Is Commission Owed on an Agreement which doesn’t Close?

To answer this question we’ll have to look at the Listing Agreement.

Here’s what it says:

Part 1

“In consideration of the Listing Brokerage listing the Property, the Seller agrees to pay the Listing Brokerage a commission of ……………% of the sale price of the Property or ………………………………………………………………………………………………………………………. for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this Agreement OR such other terms and conditions as the Seller may accept.”

You will see that the “trigger” for the payment of the commission is the valid offer. It could say the “completed transaction”, or the “closed transaction” or it could have added a condition like “provided the transaction is completed” or “upon successful closing”. But, it doesn’t.

A Seller could amend the Listing to provide this condition. Most lawyers will suggest this amendment. However, most of the time, legal advice is not obtained and this is the provision in the Agreement: the valid offer.

So, the Listing Brokerage will send an Invoice for the Commission to the Seller, and if the Buyer has defaulted will sue the Buyer for losses that have been incurred including the commission.

Part 2

“The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed, if such non-completion is owing or attributable to the Seller’s default or neglect, said commission to be payable on the date set for completion of the purchase of the Property.”

For greater certainty, if the failed transaction is the Seller’s fault, the commission is still payable. This clause might not be necessary, but it eliminates any doubt.

Here’s the problem. Some people will think that because Part 2 deals with the Seller’s default and doesn’t mention the Buyer, then, in the case of the Buyer’s default, there is no commission owing.

That’s not correct. Have a look at Part 1. It didn’t even matter if the Buyer closed the deal, the commission was owing for the valid offer.

Brian Madigan LL.B., Broker

Comments 4

  1. If the contract doesn’t close as scheduled After ALL contigincies were favorably met and passed and buyer backed out days before closing with no reason. The seller has paid for movers 2 days before closing date
    can Listing agency sue Buyer for commission earned ?
    can seller sue for damages for not closing and for movers cost scheduled in time to have house ready for closing date?
    Sue for arbitraryly forced into a bad market at this time and keep the escrow and damages if forced to sell for lesser price then contracted for ?
    In NYS
    Thank you

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      In thge usual situation, the Seller will sue the Buyer for breach of contract and that will include all their losses including the commission that they have to pay out.

  2. Appears that the wording indicates that the offer must have been accepted by the seller. What happens if the offer is not accepted because the price didn’t meet the expected price, the offered closing period was too long, or some other conditions were “valid” in general for an “average” seller, but not to this particular seller?
    Also, what happens if the seller changes his/her mind and cancels the listing before it expires for whatever reason? That can go from losing their job, a sickness or disease in the family, or whatever? Is the seller still liable if didn’t accept an offer at the time of canceling?

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