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Is broker paid after listing expires?

by / Thursday, 14 March 2013 / Published in Articles

Is broker paid after listing expires? 

By Bryan Mashian, Esq.  

 

Who is actually saved by a listing agreement’s “savings clause”? A listing agreement is a contract pursuant to which an owner hires a real estate broker to market and sell a property, and is legally required to have an expiration date. These agreements typically contain a provision referred to as the “savings” clause to address what happens when the listing expires and the owner then sells the property to a buyer the broker contacted during the listing. The broker wants the same commission as if the sale had taken place during the term of the listing agreement.

While listing agreements are typically pre-printed forms supplied by the broker, the parties are free to establish any standards in determining when the broker is entitled to the brokerage fee after the term of the listing is finished. For example, did the buyer have to actually submit an offer to entitle the broker to a commission under the savings clause, or is it sufficient if the buyer merely toured the property? The language used to describe this threshold of the required dealings by the broker with a potential buyer has been the source of disputes.

There is no “standard” for the required amount of involvement by the broker. Various phrases have been used to describe the required effort by the broker, including the broker having “negotiated,” “introduced,” “shown,” “offered,” “submitted” or “quoted” the property to the purchaser during the listing term. The most popular term is “negotiate,” or a derivation thereof like “negotiated with” the ultimate buyer. Courts have generally enforced the savings clause in favor of the broker, even when the broker was not the driving force behind a sale. But courts often construe any ambiguity or uncertainty in a savings clause against the broker. Whether the broker is entitled to a commission generally depends on how much work the broker did, and whether those actions satisfy the specific requirements of the savings clause.

For example, in a California case, the listing provided that the owner would pay the broker a commission if within 90 days after the listing expired the owner sold the property to any person with whom the broker had been “negotiating” during the listing term. The broker obtained a written offer from a buyer during the listing
term, but the owner rejected it. Less than three weeks after the listing expired, the owner sold the property at the same price to the same buyer whose offer had been previously rejected, but the sale was through a different broker. The court held that the owner had to pay the first broker the commission under the savings clause, stating that “negotiating,” as used in the savings clause, clearly covered a situation where a broker produced a written offer from a buyer who ultimately purchased the property.

Whether a broker’s particular activities constitute “negotiations” within the meaning of the savings clause is a question of fact. Usually, in order for the activities to be considered “negotiations,” the broker needs to do more than just show the property. The broker needs to have had meaningful discussions about a possible purchase, even though the potential purchaser has not made a written offer.

In another California case, a savings clause provided that the broker would be entitled to its commission if, within 30 days after the listing expired, the property was sold to any person with whom the broker had “negotiated for its sale.” The broker showed the property to a potential purchaser and spent extensive time marketing the property to the would-be buyer. However, the broker did not obtain an offer and shortly after the listing expired the potential buyer purchased the property directly from the owner. The court gave judgment for the broker, holding that the broker’s activities constituted “negotiations for sale” within the meaning of the savings clause.

These days, technology allows prospective buyers and tenants to access a myriad of information about a property without ever stepping foot on the physical improvements or having any direct communications with the listing broker. It is now possible to digitally preview, tour and evaluate a property without the knowledge of the broker. These new developments make determining a broker’s minimum threshold of dealings with a prospective buyer even more difficult. As a result of these advances, the typical terminology currently used in savings clauses may need to be updated to avoid or reduce future disputes.

 

 

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