Avoid Legal Battles over Agent/Broker Commissions

Commission agreements that spell out how brokers/agents are paid typically use form documents. The commission formula sometimes changes, but the terms and conditions usually stay the same. Consequently, standard terms and conditions of commission agreements are often ignored by brokers and owners once the agreement is signed. Since the broker’s/agent’s income is tied to the terms of those agreements, close attention to details is vital to all parties involved. Thus it is best to have the owner stipulate, understand and sign the authority to sell before you start marketing the property to potential buyers.

Recent lawsuits stemming from disputes over broker commissions reveal tough lessons about the importance of paying close attention to commission agreements.

A building owner in Iligan City was forced to pay a commission because the original agreement did not contain an expiration or termination date. The building owner argued that there are a number of key terms understood and agreed to prior to signing the agreement that was not contained in the final written agreement. The judge overruled this argument stating that the contract was clear as written.

I also had a personal experience about owners not willing to give out commissions after receiving the money for the property they are selling. The seller argued that since the sale took place after she decided to terminate the authority to sell because of personal reasons, she demands she doesn’t have to pay. However, the client buy was already inquiring about the property before the said termination, agents/brokers are still entitled to the commission because of the clause in the agreement that “if the agent was able to bring a client for the property and buy it within six months after the termination of contract, the agent/broker is still entitled for the commission of the sale of the property. The issue was not brought to court, but getting the commission was a bit a pain.

Judges and juries are not real estate professionals. The term “procuring cause” may have a standard definition in the real estate business, but mean nothing to a juror. All parties involved must make sure the language is clear. A judge or jury will not rewrite a contract to save either party from a bad business decision.

Even after a favorable commission contract is successfully negotiated and written, it’s not OK to simply file it away. Either party cannot claim they forgot about the agreement.

The lesson here is to carefully note important terms and conditions, especially those that relate to performance, compensation, and termination.

Legal disputes are not unique to any location. Judges and juries nationwide are showing resistance to insert terms into commission contracts or allow parties to ignore the terms of a contract. Recently there’s been an increase in the number of disputes. Some have settled out of court, yet a fair number have gone to litigation. This can be reversed through the efforts of brokers and owners who invest more time and effort putting together agreements and abiding by them. This is the best method of prevention.