Home sellers and real estate commissions

balance of power QUESTION: Every so often, I find listing Brokers having to pursue their Vendor client for the commission on the sale.  Recently, I had attended a court action dealing with this very issue.  Below is a brief summary of what occurred in that case.  I hope this particular case will serve to provide both potential Vendors and listing Brokers/Agents with some insight of each party’s duties and responsibilities  within a listing agreement — dealing specifically with the issue of entitlement to real estate commissions.

 

ANSWERS: Briefly, the Vendors had retained the services of a listing Broker to assist in selling their present home.  A listing agreement was entered into by the parties. The Agent of the Broker (the “listing Agent”) that was employed for the sale proceeded to market the property by establishing a realistic sale price, listing the property onto the Multiple Listing Service, and, advertising the property in various real estate magazines.

Within a few weeks, the listing Agent located Buyers and a binding Agreement of Purchase and Sale (the “Agreement”) was executed with the closing date set for three months down the road.  Copies of the Agreement were forwarded to each party’s solicitor and everything seemed on track.  One month later, the Purchasers contacted their Agent and advised they were not going to honour their obligations under the Agreement, and, were leaving the province the very next day.  Of course, the Purchasers actions were without any legal basis. Without any Purchasers, the Vendors decided to continue listing the property.  The reason for the Vendors not bothering to pursue the Purchasers was simply because the Vendors had committed to purchasing another property once they had, what they believed to be, a firm sale of their home.

The listing Agent commenced a second search for purchasers through advertising and so on.  In the  meantime, the Vendors, located purchasers on their own.  However, by this point the Vendors had become very worried and anxious as they had committed to buying another home for which, it seemed, they would not have sufficient funds.  In their frustration, they entered into an Agreement of Purchase and Sale with the buyers they located and did not involve their listing Agent.

In court, it was discovered the Vendors had the opinion and belief  that the Agent was not entitled to any commission since: a) he did not locate the final purchasers; (b) he was the one responsible for  locating  the Purchasers who subsequently absconded; and, (c) he was the cause of the Vendors considerable stress  and aggravation over the three month period.   Simply, the Vendors blamed the listing Agent for the entire mishap.

Following a somewhat lengthy trial, the Court held the Agent to be entitled to his full commission for the following reasons:

1) The Court found the Agent had performed his duty fully under the listing Agreement by locating qualified purchasers and entering into a valid and binding Agreement of Purchase and Sale.  Stipulated in most standard listing Agreements, and specifically in this case, is a clause which states the listing Agent is entitled to commission upon procuring “a valid offer”.   Therefore, the listing Agent had fulfilled his duty and it was through no fault of his the Purchasers absconded.  Given the above clause, the Court held proper services were provided and commission was appropriate.

2) The Court also found the Vendors had been aware of another clause in the listing Agreement (which is common in most standard listing Agreements) dealing with the duties of the Vendors and their listing Agent.  Specifically, the clause imposes a duty upon Vendors “to direct all inquiries concerning the property to the listing Broker”.   Accordingly, once the Vendors located purchasers on their own, they were to inform the listing Agent.  The listing Agent would then have been involved in preparing and negotiating the second Agreement of Purchase and Sale.  However, the Court found the only reason the listing Agent was not involved in assisting in the preparation and negotiation of the second Agreement of Purchase and Sale was due entirely to the Vendors failing to satisfy their duty under this clause.  As a result, the listing Agent was held to be entitled to his commissions under the listing Agreement.

In my years of practice, I have always found there to be two sides to every situation.  In this particular case, we can all empathize with the Vendors and their situation of having executed an Agreement to buy another home and subsequently discovering the sale of their own home may not occur.   On the other hand, the listing Agent was desperately searching for another purchaser to buy the Vendors property.  Neither party can be blamed for the actions of a reckless third party.  In the end, the listing Agent did try to find new purchasers throughout the three month period.  In the search process, the listing Agent held several open houses, spent considerable amounts of time and money on advertising and viewings, and so on.  The court did not see any reason for penalizing the listing Agent for an event that was truly beyond his control.

Finally, listing Agreements that Vendors and Brokers enter into are there to protect all parties concerned.  They clearly outline, amongst other matters, each parties responsibilities, and the duration of the relationship.  The listing Agreement is intended to simplify the process and prevent costly litigation.   In the past, court actions for commissions were quite common.  Today, they are not as common, thanks in part, to the listing Agreement clarifying each parties roles and responsibilities.Victor Hussein

More from Victor Hussein as he talks about:

Title Insurance

Mortgage Renewal

Pricing Your Home Correctly

Fences and Property Lines

Tips and Traps when buying a home

Victor Hussein is a Kitchener Waterloo lawyer, specializing in real estate.

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