Real estate brokers act as intermediaries or negotiators during the purchase and sale of a home. They are responsible for bringing a ready, willing, and able purchaser to the seller of the home. When sellers want or need to retain such services, they will agree to enter into an employment contract with the real estate broker.
The employment contract, or the “listing agreement” in real estate terms, is a document that typically gives the real estate broker permission to show the property to potential buyers. There are two general types of agreements: an open listing agreement and an exclusive listing agreement.
In an open listing agreement, the real estate broker may only earn their commission if they sell it to a buyer who can afford to purchase it and goes through with the sale of the property. When the contract is one for an exclusive listing agreement, the broker will earn their commission regardless of whether they sell the property or if another agent does so.
Regardless of the contract, the agreement will also usually provide:
- The duties that the real estate broker has;
- How the property will be viewed or presented to potential buyers;
- The terms of the property listing, including various dates like when the property has to be sold by;
- What the seller’s duties are;
- Payment methods (e.g., flat fees versus percentage of sales); and
- A clause for how the parties can resolve any disputes that may arise in the future.
The commission will generally not be paid out until the real estate broker has found a buyer who wants to and can buy the property.
On the off chance that the seller decides not to sell despite the real estate broker finding a buyer and completing all of the terms of their agreement, the broker will still be able to collect their commission. If the seller refuses to pay, the real estate broker can bring them to court.
What If a Real Estate Broker Cannot Get Their Commission?
If the seller of a home refuses to pay the real estate broker their earned commission, the real estate broker can take the seller to court and sue them for what they are owed.
For the real estate broker to succeed in court, they must be able to prove the following facts:
- That the real estate broker possessed a valid real estate license;
- A valid employment contract (entered into by both the real estate broker and the seller) was in existence;
- The terms of the employment contract were performed accordingly; and
- Despite the real estate broker fulfilling all of the requirements, the seller still refuses to pay the agreed-upon commission cost.
What this proves is that the seller has breached the parties’ agreement. The real estate broker performed, and the seller provided them nothing in return for their contracted services.
As with all contracts, it is imperative that the agreement that the parties form includes clear and detailed language. It would be in the best interest of both parties to each retain their own lawyer to help draft and review the contract before signing it.
What Remedies Can the Real Estate Broker Receive?
If a real estate broker is successful in proving the elements mentioned in the above section, then a court may be able to award them some kind of remedy, such as:
- The initially agreed-upon commission cost;
- Court costs and attorney fees; or
- In some cases, punitive damages may be available (note that punitive damages are rarely ever awarded unless it can be shown that the defendant’s conduct was outrageous).
Are There Any Defenses Available for the Seller?
When a seller is sued for not paying a real estate broker their otherwise rightful commission, there are generally three defenses available for the seller to use. These include proving that:
- The real estate broker breached their fiduciary duty to the seller;
- The real estate broker breached the parties’ employment contract; or
- The real estate broker did not have a valid real estate license at the time of the parties’ transaction.
Are Listing Agreements Legally Binding Contracts?
Unless a broker has failed to uphold their end of the contract, a property owner who refuses to pay commissions upon the sale of a property is usually found to be in the wrong.
Property owners or buyers may use the issue of procuring cause to claim that the broker is not owed any commissions.
What Are the Challenges of Determining Procuring Cause?
Procuring cause is a party that is responsible for successfully securing a sale. This concept is often at the forefront of real estate disputes involving brokers and property owners. In some states, to earn a commission as the procuring cause of a transaction, a broker must perform two tasks:
- The broker must initiate negotiations by doing some affirmative act to bring a buyer and seller together
- The broker must remain involved in the continuing negotiations between the seller and buyer unless they intentionally exclude the broker from their negotiations.
What Are Common Disputes Involving Verbal Agreements?
Most real estate contracts involve written listing agreements, but verbal agreements are still utilized in some circumstances, often in conjunction with a written contract.
Whether an oral real estate commission agreement can be upheld in court or arbitration depends on the laws of each state. In some states, oral real estate commission agreements are considered legal and binding, although it can be difficult to prove the terms of an oral contract.
Having witnesses other than the two contracted parties can help demonstrate the validity of a verbal agreement. Any informal correspondence, including emails, faxes, texts, and letters, can prove critical in supporting a broker’s claim to unpaid commissions.
Can I Negotiate My Agent’s Commission?
A real estate brokerage commission can be negotiated even after the listing agreement has been signed. The brokerage commission is still negotiable if the offer is made at the full asking price and without contingencies. When faced with the option to close or not close, a broker may be willing to lower their real estate commission for a seller.
How Are Disputes Resolved?
When disputes arise between sellers and brokers about real estate commissions, a broker may sue the seller in court. Some brokers avoid lawsuits, but large real estate firms with legal staff may pursue litigation to recover the broker’s commission.
If a broker can prove that the sale occurred after the listing expired and directly resulted from the broker’s commissioned real estate agent, the broker may win the case.
Do I Need an Attorney for Help with Recovering My Commission as a Real Estate Broker?
Suppose you believe a seller has denied the real estate broker’s commission that you are entitled to. Alternatively, you are a seller being sued to recover a real estate broker’s commission. In that case, it is strongly suggested that you speak with a local real estate lawyer for further assistance.
A qualified real estate lawyer will be able to discuss any of the potential claims or possible defenses available for your real estate commission case. In addition, a lawyer can also help you collect the necessary evidence to best support your case and will be able to advocate for you before the court.
