BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Can a Seller Reject a Full-Price Offer?
Q: I am a buyer agent and my buyer submitted an all-cash offer at the list price with no contingencies. The seller apparently said that they wanted more money and just rejected our offer. Can the seller actually just reject an offer that meets the terms of the listing? And didn’t we earn a commission by producing a buyer willing to buy on the terms of the listing?
A: Short answer: Yes, the seller can reject an offer that meets or exceeds the listing price and terms. No, you have not earned a commission.
NOTE: This Tip discusses the rules under the CAR Listing Agreements and CAR Model MLS Rules. There may be other listing agreements in use, particularly those created by individual brokers, which may contain other terms. And some MLS’s may have varied the local rules from the Model Rules.)
A listing is a solicitation of offers; it is not an offer to sell on the terms of the listing agreement. This means that a seller is seeking offers which will be the basis for a contract between seller and buyer. For example, buyers cannot just write to a seller, “I accept your offer to sell for the $1,000,000 listing price and I will pay all cash and no contingencies,” and expect that they have created a contract to sell.
In order for there to be a contract between a buyer and seller, there must be a “meeting of the minds” on all of the elements necessary to create a contract. One of the essential elements missing here is time for performance. Will escrow close in 10 days or 10 months? Until agreement is reached on such a critical element of the contract, there can be no “meeting of the minds” that would allow for the contract to be specifically enforced.
And, the agreement on essential elements must be in writing according to the Statute of Frauds which requires that all contracts for the sale of real property be in writing.
For more information on this topic, see Weekly Practice Tips entitled “What
Constitutes Acceptance of a Contract” and “Statute of Frauds.”
BROKER’S RIGHT TO COMPENSATION
1. CAR Listing Agreements: All CAR listing agreements state that the Listing Broker has earned a commission when during the listing period: “Broker, cooperating broker, Seller or any other person procures a ready, willing and able buyer(s) whose offer to purchase the Property on any price and terms accepted by Seller, provided the Buyer completes the transaction or is prevented from doing so by Seller.”
Thus, unlike the CAR listing agreements of several years ago, the Listing Broker earns the right to be paid only when the seller accepts the price and terms offered by the buyer and when the sale is completed (or the seller prevents buyer from buying by, for example, refusing to close.)
(NOTE: The PRDS listing agreement form also requires that the property be “sold” in order to earn a commission. Some other listing agreement forms may be different.)
2. Cooperating Broker Compensation
In order for a Cooperating Broker (aka “Co-op Broker”) to be paid, first there must be an agreement between the Listing Broker and the Co-op Broker offering compensation to the Co-op Broker. This agreement can be either in writing or verbal. However, it is difficult at best to prove a verbal agreement.
The usual offer of compensation to Co-op Brokers exists when a property is placed in the MLS, at which time the Listing Broker’s offer of compensation extends to all members and subscribers of that MLS; and to members and subscribers of all MLS’s which have reciprocal agreements with the first MLS. The Model MLS Rules from CAR provide the following with respect to the right of a Co-op Broker to compensation from the Listing Broker:
“Payment of compensation by the Participant/listing broker to the Participant/cooperating broker under this section is contingent upon either (1) the final closing or (2) the Participant/listing broker's receipt of monies resulting from the seller's or buyer's default of the underlying sales or lease contract.”
The other usual means for creating an offer of compensation is by the use of a written agreement between the two brokers. See e.g., the CAR “Cooperating Broker Compensation Agreement” (zipForms form CBC) which has the same requirements for the Co-op Broker to receive compensation from the Listing Broker as do the MLS Rules.
So, if there is no closing, or the Listing Broker does not receive compensation from seller because of seller’s default on the purchase agreement, then the Co-op Broker is not entitled to compensation either.
PRACTICE TIPS
1. Check with your local MLS for their rules regarding compensation of cooperating brokers to see if their local rules are different from the CAR Model MLS Rules.
2. If a buyer breaches a purchase agreement, there is some legal authority for the buyer’s broker to collect from the buyer the commission that that broker would have earned but for the buyer’s breach. Any broker in this situation should consult with their legal counsel regarding the right to recover against the buyer.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.