Ethics question

[Josh Sterling]

background:

About 2 years ago a commercial broker whom I know through friends showed us a building he had as a listing. We liked the property and entered negotiations with the seller. As it turned out, when we met the owner to view the building, we found out that he had gone to school with my wife and they knew each other. Shortly after we submitted an informal offer, the seller decided that they were not going to sell the property after all (the market was rapidly improving). We went our separate ways, the listing must have expired, and we thought nothing else of it.

Fast forward to this week (about 2 years later) the seller contacted my wife to see if we were still interested in buying, as now they are ready to sell. The building is not listed with anyone and has not been for quite a while and the sellers would like to do this deal without an agent/broker to save the commissions.

Is it wrong for us to proceed with the deal? We would have never known of it if not for the listing broker. On the other hand, it turns out that my wife knew the sellers, and the listing has long since expired.

Should we go through with it and then give the listing broker a referral fee as a show of gratitude? (Which obviously would have to come from our pocket as opposed to a traditional transaction where the seller pays the commission)

What do you think?

Josh

[Adam Johnson]

I would hesitate to offer a monetary referral fee or percentage if it is outside of the look back period since it has been a fairly considerable amount of time. In my opinion, if you are outside of the time frame, you are essentially offering a courtesy fee, so I would keep it nominal (dinner, maybe a few hundred dollars, etc.) If you use the broker's services to close the transaction, then that is a different story and should be negotiated.

In most cases, the party paying the broker is paying for the representation is the party that gets the fiduciary responsibility. So if you "make" the seller pay the broker, then the broker owes fiduciary responsibility to the seller, not you. Since the broker once represented the seller, if you choose to hire this same broker to represent you, then there may end up being some conflicts of interest that prevent the broker from giving you 100% representation because of responsibility to his previous client.

For example, if the seller once told the broker that he would sell it for 25% less than the asking price, I'm not sure if the broker could share that information with you since it would compromise his previous fiduciary responsibility to the seller, which likely doesn't legally end with the listing agreement.

None of this has to stop you from proceeding, just a little bit of information to consider. I assume the laws in your state with regards to this are similar to NY.