On March 17, 2020, the Michigan legislature amended the law to ensure that contracts for the payment of commission on a sale of real estate are subject to the statute of frauds. MCL 566.132(3) provides that:
“A person shall not bring an action to enforce an agreement, promise, or contract to pay a commission for or upon the sale of an interest in real estate against the owner or purchaser of the real estate unless the agreement, promise, or contract to pay a commission for or upon the sale of an interest in real estate against the owner or purchaser of the real estate unless the agreement, promise, or contract is in writing signed by the party to be charged.”
In Schmidt v Bowden, the Court of Appeals applied this statute. The Schmidts (“Plaintiffs”) sought to purchase a home from Defendant for an agreed upon price of $995,000. After paying Defendant a down payment of $100,000, Plaintiffs agreed to make monthly lease payments on the property for 9 months, at which time the lease would expire and Plaintiffs would be permitted to exercise an option to purchase the property.
Following Plaintiffs decision to exercise their option, and three days before the scheduled closing date, Plaintiffs requested that Defendant sign a backdated Notice of Buyer Agency, which would entitle one of the Plaintiffs, a licensed real estate broker, to a sales commission of $19,900. Defendant refused to sign the document. Plaintiffs contended that Defendant had offered the commission in the real estate listing, and that Defendant later agreed to, but did not sign, a settlement statement listing the commission.
Plaintiffs argued the parties were required to arbitrate the issue given both parties’ admission to various real estate organizations. The Court ruled that any imputed agreement to arbitrate imposed upon real estate professionals by their associations would only extend to the arbitration of written commission agreements that comply with MCL 566.132(3), and that to do otherwise would compel real estate professionals to enforce commission agreements that they did not sign, contrary to MCL 566.132(3).
The Court’s decision in Schmidt clearly demonstrates that an agreement for commission to a real estate broker for a sale of property must be signed and in writing to be considered valid and enforceable.
Please contact an attorney at Demorest Law Firm if you need assistance with a real estate transaction. We would be glad to assist you.
