BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
When is a Commission Earned?
Q: I am a listing agent on a single-family home, having used the CAR Listing Agreement. A co-op broker brought an offer slightly over the list price, with great terms, and the seller accepted it and escrow was opened. Soon thereafter, seller was not returning my calls. Finally, seller tells me he has changed his mind, is not going to sell, and has instructed me to cancel the purchase agreement with buyer, remove the property from the MLS and take down the sign. He also stated that he has cancelled the listing agreement. The co-op broker is now claiming that she is due a commission since she produced an offer from her buyer which seller accepted, and she intends to sue seller and me. What do I do next?
A: First, a seller may not unilaterally cancel a listing agreement; it would take the written agreement of both seller and listing broker to do so. Also, a seller cannot just unilaterally cancel a contract without a valid reason.
This situation raises several legal issues:
1. LISTING BROKER ENTITLEMENT TO A COMMISSION
The CAR Residential Listing Agreement (RLA) states that a commission is earned:
(1) If, during the Listing Period or any extension, 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 is accepted by Seller, provided the Buyer either completes the transaction or is prevented from doing so by Seller. (Broker is entitled to compensation whether any escrow resulting from such offer closes during or after the expiration of the Listing Period, or any extension.) RLA Para. 4.A.1
(2) The seller withdraws the listing from sale, leases or rents the property, or otherwise makes it unmarketable. RLS Para. 4.A.3
(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. Each such form should be reviewed to determine when the commission is earned.)
Under the above facts, you would have a right to a commission on grounds that the seller has withdrawn the property from sale. Should you decide to pursue the seller for the commission, your brokerage would first demand mediation and, if unsuccessful or seller refuses, proceed to arbitration (if initialed) or litigation. Your broker should consult with an attorney to pursue these remedies.
2. COOPERATING BROKER ENTITLEMENT TO A COMMISSION
Regarding the co-op broker, that broker does not have an independent right to proceed directly against seller for a commission, and a co-op broker cannot force the listing broker to sue seller for a commission. In many cases, a listing broker may not choose to pursue legal action against a seller in this scenario for a variety of reasons and, in fact has no obligation to do so.
The co-op broker is only entitled to compensation pursuant to the offer of compensation in the MLS, or other written agreement.
A. MULTIPLE LISTING SERVICE: The CAR Model MLS Rules, which have been adopted by most MLS’s states the following regarding when a cooperating broker is entitled to be paid:
“7.13 Acceptance of Contractual Offer. 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.”
B. COOPERATING BROKER COMPENSATION AGREEMENT (CBC)
The CBC form provides for compensation to the cooperating broker on basically the same terms as the Model MLS Rules.
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