Avoiding Legal Pitfalls When Transferring To A New Broker

Deciding to leave your brokerage and transfer to a new company can be a difficult decision for an agent. Issues surrounding the agent’s active listings as well as pending transactions can pose logistical problems that must be considered to assure that clients continue to receive full representation and that pending contracts are not negatively impacted.

When transferring to a new broker, here’s what the agent, their current broker and the new broker need to understand about pending listings and purchase contracts:

Listings: You can’t always take them with you. The parties to an exclusive right to sell agreement are the seller and the brokerage. The listings don’t “belong” to the agent and the agent has no legal right to “take” their listings with them when they transfer to another brokerage. While some brokers in this situation may agree to release the listing, absent some provision to the contrary, the brokerage has no legal obligation to do so. Moreover, the seller may not necessarily want to follow the agent to the new brokerage.

If a broker does agree to let the agent take their listings to the new broker, here’s what needs to happen:

  1. The seller must agree that they want to be represented by the new brokerage.

  2. The original brokerage needs to release the seller from their agency agreement and remove the property from the MLS and cease all other marketing efforts.

  3. A new listing agreement must be executed between the client and the new brokerage.

  4. The seller must be provided with the new brokerage’s consumer guide to agency relationships.

Pending Contracts: You can’t always take them either. Often agents have transactions in contract that will not close until after they transfer their license to the new brokerage. While agents may want to see their transactions through to closing, once they transfer to a new brokerage they can no longer perform acts that require a license on behalf of their former brokerage. This would include helping the parties with any post contract issues such as inspection or financing or attending the closing. This is because the agent can only perform licensed activity in the name of their new brokerage, which of course was not involved in the transaction. Therefore, the brokerage under which the transaction was written should appoint another licensee in the brokerage to represent the client for the remainder of the transaction.

In some instances, the former broker may be agreeable with the transferring agent continuing to represent their client. For this to happen the Division of Real Estate and Professional Licensing has identified the following steps are necessary for the new brokerage to take over the transaction:

  1. The client must agree that he wants the agent and the new brokerage to represent him through the remainder of the transaction.

  2. The new brokerage must be willing to take over the agent’s transaction and represent the client through closing. (Possible exposure to liability for the transaction and E&O coverage is something the new broker should weigh.)

  3. A written termination of the former brokerage’s representation of the client should be executed. It is recommended that this agreement address compensation issues and include language to protect the former broker from liability for any actions, representations, etc. that takes place under the new brokerage.

  4. An agency agreement should be executed with the client specifying the new brokerage’s role in the pending transaction and what tasks will be performed on behalf of the client.

  5. The client must be provided with the new brokerage’s consumer guide to agency relationships. A new agency disclosure statement is necessary as well.

  6. The two brokerages need to work out what, if any, portion of the commission is going to be paid to the new brokerage.

  7. Earnest money may also need to be addressed. If the original brokerage is holding the earnest money, will it be transferred to the new brokerage’s trust account? If so, the former broker must receive written consent from both parties to transfer the earnest money to the new brokerage.

While transferring to a new broker can be a difficult decision and process for an agent, sometimes the change is necessary.  If you are unhappy with your current company, you might consider exploring your options with other brokerages.  Not all companies offer the same compensation programs or resources for their realtors so it is important to research what is out there.