How Florida realtors Use Expensive “Lawfare” to Fight Consumer Pre-Sale Home Renovation Complaints

What recourse do consumers have when the pre-sale renovations coordinated by their Broker go horribly wrong? Florida law mandates that realtors control the state’s Real Estate Commission. But state laws and regulation governing real estate brokers and their agents do not regulate residential contractors or the coordination of construction and demolition. So realtors use expensive lawfare to make sure that no court of jury ever gets to apply the state’s consumer protection laws governing these activities to brokers and their agents.

This story concerns the Real Estate Broker Compass, famous for leading the way on the Broker Pre-Sale Renovation Business Model. Pre-Sale renovations can be good for home sellers. But, unfortunately, Broker and Broker agent coordinated demolition and construction projects can be used as an excuse to delay (even completely avoid) letting the public know that your house is for sale by listing your house on MLS.

Compass trains its agents to encourage pre-sale renovations, and even finances all or part of the demolition and construction work with zero interest Compass Concierge loans. But Compass Exclusive Listing Agreements only deal with Florida regulated Broker duties. Under Florida law residential contractors are regulated by other laws. So when Compass and it agent undertake the coordination and management of extensive pre-sale renovations, Compass will ask a Florida court to compel arbitration under the Exclusive Listing Agreement.

All this leads to two questions:

Question 1: If a Compass Listing Agreement only contains Compass obligations that are Broker regulated, can the Broker and agent escape responsibility for messing up its coordination and management of renovations, including demolition and construction, so badly that your house is never sold? Importantly, what if the construction assistance and contracting, is fiduciary undertaking, but the Broker’s Listing Agreement provides that the Broker is a Transaction Broker only, and not a fiduciary? Should the consumer be forced to use an arbitrator who can only apply Transaction Broker obligations? Of course not. Florida consumers need, as a matter of public policy, the protection of Florida residential licensing and contractor laws.

This is a problem when Florida laws governing Brokers do not even contemplate Brokers acting as residential contractors.

Question 2: So, the easy answer is for the consumer to point out that Compass never agreed to arbitration, even for disputes about Broker obligations under the Exclusive Listing Agreement, such as marketing and MLS listing. This is a much more straightforward question than the public policy and unconscionability issues in Question 1. So what happens when Compass does not sign (actually initial) the space set aside in the Listing Agreement indicating agreement to arbitration.

Compass submits a Motion to Compel Arbitration that attempts to mislead the court as to this simple question; namely, did Compass agree to arbitration?

Compass, actually, Compass legal counsel, submitted the following argument focused the Dispute Resolution and Arbitration clause in the Exclusive Listing Agreement. But Compass, actually, Compass legal counsel, added a very misleading statement to the effect that Compass had initialed in the space required for Compass agreement to arbitration. Look at the following Compass submission to the court, and decide for yourself whether Compass intended to mislead the court:

“Paragraph 12 of the Exclusive Listing Agreement addresses dispute resolution and states that:

Dispute Resolution: This Agreement will be construed under Florida law. All controversies, claims, and other matters in question between the parties arising out of or relating to this Agreement or the breach thereof will be settled by first attempting mediation under the rules of the American Mediation Association or other mediator agreed upon by the parties. If litigation arises out of this Agreement, the prevailing party will be entitled to recover reasonable attorney’s fees and costs, unless the parties agree that disputes will be settled by arbitration as follows:

Arbitration: By initialing in the space provided, Seller, Sales Associate, and Broker [Plaintiff and Pedro Germano on behalf of Compass signed here] (emphasis added) agree that disputes not resolved by mediation will be settled by neutral binding arbitration in the county in which the Property is located in accordance with the rules of the American Arbitration Association or other arbitrator agreed upon by the parties. Each party to any arbitration (or litigation to enforce the arbitration provision of this Agreement or an arbitration award) will pay its own fees, costs, and expenses, including attorney’s fees, and will equally split the arbitrator’s fees and administrative fees of arbitration.”

The actual language in the Paragraph 12 following the subheading “Arbitration” states that “By initialing in the space provided, Seller (cw) (__), Sales Associate (pg), and Broker (__) agree that disputes not resolved by mediation will be settled by neutral binding arbitration in the county in which the Property is located in accordance with the rules of the American Arbitration Association or other arbitrator agreed upon by the parties.”

Contrary to what Compass and its law firm provided to the court, there was not a space (“here”); rather, there was a separate space for the “Broker” to initial. The Compass motion, however, told the court that: 1) there was just one space for both the Sales Associate and Broker, when there were actually separate spaces for: i) the Sales Associate (Pedro Germano); and for ii) the Broker.

In addition, Compass (emphasizing its false picture as to a single space that its language was painting) told the Court that “Pedro Germano on behalf of (emphasis added) Compass signed (stet) here (emphasis added)”, even though the Sales Associate neither signed nor initialed the Broker space. The Motion presented to the court was carefully crafted to hide from the court the material fact that the separate Broker space was not initialed by anyone, and certainly not by an Authorized Agent. Moreover, the fact that “Broker” (next to the actual separate space set aside for initialing) was a highlighted term (unlike the term “Sales Associate”) was also carefully withheld from the court.

