Real Estate Broker Employment and Listing Agreements in Arizona

Arizona law defines a “real estate employment agreement” as a “written agreement by which a real estate broker is entitled to compensation for services rendered pursuant to section 44-101, paragraph 7.” A.R.S. § 32-2151.02(E). Paragraph 7 of A.R.S. § 44-101, Arizona’s statute of frauds, pertains to “an agreement authorizing or employing an agent or broker to purchase or sell real property, or mines, for compensation or a commission.” A.R.S. § 44-101(7). Accordingly, in Arizona, a real estate employment agreement is a written agreement by which a real estate broker is entitled to compensation for services related to purchasing or selling real property or mines.

A real estate employment agreement under A.R.S. § 32-2151.02 would not include a compensation agreement employing a real estate broker to lease real property or a compensation-sharing agreement between real estate brokers, because Arizona courts have expressly held that those agreements do not fall under A.R.S. § 44-101(7). See Coldwell Banker & Co. Real Estate Brokers v. Potthoff, 472 P.2d 948, 949 (Ct. App. 1970) (agreement related to lease); Nutter v. Bechtel, 433 P.2d 993 (Ct. App. 1967) (agreement related to commission sharing). But see Patton v. Paradise Hills Shopping Ctr., 417 P.2d 382, 389 (Ct. App. 1966) (holding sale of leasehold interest rather than direct lease of real property falls within A.R.S. § 44-101(7)).

A real estate employment agreement is not required for a licensee to represent a party in a transaction. See A.R.S. § 32-2151.02(D). However, a real estate employment agreement is the “required means” by which a real estate broker is entitled to compensation for its services. Scott v. Five Star Dev., Inc., 2011 Ariz. App. Unpub. LEXIS 546, at *13 (Feb. 15, 2011) (citing A.R.S. § 32-2151.02(E)).

In Arizona, real estate employment agreements must meet the following requirements: (1) be written in clear and unambiguous language; (2) fully set forth all material terms, including the terms of broker compensation; (3) have a definite duration or expiration date, showing dates of inception and expiration; and (4) be signed by all parties to the agreement. See A.R.S. § 32-2151.02(A). These are “strict requirements” enacted to regulate the conduct of real estate salesmen and brokers, protect the public, and render judicial relief unavailable for the recovery of a commission that would be in violation of the law. Young v. Rose, 286 P.3d 518, 521 (Ct. App. 2012) (citations omitted).

For example, attempts to “cobble together an enforceable agreement from the exchange of e-mails and edited contract drafts . . . [to] create an implied-in-fact contract” will not satisfy the first requirement that the agreement “be written in clear and unambiguous language.” Scott, 2011 Ariz. App. Unpub. LEXIS 546, at *15.

With respect to the fourth requirement, an agreement that only complies with A.R.S. § 44-101, Arizona’s statute of frauds—i.e., the agreement constitutes a “promise or agreement” or “some memorandum thereof” that “is in writing and signed by the party to be charged”—is not sufficient for purposes of A.R.S. § 32-2151.02(A), because the agreement must “be signed by all parties to the agreement.” Young, 286 P.3d at 520-22. Thus, a real estate agent may only sue to recover compensation due under a written real estate employment agreement that complies with both A.R.S. §§ 44-101(7) and 32-2151.02(A). Id. at 522.

“A document is ‘signed’ when a person employs ‘any of the known modes of impressing a name on paper,’ including ‘writing, printing lithographing, or other such mode, provided that same is done with the intention of signing.” Scott, 2011 Ariz. App. Unpub. LEXIS 546, at *10 (citations omitted). While an electronic signature may be sufficient under the Uniform Electronic Transactions Act, A.R.S. §§ 44-7001 through -7052, an Arizona appellate court has not yet determined whether an e-mail communication qualifies as an electronic signature and instead the Arizona Court of Appeals simply recognized that the “topic has generated significant discussion and diverging viewpoints among courts and commentators. Young, 286 P.3d at 524 (citations omitted). What is clear is that the parties must have agreed to conduct the transaction by electronic means, which is determined from the context and surrounding circumstances, including the parties’ conduct. Young, 286 P.3d at 523; Scott, 2011 Ariz. App. Unpub. LEXIS 546, at *11. “A person may be deemed to have consented to electronic communications via ongoing participation in such communications, or by primary use of that medium. Scott, 2011 Ariz. App. Unpub. LEXIS 546, at *11 (citations omitted).

The failure to comply with the requirements in A.R.S. § 32-2151.02(A) will both pose an “impediment to a civil action for unpaid commissions,” and provide a “basis for regulatory action against a licensed real estate professional.” Young, 286 P.3d at 521. In other words, A.R.S. § 32-2151.02 is not “merely a regulatory statute.” Id.

Lastly, in addition to meeting the four strict requirements in A.R.S. § 32-2151.02(A), the designated broker or authorized associate broker must review, initial and date the agreement. See Id. at 520 n.3 (citing A.R.S. § 32-2151.01(G) and A.A.C. R4-28-1103(A)).

In addition to express requirements, there are express restrictions related to real estate employment agreements. For instance, an employing broker cannot “assign a real estate employment agreement to another broker without the express written consent of all parties to the agreement at the time of the assignment.” A.R.S. § 32-2151.02(B).

Further, a licensee cannot “procure, or attempt to procure, a real estate employment agreement from a party who is already subject to an existing real estate employment agreement unless the licensee has received written acknowledgment from the party that the execution of additional real estate agreements could expose the party to liability for substantial additional commissions.” A.R.S. § 32-2151.02(C).

Finally, Arizona courts have held that a real estate salesperson may only receive a commission from a legally licensed broker, and not, for example, from a title company, and any real estate employment agreement to the contrary will be held unenforceable. Scott, 2011 Ariz. App. Unpub. LEXIS 546, at *16-18 (citations omitted).