When Is A Listing Commission Earned?

Written By: Bob Hunt
Monday, June 26, 2017

Of course, different listing contracts may contain unique or unusual conditions, but, for many years in many parts of the country, listing agreements have held that a commission had been earned if a buyer was procured who made an offer that matched the price and terms specified in the listing agreement, or on other price and terms the seller might find acceptable. A completed transaction was not a required condition for a commission to have been earned.

But a 2012 California Appellate Court ruling RealPro, Inc. v. Smith Residual Company, Fourth Appellate District Court changed that understanding in the Golden State. In the RealPro situation, a buyer had made a full-price, per the listing, 17 million offer on terms that the seller found acceptable. However, the seller then increased the listing price to 19.5 million. The buyer declined the price increase; but, subsequently, the buyers broker, as a third-party beneficiary, sued for his commission.

The trial court focused on the portion of the listing that set forth price and terms, which said "17,000,000 cash or such other price and terms acceptable to Sellers..." The courts view was that it would be a mistake to say that the listing was for 17 million. Rather, it "was for 17 million cash or such other price, plus terms acceptable to Sellers."

The Appellate Court said, "we, like the trial court, conclude that the 17 million price was me>

You cant fight them; so you might as well join them. The California Association of Realtors CAR changed its Residential Listing Agreement RLA the next year. It currently reads that a commission is due if anyone "hellip;procures a ready, willing, and able buyers whose offer to purchase the Property on any price and terms is accepted by Seller, provided the Buyer completes the transaction or is prevented from doing so by the Seller." [my emphasis]

But wait Now a different California Appellate Court has come forth with an opinion Carol Gilbert, Inc. v. City of San Francisco Ellis-OFar>

Carol Gilbert, Inc. CGI entered into a listing agreement with Ellis Parking to find a tenant for restaurant space in a parking garage that has retail space on the ground floor. The City of San Francisco owns the building and Ellis Parking has a master lease. The listing agreement said that "If a lease is entered into during the Term of this Agreement, or any extensions hereof, [Ellis Parking] will pay [CGI] a sum based on [a complex schedule in the agreement]... When Commission Due: Commissions shall be deemed one half due and payable upon the later Lease Execution or Removal of Contingencies, and one half on the earlier of Tenants Opening for Business or Commencement of Rent..."

CGI procured an offer on behalf of Loris Diner, and in October of 2012, Ellis Parking signed a lease agreement with Loris Diner for a twenty-year sublease of the space. The sublease contained language saying that it was subject to the master lease which, among other things, required that the city of San Francisco would not unreasonably withhold consent.

Whether reasonable or not, the city did withhold consent. Instead it renewed a lease with the existing tenant. Ellis parking declined to pay CGI any commission, so CGI sued for breach of contract. The frac12; commission owed, by the way, was 245,717.38

The trial court held that "Because there was nothing in the Exclusive Listing and Sale Agreement which mentioned or referenced the Citys approval as being a contingency that needed to be removed in order for CGI to receive the commission, [CGI] is entitled to one half the commission."

The Appellate Court agreed. Quoting an earlier case, they wrote "The brokers right to compensation lsquo;must be found within the four corners of the listing agreement, which will be lsquo;strictly enforced according to the lawful terms." The court acknowledged that, of course, some condition or contingency could limit or void the brokers right to a commission. But such language would have to be clearly stated within the listing agreement. In this case, it was not.

The court wrote, "The only condition precedent to CGIs right to a commission under the listing agreement was that a lease be lsquo;entered into. A lease was lsquo;entered into when Ellis Parking and Loris Diner signed the sublease..."

This case, and much of the reasoning in the opinion, could lend weight to the idea that maybe the "old way" -- in which a sale did not have to be completed for a commission to be earned -- could be revived. Right now, though, that would be premature. CGI v. Ellis Parking has not been published, and cannot be cited as law. That would have to be changed. There is a time period during which the court can be asked to publish its opinion. You can bet that there are interested parties working on such requests.

Bob Hunt is a director of the California Association of Realtorsreg;. He is the author of Real Estate the Ethical Way. His email address is .

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