How to Deal With a Realtor’s Collapse

Jacob Saleb has managed to stay calm despite the fact that Mike Glickman Realty, which recently listed his three-bedroom Northridge home, filed to liquidate under U.S. bankruptcy laws late Tuesday.

“There are a lot of (real estate) agencies around, and we are not in that big a hurry to sell,” Saleb said.

Saleb is one of the lucky ones. If necessary, he says, he can wait until his real estate contract expires, so he’s not overly concerned that his house will fall into seller’s limbo--unadvertised, unmarketed and unsold.

But other consumers may have reason to worry. If a consumer’s home is listed with an agent that subsequently files for bankruptcy, it could definitely affect the time it takes to sell--particularly if the bankruptcy stalls advertising plans or causes the listing to lapse. Agents, meanwhile, risk losing clients and commissions.

What happens to consumers? At this stage nothing is certain, but here are answers to some common questions, compiled through interviews with real estate attorneys, the California Department of Real Estate, escrow agents and realtors.

Q: Now that Glickman has filed for bankruptcy, are home sellers still obligated to pay commissions on homes in escrow?

A: Yes. By the time a home is in escrow, the seller almost always has entered into a contract with the real estate brokerage and must abide by terms of that contract, including payment of fees and commissions.

Q: Will the bankruptcy delay an escrow’s close?

A: It shouldn’t. If all terms and conditions of escrow have been completed, a bankruptcy shouldn’t affect how quickly an escrow closes. If the seller is still relying on a real estate agent to deliver documents or satisfy other terms of the escrow, the agent’s cooperation will determine how quickly the escrow can close.

Q: What happens to listings where there is no pending escrow?

A: Again it depends on whether the seller has signed a contract, and on the terms of that contract. If no contract is signed, the seller is under no legal obligation to the agent or the brokerage. However, once the contract is signed, the seller is bound to it unless both parties agree to cancel.

Typically these agreements bind the seller to the brokerage for a set period--generally 90 to 180 days. The brokerage also agrees to specific performances, such as advertising support. Unfortunately, if the brokerage fails to perform, the consumer has little option other than to wait until the contract expires, file suit asking the court to release the consumer from the contract, or--in the case of a Chapter 7 liquidation--ask the bankruptcy trustee to rescind the contract.

Q: What happens if Glickman refuses to cancel the contract, but the consumer decides to hire another brokerage anyway?

A: The consumer could become liable to pay a commission both to the new broker and to Glickman if the house sells while the first contract is still in effect.

Q: If Glickman rescinds its listing contract, is the consumer under any obligation to the agent?

A: No. The legal obligation is only between seller and broker. In most cases, the salesperson-agent is only an employee of the brokerage and cannot bind anyone to a sales agreement.

Q: What if the agent also has a brokerage license?

A: It probably doesn’t matter. Generally the agreement would be between the brokerage--Glickman Realty--and the seller.

Q: What should sellers do if their agents ask them to pay a commission in advance or outside of escrow?

A: As Nancy Reagan would put it, “Just say no.” First, no escrow is certain until money is distributed and title is transferred. So paying commissions in advance could leave the seller at risk if the deal falls through at the last minute. Moreover, generally only a portion of the commission goes to the listing agent. Some percentage is owned by the brokerage.

Q: Is there any way to know how financially sound a real estate brokerage is?

A: Generally, no. If the brokerage is a public company, it’s required to file statements with the Securities and Exchange Commission. But most firms are smaller and privately held. Consumers can ask the California Department of Real Estate for information about whether the firm is licensed and in good standing, but that information is of limited use.

On Tuesday, only hours before Glickman Realty filed for bankruptcy, a real estate department official noted that the firm is a licensed brokerage in good standing. The department had no specific information about the company’s finances.

MAIN STORY, A1