The general rule is that real estate brokerage agreements must be in writing to be enforceable.But, sometimes deals get done without a written agreement. When that happens, and problems arise, the outcome can be in doubt. Here, a real estate broker sued to recover a commission he believed was owed to him after an alleged oral agreement for the sale of a sports bar. The real estate broker was a customer of the bar owner and, allegedly, the bar owner told the broker that he would pay him a ten percent commission upon the sale of the bar if he found a willing and ready buyer. The bar owner indicated that he would not sign a listing agreement or publicize the sale, because he feared losing customers. Unbeknownst to the broker, the eventual buyer of the property had already been in communications with the bar owner. When the buyer was considering a deal with the bar owner, he asked the broker to show him available properties, but the buyer did not know about the prior communications between the bar owner and the broker. When the buyer asked the owner directly whether he had listed the property with the broker, the bar owner responded that no such agreement was in place. Without the broker’s knowledge, the bar owner sold the bar to the buyer.
At trial, the broker admitted that there was no written agreement in place and, as such, the court found that he was not entitled to a commission from the sale. The broker appealed and the appellate court ruled that Iowa law (Iowa Code §543B) requires that all real estate brokerage agreements be in writing. While oral agreements will not always be unenforceable, if such an oral agreement is challenged in court, it will not be enforceable. The rationale behind the rule is that multiple claims for commissions are frequently asserted upon the sale of a property and in the interests of avoiding confusion, the agreements need to be in the form of a written contract. .In a contractual dispute, the only way an oral agreement may be enforceable is if equity demands it and a party to the contract has reasonably relied on the existence of the contract to their own detriment. As for brokerage agreements and listing agreement contracts, Iowa courts have
continually required that they be in writing and do not allow equitable claims in those instances.
Therefore, the broker’s claim that he was entitled to equitable relief was dismissed. Further, the appellate court found that there was a rational basis for the state law’s existence and the broker’s constitutional rights were not violated. He was not entitled to a commission, since the bar owner closed the sale on his own. Stewart v. Sisson, 766 N.W.2d 800 (Iowa Ct. App. 2009).