Avoid Legal Battles over Agent/Broker Commissions
Commission agreements that spell out how brokers or 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 stated in the final written agreement. The judge overruled this argument stating that the contract was clearly written.
There was an instance when owners were not willing to give out commissions after receiving the money for the property that they sold. The seller argued that since the sale took place after she decided to terminate the authority to sell because of personal reasons, she insisted that she doesn’t have to pay. However, the client buying was already inquiring about the property before the said termination, agents/brokers are still entitled to claim 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 said 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 that 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 okay to simply toss 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 more common than you would think. 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 by abiding to the said terms. This is the best method of prevention.
Charmaine Xy-Za Yape is a founding member and a blogger of Filipino Homes. She is also a PRC and HLURB Registered Real Estate Professional and a Licensed Financial and Investment Advisor. She is an International Realtor member and a Hubspot certified in Inbound Marketing. She is also the co-founder of Iligan Bloggers Society, Inc.