”
  • With respect to the termination rights under Original Requirement No. 5, the new law provides that the brokerage agreement may also include a provision providing for termination “by mutual agreement of the client and broker,” in addition to the original unilateral termination rights.

When Client is Buyer or Lessee:
For brokerage agreements between a broker and a buyer or lessee, there are more modifications to the Original Five Requirements, plus an additional requirement:

  • Original Requirement No. 1 remains unchanged under the new law.  That is, the brokerage agreement between broker and buyer or lessee must include a definitive termination date that is effective automatically without notice from the client.
  • Original Requirement No. 2 has been modified under the new law and no longer requires a statement addressing whether the broker is authorized to receive compensation from a person other than the client (but see next bullet point).  Instead, in addition a statement on the amount of compensation, the brokerage agreement must describe the amount of compensation as a “percentage of the purchase price, a specific dollar amount, or a combination of both.”
  • Requirement No. 3 includes the language that was removed from Original Requirement No. 2.  That is, under Requirement No. 3, the brokerage agreement with a buyer or lessee must include a statement “whether the broker is authorized to receive some or all of the compensation to be paid to the broker from a person other than the client.”
  • Requirement No. 4 is entirely new and requires a statement of “the client’s rights and obligations regarding the compensation to be paid to broker if the broker is authorized to receive some or all of the compensation to be paid to the broker from a person other than the client.”
  • Requirement No. 5 is essentially the same as original Requirement No. 4, with some slight, non-substantive changes in wording.
  • Requirement No. 6 is the same as Original Requirement No. 5, with the same modifications as applicable under the new law to brokerage agreements between a broker and a seller or lessor.

Summary:
In the wake of the recent litigation involving  the National Association of REALTORS, Senate Bill 542 is intended to create a more transparent real estate transaction for the benefit of the consumer.  Beginning October 1, 2024, brokerage agreements must state with specificity the amount of and means of calculating the brokerage commission.  Furthermore, if you are representing a buyer (or lessee) you must include in the brokerage agreement a statement concerning the client’s rights and responsibilities for the payment of the brokerage fee, along with a certificate of good standing confirming the brokerage’s compliance with state regulations.

In practice, the requirements of Senate Bill 542 should not be difficult to implement.  But don’t be caught unprepared when the law takes effect on October 1.  Contact us today and we can review your brokerage agreement in light of these new requirements.

Comparison of Requirements Under SB 542
Agreement with Seller or LessorAgreement with Buyer or Lessee
Definitive termination date that is effective automatically.Same.
State the amount of compensation to be paid [and whether broker is authorized to receive compensation from a person other than the client].State the amount of compensation to be paid and describe such compensation as a percentage of the purchase price, a specific dollar amount, or a combination of both.
State whether the broker is authorized to receive some or all of the compensation to be paid to the broker from a person other than client.
State whether the broker is authorized to cooperate with other brokers and share compensation with the other brokers and amount of compensation described as a percentage of the purchase price, a specific dollar amount, or a combination of both.State the client’s rights and obligations regarding the compensation to be paid to the broker if the broker is authorized to receive some or all of the compensation to be paid to the broker from a person other than the client.
Explain the events or conditions that will entitle the broker to a commission or other compensation.Same.
Contain a provision for cancellation of the brokerage relationship by either the client or broker or by mutual agreement of the client and the broker.Same.

How MM&C Business Attorneys Can Help
Please contact Miller, Miller & Canby should you have any question dealing with brokerage agreements. Kevin D’Anna is a Principal at Miller, Miller & Canby and a member of the firm’s Business & Tax and Real Estate (finance) practice groups. Kevin regularly advises local and regional businesses of varying size and industry as a trusted outside counsel, providing legal advice on business formation, mergers, acquisitions or disposition, and complex business transactions. He may be reached at kkdanna@mmcanby.com.

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