Consumers who enter into listing agreements with real estate brokerages are contracting for generic services that can be provided by any brokerage firm, and are not establishing a personal contract with an individual agent.
That’s the view of the judge handling the Chapter 11 bankruptcy filing of Foxtons Inc., in allowing the company to auction off about 4,300 listing agreements in New Jersey and New York to the highest bidder.
Maplewood Homebuilders LLC snatched up the lion’s share of the listings, about 3,000 properties in New Jersey, for $100,000, plus a 10 percent referral fee for listings that close. The listings will be marketed by Century 21 Atlantic Realty, a Roselle Park, N.J., brokerage.
Brooklyn-based Fillmore Real Estate was the high bidder for roughly 1,300 listings in New York, which it paid $110,000 for plus the same 10 percent fee on commissions the listings generate.
Foxtons announced Sept. 26 that the company had terminated 350 of the company’s 380 employees, and filed for Chapter 11 bankruptcy protection Oct. 5 in order to sell the company’s assets and pay off creditors. Those assets included its listings, and databases of potential sellers, active buyers, and realtors who had worked with Foxtons.
More than 30 Foxtons clients filed objections to the sale and transfer of their listing agreements to another broker in U.S. Bankruptcy Court for the District of New Jersey.
Some claimed Foxtons had breached the agreements by not marketing their properties and worried that they could be sold to a broker with little expertise in their local market.
Howard Davis, an attorney representing the owner of a property in Irvington, N.J., told the court in an Oct. 22 letter that his client’s life “has been in limbo” since listing his home with Foxtons shortly before the company filed for bankruptcy protection.
The property owner, retiree Paul Jones, had been unable to obtain any information from Foxtons, Davis wrote, and could not show the property. Davis said his client feared his listing would be sold to “someone who may have no idea of the market issues in Irvington, N.J., or with whom he does not have any type of personal rapport,” and that listing would simply expire without a sale.
In an Oct. 29 order allowing the sale of listings to proceed, Judge Michael B. Kaplan dismissed those and other objections, saying the sale would be in the best interests of all parties.
“The judge said the classic example of a contract that can’t be purchased or assigned is if you commissioned a painter to paint a portrait,” said Joseph J. DiPasquale, an attorney representing Maplewood Homebuilders and Century 21 Atlantic.
In the case of listing agreements, “the court determined that you’re not hiring an individual broker but a firm,” DiPasquale said. “They list your home on the MLS, and they may come to your home, but it’s not personal enough to not warrant the purchase and assignment” of the listing agreements.
Davis, however, argued that Jones selected Foxtons because of a personal relationship with an agent there, and that the agent was “not just simply a person who causes the listing to appear on a directory of houses available for sale.”
“It doesn’t seem like a very practical solution,” Davis told Inman News. “Bankruptcy judges have an obligation to maximize assets for the benefit of creditors.”
If brokers who obtain listings in a bankruptcy proceeding don’t have local offices to serve their new clients, “it puts those (clients) at a significant disadvantage,” Davis said, not only because it’s hard to show a distant house, but because agents lack knowledge of the local market.
Under the order, Century 21 Atlantic and Fillmore Real Estate must honor Foxtons’ discounted commission rate of 4 percent. While homeowners may cancel their listing contracts, they would be barred from listing with another agency for the duration of their contract, and subject to cancellation clauses.
DiPasquale warned other brokers against relisting homes previously handled by Foxtons, unless the original agreements have expired.
George A. Castro, president of Century 21 Atlantic, said the firm will provide better service on the listings than Foxtons did, referring distant clients to other Century 21 brokerages if necessary.
“Because we are a Century 21 franchise office, and there are many Century affiliates located throughout the state of New Jersey, that offers our organization a great opportunity to properly service these sellers, contrary to the relationship they had with Foxtons,” Castro said.
Castro said that while Century 21 is committed to providing “full service” to former Foxtons clients at the 4 percent commission rate, sellers will have the option of bumping up commissions.
“My commitment is to provide full service at 4 percent, but in today’s real estate market, that offers more challenges than opportunities, Castro said. “Home sellers should understand what the benefits of paying higher commissions are … we are going to leave it to them to decide whether it would be appropriate to offer more incentives to cooperating brokers by increasing the commission from 4 percent, up to whatever makes the listing more appealing to other brokers.”
Castro said that 90 percent of the former Foxtons clients Century 21 Atlantic has contacted “have understood it’s beneficial for them to increase the commission and decrease the (listing) price to reflect today’s market conditions and today’s market values.”
Fillmore Real Estate President and Chief Executive Officer John Reinhardt said he became interested in bidding for Foxtons’ New York listings after receiving calls from some of the troubled broker’s sellers in Brooklyn.
“We offered to help them with no listing fee,” Reinhardt said of Foxtons clients. “Then I was looking out for the agents — we’d already attracted a dozen (Foxtons) agents, and they were also getting left out there to hang.”
Fillmore has hired 25 former Foxtons agents and “I see a whole bunch more coming on board,” Reinhardt said. The new hires, he said, give Fillmore the ability to serve former Foxtons clients in Westchester, Queens, Long Island and other areas.
“These guys are motivated and this train is going fast,” Reinhardt said. All of the former Foxtons listings acquired by Fillmore are live on the broker’s Web site or will be within 48 hours, he said, and the new agents “are all calling like crazy and setting up interviews.”
Like Century 21 Atlantic, Fillmore will provide full listing services for a 4 percent commission, as stipulated in the original Foxtons listings contracts. But Fillmore has “already been successful in making people understand the advantages” of full commissions in marketing their properties, Reinhardt said.
Foxtons and an attorney representing the company did not immediately respond to requests for comment.
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