A significant portion of a real estate agent’s income is commission. Typically, commission is only paid where a sale is completed. However, some courts have interpreted that a commission is still due and owing even if the transaction is not completed.
The Listing Agreement
As with any contract, it is important to read and understand the terms prior to finalizing the agreement. Hiring a real estate litigation lawyer can help you better understand the agreement. The listing agreement is a legally binding contract between the seller and the real estate brokerage, which sets out the terms for sale of the property. The listing agreement also typically outlines when the broker’s commission is due.
Generally, the listing agreement stipulates that in exchange for the real estate agent’s services of finding a buyer, the seller will pay the real estate agent a commission. It is often interpreted that the commission is only payable when an offer is made by a buyer that is ready, willing, and able to close on the property. However, phrasing such as “when an offer is presented” can create a situation where the commission may be owed even when the sale is not completed. Not paying attention to how a listing agreement deals with commission payment can cause problems down the line, and necessitate a real estate litigator or a contract litigation lawyer to be brought in.
What the Courts Have Said
These situations are far from unheard of and have been considered by the courts. In Century 21 Seaside Realty Ltd. v. Armstrong, 2022, an agreement of purchase and sale was signed by the sellers and buyer, and a deposit was paid. However, when the transaction approached its closing date, the purchaser advised he would be unable to complete the transaction and the deal fell through. As a result, no commission was paid, both sides hired property litigation lawyers, and the brokerage sued the sellers for payment of the commission. The Court decided that the brokerage was entitled to a commission payment, as all of the conditions and obligations of the real estate agent had been met, no facts were misrepresented, and the contract was therefore valid and enforceable.
In contrast, in Century 21 Success v. Gowland, 2003, the Court decided that the brokerage was not entitled to a commission since the buyer did not close on the transaction and forfeited their deposit. In this case, the agreement stated that if the transaction did not close, provided that it was not the result of neglect or fault of the vendor, no commission would be due.
It is crucial to understand the terms of a listing agreement before entering into one so that all parties are aware of commission expectations. Understanding when and on what terms a commission is payable will help you avoid legal headaches down the road, and limit the need to bring in real estate dispute lawyers or contract dispute lawyers. The terms of a contract will govern the transaction at all stages of it, and the parties should be diligent to ensure full transparency.
Tags: commercial real estate disputes, residential real estate disputes