When is the Commission Due?

In most real estate transactions, the seller pays a sales commission. Sometimes the seller does not want to pay and looks for a way out. Argument ensues over when and if a commission is due. Florida courts have addressed these issues.

If there is no special contract between seller and broker, Florida courts have consistently explained that a broker is due a commission when the broker is procuring cause of the sale. That means many commission disputes argue about procuring cause.

What is procuring cause? Florida courts define procuring cause as a broker bringing buyer and seller together resulting in a sale in which the broker is involved with continuing negotiations between the buyer and seller. Some brokers feel they are entitled to a commission because they introduced the buyer and seller or merely because they told the buyer about the property that was for sale. Florida courts disagree, unless the broker was intentionally excluded from the negotiations.

The seller cannot avoid commission by keeping the broker out of the deal. That can be suggested by a buyer looking to get a discount by cutting out the sales commission. If the parties collude to exclude the broker, the broker is still entitled to a commission but has a lot less work to do.

Without a special contract, a seller’s obligation to pay a commission can last a long time. In some cases, commissions have been due after years of on-and-off negotiation. The common belief that procuring cause requires continuous and uninterrupted negotiation to closing on purchase can be stretched quite thin in some cases.

Contract for commission can be written or oral. A contract for a commission is most often known as a listing agreement and is the special contract referred to by courts. It is special only because it specifies terms. Benefit of a written contract is that the terms and conditions are clear. 

Most written contracts for commission favor the broker. After all, the contracts are prepared by the broker’s company or a trade association favorable to brokers. 

One common clause in broker listing contracts makes the seller liable for commission if anybody buys the property during the term of the listing and not only a buyer introduced by the broker. The seller owes a commission even if the seller sells to a friend or family member who had nothing to do with the broker. Most listing contracts also require the seller to refer all inquiries about the property to the broker. And most of these contracts provide that if someone who was either introduced by the broker or contacted the seller during the listing term buys the property within a certain period of time after the listing contract ends, commission is due.

A broker’s written listing contract requires sellers act in good faith. They confirm commission is due when the broker brings a ready, willing and able buyer on terms of the listing or which on terms otherwise acceptable to the seller. If the seller backs out of the deal, commission is still due. If the buyer defaults and the seller gets deposit or other funds from the buyer, commission is also due although there is usually a cap of a certain percentage of such recovery. The cap is commonly lesser of commission that would have been due from a closed sale or 50% of the funds recovered. 

Broker listing agreements usually also provide that in event of litigation between seller and broker the winner gets the winner’s attorney fees too. That is because almost all of the lawsuits between a seller and a broker are for commission and the broker will rarely resort to a lawsuit unless the broker’s attorney tells the broker chances of success are good. 

Brokers feel pretty good about the listing agreement and its obligation to a commission even for sales after it ends. But that requirement can also be helpful to a seller. A standard listing contract sets a time limit for compensation. If the buyer and seller are patient and that time expires, commission is avoided even if the broker introduced the buyer and was involved in substantial negotiations.

From time to time, a broker sues a seller for commission even though the broker has no written or oral contract. In many of those cases, the broker had a contract but it expired. In some of these cases, the broker simply tells the seller the broker is in the business of procuring sales and gets compensated for that. If the seller accepts the benefits of the broker’s effort, the seller can be liable for commission even without a contract. Courts can rule it would be unjust for the seller to escape the commission under those circumstances and rule commission be paid.

Unjust enrichment cases are not easy. In many, the court rules the parties had no agreement and absent an agreement the broker is not entitled to payment. Under the right facts, broker gets paid.

Seller and broker commission disputes can involve a lot of money. That is precisely why they end up in court.