UNUSUAL BROKER FEE ISSUES

Because real estate transactions tend to be large in dollar amount, and because brokers generally are paid a percentage of the sale price, broker fees can be quite large. Disputes over who is entitled to the broker fees can arise in many unusual situations.

What if the property is sold during the listing agreement, but the broker did not find the buyer?

If the property is sold during the listing period, but the broker did not find the buyer, whether the broker gets a commission depends upon the terms of the contract. Some contracts require payment of commissions to the broker, on all sales during the time of the listing, whether or not the broker found the buyer. Other contracts limit the broker to being paid only when he or she is the “procuring cause” of the buyer, i.e. only when the broker finds the buyer.

What if the property is sold after the listing agreement expires, but the broker found the buyer?

If the broker is the “procuring cause” of the buyer – if the broker found the buyer and was the cause of him or her buying the property – then he or she generally is entitled to be his or her commission, even if the sale closed after the listing agreement expired. Further, brokerage contracts often include safety clauses, which provide that the broker will be paid his or her commission during a specified amount of time after the listing expires, if certain conditions are fulfilled.

Broker’s commissions can be a great deal of money. Buyers and sellers are thus sometimes tempted to team up – after the broker has brought them together – to deprive the broker of his or her commission. The courts are not generally sympathetic to such machinations. Among other things, the brokerage contract – like all contracts in California – has an implied covenant of good faith and fair dealing, which provides that no party to the contract will act so as to deprive the other of the benefit of the bargain. If a broker finds a buyer, but the seller then delays the contract so long that it is completed after the listing expires, the courts will often find that such behavior violates the covenant of good faith and fair dealing.

What if the sale is not completed?

A broker’s entitlement to be paid a commission is defined by contract. Sometimes, a broker will earn his or her fee, under the contract, even though a sale will not be completed. For example, the broker may earn his or her fee, under the contract, when he or she produces a ready, willing and able buyer, at a certain price. Sometimes the broker will produce such buyer, but the seller will refuse to sell to him or her. Under those facts, the seller may owe the broker a commission even though there was no sale.

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