Congratulations! You made the introduction between the seller and the buyer and the deal was fully completed. Now all that remains is to ensure you actually receive the brokerage fee you are entitled to.
Here are a few rules of thumb to make it easier for you to receive the brokerage fee payment and to make it harder for your clients to evade such payment.
Valid Real Estate Broker’s License
First of all, you must be diligent about maintaining a valid real estate broker’s license.
If you haven’t paid the annual fee on time (by March 31), you are not allowed to practice as a real estate broker. This will apply until you pay the fee, plus interest and linkage differentials. In this regard, the courts have ruled that even if a broker renewed his/her brokerage license and paid the fee later, the broker is still not entitled to receive brokerage fees for brokerage performed during the period when the license was not in force due to such nonpayment.
Signed Written Brokerage Agreement
Make sure you have a signed brokerage agreement with the client relating to the specific property. The brokerage agreement must include at least the following details:
(1) Names, addresses, and ID numbers of the broker and the client;
(2) The type of transaction the broker was asked to facilitate, such as rental or sale;
(3) A description of the property for which brokerage is being sought;
(4) An assessment of the price of the requested transaction; and
(5) The agreed rate of the brokerage fee, and whether the price includes VAT.
These requirements are determined in the legislation. Therefore, their absence could influence the broker’s ability to collect the brokerage fee. The courts have ruled in this regard that there are instances in which it is possible to consider accepting the absence of particular details in an existing brokerage agreement, as long as there was no uncertainty between the parties in relation to those details. However, the courts ruled that it is difficult to conceive of a situation in which it would be possible to completely waive the requirement of a signed written brokerage agreement.
The Effective Cause in the Transaction
You must be the effective cause who led the parties to engage in a binding agreement. The effective cause requirement means it is not enough that a broker is a link in the chain that led to the engagement in a transaction. Rather, the broker must prove that it was his/her actions that enabled and directly led to such engagement. Therefore, it is recommended that you don’t sit back after introducing the parties to the transaction, but rather maintain contact with both parties throughout the negotiations and afterwards, until you receive your brokerage fee. It is also recommended that you document the meetings and conversations with your clients, in order to be able to prove you were the effective cause if a dispute arises regarding your entitlement to receive the brokerage fee.
Here are a few examples of the criteria the courts use to decide whether the broker was the effective cause:
(a) The extent of the similarity between the original proposal in which the broker was involved and the binding agreement, e.g. the property definition;
(b) The extent of the similarity between the payment rates and terms in the original proposal and those in the binding agreement;
(c) The time that elapsed between the original proposal and the closing of the binding agreement;
(d) The intensity of the broker’s efforts – the extent of contacts, meetings, and conversations with the parties;
(e) The existence of another party who assisted the parties in reaching the binding agreement, and the extent of that other party’s involvement;
(f) Payment of a brokerage fee by the other party (the seller or the buyer) and its rate;
(g) The identities of the parties who conducted the negotiations, which will indicate whether the causal relation between the broker’s actions and the final transaction was maintained; and
(h) The parties’ reliance on their acquaintance with the negotiations made and the performance of an action that is not more than continuing the same course of negotiations the broker helped initiate.
Adv. Gal Livshits is a partner at the Litigation department at Barnea. Gal advises local and foreign corporations and private clients during commercial and business lawsuits.