Compass then went on to tell the court that Florida law favors arbitration; implying that the issue of actual Broker assent should not be examined as would a normal contract interpretation matter. ?What this Compass discussion also omitted was that the court was being asked to rule on not just one, but two alternatives to the default litigation approach set forth in the Listing Agreement. This second alternative approach concerned the allocation of legal fees. This second approach is not favored by Florida law for arbitrations; but, rather, it is an approach that is left up to the parties to a contract.

Even more significantly, Compass also withheld from the court a development that all Florida Brokers would have been aware of; namely, a significant change to the Arbitration Clause language for Florida Realtor Listing Agreements. The key Arbitration Clause sentence that was the focus of the Compass Motion had just been changed in July for Florida Realtors Listing Agreements, shortly before Compass lawyers filed its August 4, 2024, Motion to Compel Arbitration. Whether or not it was filed in early August so that the Plaintiff and Plaintiff’s legal counsel would not be aware of the change is a matter for an ethics inquiry.

In any case, the new Florida Realtors language (immediately following the Arbitration subsection heading for Broker Exclusive Listing Agreements) would have shown the court what an Arbitration Clause, and the initials on such an Arbitration Clause, would have looked like when contemplating an Authorized Agent initialing on behalf of a Broker. This is the new language that Compass withheld from the court:

Arbitration: By initialing in the space provided, Seller (?? ) (__), Sales Associate (? ), and Broker or Authorized Associate (__) agree that disputes not resolved by mediation will be settled by neutral binding arbitration in the county in which the Property is located in accordance with the rules of the American Arbitration Association or other arbitrator agreed upon by the parties.”

This new Agreement language, already in effect at the time that the Motion was filed, does not allow a Sales Associate to initial for a Broker (in the Broker space) without being authorized to agree to arbitration on behalf of the Broker. The Compass Motion had intentionally engaged in misdirection in hopes that the court would not think it significant that neither the Broker nor the Sales Associate had initialed in the Broker space. The Compass motion told the court that “Pedro Germano on behalf of Compass signed here”. But the new Florida Listing Agreement makes clear what the clause needed; namely, an initial by Authorized Associate (who is authorized to bind the Broker to both arbitration and to the handling of prevailing party legal fees) in the space provided for Broker.

This new language provides clarity as to both: 1) a requirement that the initial must be provided in the space set aside for Broker assent; and 2) the need for the person indicating Broker assent with his or her initial, to have authority to give that assent. The August 4, 2024, Compass Motion to the court should have informed the court of this change and allowed the court an opportunity to discuss any reasonable argument that could have made to suggest that the old Listing Agreement, without any initial in the Broker space, implied a Broker initial because of an initial by a Sales Associate (with no clear authority to bind the Broker) in the separate Sales Associate space. Compass not only hid from the court that no initial had been provided, but it implied the opposite with a statement (replacing the actual Broker space with no initial) that “Pedro Germano on behalf of Compass signed here”. (Emphasis added.)

This deception was important because it necessitated the victim of Compass mishandling of a pre-sale renovation to supplement what should have been an easy and inexpensive motion hearing with the issues of public policy and unconscionability. ?

Are Brokers going to be able to sidestep consumer rights that the state has provided in its construction and licensing laws just by entering into marketing only Listing Agreements? Arbitrators who arbitrate marketing only Transaction Broker Listing Agreements have no authority to apply ?Florida residential contractor and licensing laws to these marketing only Broker contracts. Accordingly, this result would be unconscionable, especially when the Broker’s renovation undertaking creates a fiduciary relationship.

It is unethical and illegal for Florida Brokers to enter into Broker marketing only Listing Agreements under false pretenses. If a Compass agent, or the agent of any other Broker, is going to coordinate and/or manage pre-sale renovations for a Seller, the Broker needs to be subject to all relevant Florida residential contracting laws. An Arbitration Clause under a marketing only Listing Agreement should not be a way for Brokers to sidestep compliance with Florida consumer laws related to construction and demolition. Similarly, if Compass agent, or any other Broker, is going to play a trusted advisor (fiduciary) role in coordinating, and/or managing, pre-sale construction and demolition, then it should not be able to invoke an Arbitration Clause under a Listing Agreement that limits the arbitrator to dealing only with the “marketing only” Transaction Broker relationship created by the Listing Agreement.

Bottom line, when the residential demolition and construction coordination being handled by your Broker goes bad (e.g., delays, and demolition without follow up construction) months can go by. Hundreds of thousands of damages can pile up. Like Compass, your Broker may never list the property on MLS, using the renovation work as an excuse. ?But no Broker should get a free pass on compliance with Florida’s residential construction laws and consumer protections, merely because an arbitrator under a marketing only Listing Agreement has no authority to apply these laws. That is unconscionable. Even more unconscionable is the Broker use of expensive lawfare to get this result!

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