Wednesday, 28 June 2017

When Is A Listing Commission Earned?

Written by Posted On Monday, 19 June 2017 19:19

Of course, different listing contracts may contain unique or unusual conditions, but, for many years in many parts of the country, listing agreements have held that a commission had been earned if a buyer was procured who made an offer that matched the price and terms specified in the listing agreement, or on other price and terms the seller might find acceptable. A completed transaction was not a required condition for a commission to have been earned.

But a 2012 California Appellate Court ruling (RealPro, Inc. v. Smith Residual Company, Fourth Appellate District Court) changed that understanding in the Golden State. In the RealPro situation, a buyer had made a full-price, per the listing, $17 million offer on terms that the seller found acceptable. However, the seller then increased the listing price to $19.5 million. The buyer declined the price increase; but, subsequently, the buyer's broker, as a third-party beneficiary, sued for his commission.

The trial court focused on the portion of the listing that set forth price and terms, which said "$17,000,000 cash or such other price and terms acceptable to Sellers..." The court's view was that it would be a mistake to say that the listing was for $17 million. Rather, it "was for $17 million cash or such other price, plus terms acceptable to Sellers."

The Appellate Court said, "we, like the trial court, conclude that the $17 million price was merely an invitation to submit offers. Although RealPro submitted an offer to purchase the Property, such offer never materialized into a sale that would trigger RealPro's right to a commission." Pretty clearly, the appellate court was of the view that it is a sale -- not just an acceptable offer -- that triggers a commission.

You can't fight them; so you might as well join them. The California Association of Realtors (CAR) changed its Residential Listing Agreement (RLA) the next year. It currently reads that a commission is due if anyone "…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 completes the transaction or is prevented from doing so by the Seller." [my emphasis]

But wait! Now a different California Appellate Court has come forth with an opinion (Carol Gilbert, Inc. v. City of San Francisco Ellis-O'Farrell Parking Corp., First Appellate District, June 2, 2017) that pretty clearly supports the "old way" of thinking about these matters.

Carol Gilbert, Inc. (CGI) entered into a listing agreement with Ellis Parking to find a tenant for restaurant space in a parking garage that has retail space on the ground floor. The City of San Francisco owns the building and Ellis Parking has a master lease. The listing agreement said that "If a lease is entered into during the Term of this Agreement, or any extensions hereof, [Ellis Parking] will pay [CGI] a sum based on [a complex schedule in the agreement]... When Commission Due: Commissions shall be deemed one half due and payable upon the later Lease Execution or Removal of Contingencies, and one half on the earlier of Tenant's Opening for Business or Commencement of Rent..."

CGI procured an offer on behalf of Lori's Diner, and in October of 2012, Ellis Parking signed a lease agreement with Lori's Diner for a twenty-year sublease of the space. The sublease contained language saying that it was subject to the master lease which, among other things, required that the city of San Francisco would not unreasonably withhold consent.

Whether reasonable or not, the city did withhold consent. Instead it renewed a lease with the existing tenant. Ellis parking declined to pay CGI any commission, so CGI sued for breach of contract. (The ½ commission owed, by the way, was $245,717.38)

The trial court held that "Because there was nothing in the Exclusive Listing and Sale Agreement which mentioned or referenced the City's approval as being a contingency that needed to be removed in order for CGI to receive the commission, [CGI] is entitled to one half the commission."

The Appellate Court agreed. Quoting an earlier case, they wrote "The broker's right to compensation ‘must be found within the four corners' of the listing agreement, which will be ‘strictly enforced according to the lawful terms." The court acknowledged that, of course, some condition or contingency could limit or void the broker's right to a commission. But such language would have to be clearly stated within the listing agreement. In this case, it was not.

The court wrote, "The only condition precedent to CGI's right to a commission under the listing agreement was that a lease be ‘entered into.' A lease was ‘entered into' when Ellis Parking and Lori's Diner signed the sublease..."

This case, and much of the reasoning in the opinion, could lend weight to the idea that maybe the "old way" -- in which a sale did not have to be completed for a commission to be earned -- could be revived. Right now, though, that would be premature. CGI v. Ellis Parking has not been published, and cannot be cited as law. That would have to be changed. There is a time period during which the court can be asked to publish its opinion. You can bet that there are interested parties working on such requests.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way. His email address is This email address is being protected from spambots. You need JavaScript enabled to view it..

Rate this item
(3 votes)
Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at scbhunt@aol.com.

1 comment

  • Comment Link RogerJ01 Sunday, 25 June 2017 17:31 posted by RogerJ01

    HOW I GET MY WIFE BACK WITH THE HELP OF DR. JAKIKI....CALL HIM NOW FOR FAST LOVE SPELL +1 (402) 892-2486

    My name is Roger Jeremy. I am testifying of the great Dr. Jakiki that God used in saving my marriage, I have been scammed by 5 different spell casters in Africa in an attempt to get my ex wife back but non could help me until I met a testimony of a lady from USA called Mrs Anita Sheeler who Dr Jakiki here in United States helped to get her husband back, I email him just because he is here in united states,and i explained to him how i want my wife back and also how i have been scammed. He ask me not to worry and assured me that i will get back my wife, i took the boldness of not giving up and to my surprised he helped me cast a spell that brought back my ex wife within the period of two days after he have cast the spell, am so happy that I can't stop thanking him rather than promise my self to share the good news,because i know that some many people are heart broken. In case if you need help to get your love one's who left you for another. Why going to another country to seek for help in your broken relationship,while Dr Jakiki is right here in the states. I advise all those seeking for help to turn to Dr Jakiki because he is much blessed of casting love spell. If you need help getting your ex back contact him via email.

    Email:((Spellcasthome@gmail.com)) call or text him +1 (402) 892-2486 you will surely get your result. And if you want to know more info about Dr Jakiki you can also view his website: http://spellcasthome.webs.com/

Login to post comments

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.