Q: We have a dilemma and are afraid it may turn into a lawsuit. A month ago we listed our house for sale with a real estate broker. The broker agreed to charge us 5 percent of the selling price if they were the only broker involved, or 6 percent if they had to cooperate with another company or agent.
A: couple of weeks after the listing, the broker presented us with a full-price offer, but the buyer wanted us to give them $7,000 toward closing costs. We made a counter-offer, and the final contract requires that we give $5,000 to the purchaser. Settlement is scheduled for mid-November. The broker has advised us that all is going well, but reminded us that we owe commission of 5 percent based on the full selling price.
We do not think this is fair, since we will not get the full selling price. We believe that the commission should be based on the selling price minus the $5,000. Are we correct? Furthermore, what happens if the buyers do not go to settlement? Are we still liable for the commission?
AThe simple answers are no, you are not correct, and yes, you probably still will be liable for the commission.
Let's step back and review some basics. When a homeowner decides to sell, there are a couple of options. The most common approaches are to try to sell it yourself, without using a real estate agent or a broker, or to engage the services of a real estate company.
If you opt for the latter approach, you should make sure you are satisfied with the person who will be your agent. Ask how much experience the broker has, and knowledge about the area where your house is located.
Then you must sign a "listing agreement" with the agent or company. There are different kinds of listing contracts:
* Open listing. This means you pay a commission only to the agent who finds the buyer. If you personally sell your house by yourself--or through some other agent--the holder of the open listing is not entitled to any commission.
* Exclusive listing. This means you have given the exclusive right to an agent or broker to sell the house. Regardless of who sells the property, the person holding the exclusive listing is entitled to a commission. This is the more common listing. Brokers and agents do not want to spend a lot of time, and money, marketing your house only to learn they will not earn a commission because you or someone else has sold it.
A signed listing contract is a binding, legal document. You should read it carefully before signing. Most standard agreements provide that the commission is earned when the broker presents a ready, willing and able purchaser to the seller and a real estate contract is entered into. Accordingly, whether or not the buyer actually goes to settlement, the real estate agent is entitled to a commission.
As a practical matter, it is my experience that most agents will waive their right to a commission if the buyers don't go to settlement. However, this is not universal. Accordingly, it is recommended that you add the following language to your basic listing agreement: "The commission will not be earned until and unless settlement actually takes place." Without this language, the agent can legally claim a commission even though you have not sold your house.
Now, about the amount of the commission you owe, the standard listing agreement obligates the seller to pay the commission on the full selling price. This is not mandatory, however. You have every right to negotiate different commission arrangements with the broker, but only before you sign the listing document.
Make sure all relevant terms are included in the listing agreement. These terms include such things as price, any points you agree to pay and any other concessions you are willing to make. If you are unwilling to pay a full commission on the entire selling price, this should be discussed and made a part of the written listing agreement.
However, because you signed the listing agreement without making any changes, you are legally obligated to pay a commission on the full selling price, regardless of the concessions you have given your buyer.
While I appreciate your concerns, the amount in question is, after all, only $250 (5 percent of $5,000). Perhaps you should raise your concerns with the broker, who may be willing to reduce the commission by this amount. Goodwill is a very important element of any business, and they want your business--or referrals from you--in the future.
Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.