THE PROFESSIONAL SERVICE of a Realtor® is invaluable – and agents deserve the right to protect their compensation and reinforce their value.

This article provides a case study illustrating guidelines to Realtors® for protecting their commissions.

THE CASE:

An agent and seller signed the NVAR Exclusive Right to Sell Listing Agreement (Listing Agreement). An offer was obtained and was accepted by the seller. The contingencies were satisfied and preparations were made for settlement. On the date set for closing, the buyer did not appear.

The seller sued the buyer for breach of contract. The seller and buyer entered into a mutual release agreement under which the buyer agreed to settle the dispute by paying the seller’s damages and purchasing the property. The agents had the parties sign an addendum extending the closing date, and the parties went to settlement.

At settlement, the seller refused to pay the real estate commission per the listing agreement. The seller offered agents one-half of the earnest money deposit, as per Section 28 of the contract, in lieu of the full commission. The listing broker refused the offer and the parties agreed to place the disputed commission into escrow with the settlement agent.

ACTION TAKEN:

A lawsuit was filed on behalf of the broker for the real estate commission and attorney’s fees.

In pleadings filed with the court, the seller raised the following arguments:

1) the Listing Agreement had expired; 2) the broker did not obtain a ready, willing and able buyer because the buyer did not go to settlement; 3) the sale was based upon the mutual release and not the sales contract, so no commission was due; and 4) the broker was required to accept one-half of the earnest money deposit as per Section 28 of the contract.

At trial, the listing agent testified, stating he was involved in the transaction from the date the listing agreement was signed until the parties went to settlement. He testified that he stayed in contact with the seller and the buyer’s agent throughout the process and had the buyer and seller sign an addendum extending the settlement date from the original date to the date specified in the mutual release.

In the course of representing the broker, I made the following arguments: a) the Listing Agreement (Section 4) provides it covers any contract offer obtained during the listing period even if the closing occurs after the listing agreement expires; b) neither agent signed the mutual release, so they were not bound by it; and c) case law in Virginia, as per the holding of Kuga v. Chang (399 SE2d 816), holds a broker is entitled to the commission under a general listing agreement if the broker obtains a ready, willing and able buyer even if the buyer later fails to go to settlement, and a broker is not required to accept 50% of the earnest money deposit under Section 28 of the contract. The broker may agree to accept this alternative but is not required to.

After consideration, the court ruled in favor of the broker and awarded judgment in the full amount of the commission specified in the listing agreement, plus attorney’s fees.

TAKEAWAYS:

• Stay involved in the case even when a buyer defaults. The buyer may later decide to honor the terms of the contract, and you need to know if this happens. Don’t let the contract expire. In this case, the fact that the agents had the parties sign an addendum extending the closing date likely saved the broker’s right to the commission.

• Understand the terms of the NVAR Listing Agreement. Section 4 of the Listing Agreement protects the broker in the event the term of the listing agreement expires before settlement. This provision protects the right to commission as long as the contract was entered into during the term of the Listing Agreement.

• Don’t waive your rights to fair compensation in the event a seller decides to terminate the listing agreement early. Writing in a $500 termination fee may not adequately compensate the work you perform on the front end of a listing. Value your time and experience!



Joseph Cerroni is an attorney and a member of NVAR. He can be reached at joe@natsett.com.