Estate Finance Notes
When is the commission earned?
There are lots of ways under the listing agreement in the book. The agent gets a conclusive presumption that he or she caused the sale! Does there have to be a sale in order to have a selling price? How could there be a selling price if the seller removes the property from the market? But there is a selling price listed on the contract. How do we feel about the rules for when the agent earns the commission? If you’re representing the seller, you’ll want to change the paragraph about the commission in a number of ways. If you wanted to make it clear that the agent only received the commission in the event that the sale closed, what would you say? What about the doctrine of preventing performance? If the agent brings in a good offer but you screw it up in some way, they’ve probably earned their commission. Is it enough to say that the commission is due “at the closing” or “when the sale closes”? What if the buyer defaults? Do we protect ourselves by saying that the commission is payable when the sale closes? Wouldn’t the court just imply a reasonable time? If the condition that was agreed upon never occurs, then the court will say that the commission is at a reasonable time. Thus, you’ve only really agreed on when the commission gets paid, not if it gets paid.
There are other elements you might want to change. The agent want to be protected from being cut out of the deal by the buyer and seller waiting until the listing expires. So they put language in saying that if you sell the property to anybody who they introduced you to, even after the six months is up, they still get the commission. You would want to make the agent notify the seller in writing of everyone that they think they had introduced you to. Also, it can be negotiated so that it only applies if there isn’t another agent involved. The rationale is that you shouldn’t have to pay twice.
Drake v. Hosley
are more than two people who want to buy property in North Pole,
simplest way to buy property is to pay cash out-of-pocket. One alternative is to borrow the money from
the bank in exchange for the mortgage.
To the seller, it’s all the same because they get cash. But it might be hard to find a bank in North
Hosley sues for his commission. Does
he get it? Yes! What’s the rule of the case? The commission is earned when the seller
accepts the buyer: the seller is then estopped from
saying that the buyer isn’t suitable. At
that point, the seller becomes obligated to pay the commission. What’s wrong with that rule? What is the Dobbs rule? The Dobbs rule requires performance, that is, closing the
sale in order for the commission to be earned.
What’s the public policy here? The
court says that people commonly understand that you don’t pay unless the sale
closes. So they make a new rule there
What if you want to do business differently? What if the broker wants the commission as soon as a buyer is found and accepted by the seller? That seems to be the problem with the rule. Some say that we want people to be able to contract any way they want. But that’s not the sentiment of the consumer protection movement. Should we have freedom of contract, or should consumers be protected from themselves? Other courts who have adopted the Dobbs rule have said that you can waive it, but it’s kind of like a UCC requirement: you have to give lots of notice to the seller to assure that they know what they’re getting themselves into.
happens here? Does it matter what rule
What was the deal about who Hosley represents? Why did the court care? The court says that Drake’s attorney and Hosley can’t agree to anything because they both represent Drake. Whatever Hosley said, it doesn’t make a difference because the agreement wasn’t between the buyer and the seller. This is how the court upholds summary judgment. Does this make sense? Maybe Hosley talked to the sellers. You can at least imagine that he did. We don’t get a trial to find out. Maybe Hosley mediated an agreement. But as a matter of law, the court finds that Hosley is not an agent of the purchasers and can’t bind them.
But the court could have dealt with this differently. The contract doesn’t say that time is of the essence. They could have said that closing on the 12th or the 13th is okay. They could have said Drake is a creep who shouldn’t be able to weasel his way out of paying the commission. But they say that Drake’s attorney, Wickwire, and Hosley both owe their allegiance to Drake. Even if the court adopts Dobbs, Hosley still gets his commission. Most states use the old rule. A minority have adopted Dobbs. But Dobbs is the recent trend. (CRASH!)
A problem on liability for commission
“Pursuant to a non-exclusive listing agreement, O places his property in the hands of B1, B2 and B3 for sale at $10,000. B1 produces a buyer willing to buy the property for $10,000. Before the contract is signed, B2 produces a buyer for $11,000. So, O refuses to sign with B1’s customer and signs with B2’s instead. Thereafter, B2’s customer suffers financial reverses and refuses to go through with the deal. Thereupon B3 produces a buyer at $9,500. O, disgusted with the whole thing sells to B3. To whom does O owe a commission?”
Under the traditional rule and under Dobbs, O will owe a commission to B1. Under the traditional rule, he owes the commission to B2, but not under Dobbs. He owes a commission under either rule to B3 since the sale actually went through. Does it make a difference that it’s for less money than he originally wanted to sell it for? He could have held out for his $10,000 and not owed a commission to B3.
What about involuntary sales? What if the property is taken by eminent domain or foreclosed upon and sold at an auction? Do you have to pay a commission? Say the agent has an exclusive listing. Is there anything in the contract that says the sale must be voluntary? Nope. We don’t intuitively like the idea of the seller having to pay a commission when there is an involuntary sale, but that’s what the contract provides for. Many cases have held that in the case of involuntary sales the seller owes the commission. That could be one thing you would want to change if you were an attorney representing the seller.
Who does the broker represent?
the broker represents the seller. But
the law and reality are totally out of whack.
Generally, you call a real estate agent and ask to buy a house. You want them to drive you around and show
you places. You
typically think of that person as being your
agent. You’ll ask if there’s anything
wrong with the house. If the agent were
really the agent of the seller, then the agent would say: “I can’t discuss that
with you.” But that’s not the way that
the market works! The agent, as a
factual matter, represents both parties.
But as a legal matter, the agent owes a fiduciary duty to the
seller. In litigation, sellers may claim
that agents violated an exclusive loyalty due to the seller. Many states, including
is a duty to disclose the agency relationship.
There is a duty to disclose material defects. In many states, including