Real Estate Brokers Are Required to Have ALL Listing Agreements, Even Pocket Listings, In Writing

Gholian Law’s Los Angeles condo damage Attorneys recently reviewed a potential case in which a broker was seeking to make claim for a commission on a “pocket listing.” The “pocket listing” resulted in a sale, however, the broker did not have a written listing agreement. California law dictates that any listing agreement employing a broker to act as agent in a real estate transaction is subject to the Statute of Frauds. Specifically, this refers to California Civil Code § 1624(a)(4), which states:

“An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission must be in writing.”

Therefore, the real estate broker in question should have had a written listing agreement signed by the seller, regardless of whether the arrangement was defined as a: “pocket listings.” The law requires such agreements to be set in writing to protect property owners against compensation claims from brokers, sales agents, or any other persons not authorized to act on their behalf in a real estate transaction [(see Rader Co. v. Stone, (1986) 178 Cal. App. 3d 10, 21); and to protect brokers, who after performing brokerage services, are compensated in good faith. (see Seck v. Foulks, (1972) 25 Cal. App. 3d 556, 575.)]

Outside the sphere of real estate transactions, equitable estoppel or unjust enrichment claims can be employed to defeat the written agreement requirement in the statute of frauds. The Supreme Court of California, however, has held that theories of recovery along these lines – for example, unjust enrichment and quantum meruit – do not apply to licensed real estate brokers in attempts to recover commissions involving an oral agreement or “pocket listing.” [(See Phillippe v. Shapell Industries, (1987) 43 Cal. 3d 1247, 1260.)]

Thus, under California law, all real estate licensees must adhere to the statute of frauds requirements in Cal. Civ. Code § 1624(a)(4) and brokers and agents are presumed to know the law once they’ve passed the licensing requirements and obtaining necessary licenses.