It is not uncommon for sellers and buyers of real estate to have misconceptions with respect to the earning of commissions by real estate agents. A New York County Supreme Court ruling provides one example.
The seller of a condominium unit had retained the services of a licensed real estate broker to represent them in the sale of its apartment.
It was agreed that the commission would only be earned if the title to the property actually transferred. After the agent produced a ready, willing, and able buyer with whom the seller went to contract, the seller decided not to sell. The buyer and the seller resolved their situation, but the seller refused to pay the commission to the broker since the title did not transfer. The seller subsequently sold the apartment through a different broker who did receive a commission. The first broker filed a law suit against the seller for non-payment of a commission after that broker had produced a buyer and the seller backed out of the contract.
The court said, while it was true that the agreement between seller and the broker made the earning of the commission conditioned upon the actual transfer of the property, it was the seller who prevented the transfer of the property and therefore the broker was entitled to the commission. The result was that the seller had to pay two commissions to two different brokers.
A New York State Court of Appeals decision illustrates another point.
A seller hired a broker to sell its cooperative apartment. The broker produced a ready, willing, and able buyer, and while the approval of the co-op's board of directors was pending, the broker showed the apartment to another potential buyer. The broker also showed that potential buyer other apartments listed with them as well as with other brokers.
The deal with the first buyer did not receive board approval, and the apartment was sold to the potential buyer to whom the broker had showed the apartment as well as others.
The seller refused to pay the broker's commission alleging that the broker in showing other apartments to the buyer was as acting as an undisclosed dual agent and had violated its fiduciary responsibility to the seller by placing it in competition with other sellers.
The court did not agree. It ruled that the broker was not acting as an undisclosed dual agent and observed, absent an agreement to the contrary, the agent owed the seller no duty to refrain from showing the buyer a number of other apartments without its permission and therefore, the broker was entitled to the commission.
Members of the public, and even some real estate professionals often confuse a broker's failure to pursue its rights to a commission with the broker not being legally entitled to a commission, and may find out otherwise when they are party to a lawsuit.
Legal counsel should be sought before making any false assumptions.
John is a St. John's University graduate, licensed Real Estate broker, DOS Certified Instructor, lecturer, teaches real estate license classes at Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. He previously taught at LIU and NYU. www.johnaviteritti.com