Full price offer does not invoke offering real estate broker's contractual right to commission

March 19, 2012
By Justice Steven Vartabedian (Ret.) on March 19, 2012 6:00 AM |

Real Estate.jpgThere are times when real estate brokers will claim entitlement to a commission, even though the sale of the real property in question has not been completed. One such case is presented in RealPro, Inc. v. Smith Residual Company LLC (filed February 28, 201) 2012 DJDAR 2655.

Defendant listed its vacant land for sale with its listing broker on the following terms: $17 million cash or such other price and terms acceptable to defendant and additional standard terms; a cooperative broker may enforce the listing agreement as a third party beneficiary (4% total commission). Within the listing period, plaintiff broker submitted to the listing broker a written offer to purchase the property for the full price of $17 million, all cash. About one month later, defendant responded with a counteroffer of an increased listing price of $19.5 million. The counteroffer was not accepted. Plaintiff eventually demanded its 2 percent brokerage fee and sued defendant for refusing to pay.

In Riverside Superior Court proceedings, defendant demurred on numerous grounds including condition precedent: that the listing price was alternatively such other price and terms acceptable to owner and escrow must close prior to payment of any commission. The trial court sustained the demurrer without leave to amend. The Court of Appeal, 4th Appellate District, Division Two, affirmed, concluding that the allegations of plaintiff's action established as a matter of law that there was no enforceable written contract entitling plaintiff to a commission.

Notably absent from the listing agreement, stated the appellate court, is language that allows for payment of any commission simply upon receipt of a full price offer. Plaintiff argued that it earned its commission as a third party beneficiary of the listing agreement when it was the first broker to procure a full price cash offer that met all other terms coming from a willing and able buyer. The court disagreed: the $17 million price was merely an invitation to submit offers. The price was to be "17 million or such other price and terms as are acceptable to Seller," giving defendant the option to accept the $17 million offer.

Especially in a market of increasing land values, it is easy to understand that a property may bring offers exceeding the listing price, and under such circumstances the typical listing agreement does not require a seller to take the first offer of at least the listing price. Otherwise, a seller could be responsible for multiple commissions merely because it is selling desirable property at a reasonable listing price. Of course the situation may be different if a broker seeking a commission has a consummated agreement with the seller and the seller then backs out.