By Steve Most people tend to believe that a real estate sales commission is owed when the transaction closes and the property is officially sold. This belief makes sense since that is when the real estate agents actually get paid from the sale proceeds. But that is not necessarily the case and certainly is not the understanding within the real estate brokerage industry.
In placing their real estate on the market for sale, most people use a real estate broker and they sign a Listing Agreement. This Listing Agreement hires the broker (and agent) to perform real estate marketing services. Generally this includes advertising the property in the Multiple Listing Service and cooperating with other brokers to find a buyer who is “ready, willing, and able” to purchase the property. And that’s where the confusion begins.
Almost everyone in California uses the California Association of Realtors Residential Listing Agreement (“CAR-RLA”) for home listings. The current version of that document (11/10) defines the commission as being owed: “If Broker, cooperating broker, Seller or any other person procures a buyer(s) who offers to purchase the property on the above price and terms, or on any price and terms acceptable to Seller. (Broker is entitled to compensation whether any escrow resulting from such offer closes…” Nowhere in the Listing is the obligation to pay the commission dependent upon the escrow actually closing. So, in effect, whichever broker brings the buyer willing to purchase on the price and terms stated in the Listing is entitled to get paid. This yields some unexpected results:
– What happens if there is a bidding war that drives the price up? Must the Seller accept the first offer at the list price and forego the higher price?
– What if the Seller accepts the highest offer? Must they pay a commission to every broker that submitted an offer at the Listing Price or above
– What if the Buyer fails to close? Is the commission still owed?
Under the present CAR Listing form the answer appears to be Yes. And that is what the California Court of Appeal (4th District) examined in the 2012 case of RealPro, Inc. v Smith Residual Company, LLC (203 Cal.App.4th 1215). Here the Sellers listed their real property for sale for $17 million cash. The next day, RealPro’s Buyer submitted an offer at $17 million cash so they thought they had a deal. But before accepting the offer, the Seller got an …read more
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