Listing Agreements Cover Rights to Commission


Sellers who have listed their property for sale sometimes wish to "get out" of the listing agreement for some reason, e.g., to rent the property, or sell it to someone "by owner," without the participation of their Realtor, or through the services of a different Realtor.

While it may be possible to terminate the listing agreement, sellers who wish to do so for the purpose of avoiding payment of a commission on a transaction with their property face exposure to liability to a claim by their broker for payment of the commission regardless that the broker did not actually close the transaction.

Sell Listing Agreement

Brokers generally use an exclusive right to sell listing agreement created by the California Association of Realtors. Among other things, it provides a broker with the exclusive right to market the property for sale for a specific period of time (e.g., 3 months, 6 months) and receive a commission on any sale which occurs during that period.

The exclusive right to sell listing agreement also provides that a broker has a right to receive a commission following termination of the listing period, for a subsequent period of the same duration, if a transaction is entered into with someone to whom the broker introduced the sellers. This right is conditioned on the broker providing the sellers in writing with information concerning prospective buyers/tenants during the listing period or within a certain period of time after it expires.

If the sellers terminate their agency relationship with their broker before the period of the listing agreement expires, and subsequently list and sell the property through a second broker, but within the period of the original listing, the first broker has a right to be paid a commission on the sale.

The Vasquez Decision

This result was just upheld by the California Court of Appeal for the Second Appellate District (L.A.) in its decision in Century 21 Butler Realty Inc. v. Vasquez.

Mr. and Mrs. Vasquez decided to sell their restaurant and on October 14, 1992 signed a written exclusive right to sell listing agreement with Century 21 Butler to market and sell the property. The listing period terminated on March 10, 1993. It appears from the Court's decision that the Vasquezes were in financial distress and that foreclosure had been commenced.

Thereafter, Judy Hockenberry, the Vasquezes' niece, recommended changing brokers for the stated reason that Century 21 had not performed adequately and foreclosure was imminent. Mr. Vasquez sent his broker a letter dated November 11, 1992, which Hockenberry had written, stating that the listing agreement was "terminated".

On November 16, 1992, Hockenberry met with a second broker, Robert T. Brooks, who agreed to accept a listing after reviewing the terms of the November 11 letter terminating the original listing. Three days later, Hockenberry obtained a written offer to purchase the property, and she provided the offer to Mr. Brooks. In February 1993, the Vasquezes sold the property to that buyer through Mr. Brooks' office.

Century 21 filed suit against the Vasquezes, Hockenberry, Mr. Brooks, his office, and others for money damages arising from breach of the listing agreement and interference with an economic relationship.

Court Rulings

The trial court granted defendants' motion for summary judgment (a written request for a court order granting judgment where there are no material facts in dispute), and Century 21 appealed.

The Court of Appeal reversed. The listing agreement provided in part that the listing broker was entitled to compensation if the property was sold within 210 days after the agreement terminates to anyone with whom the broker had "negotiations" before final termination. To obtain compensation, the owners must receive written notice, within 5 calendar days after the agreement terminates, of the names of prospective transferees which the original broker gathered during the listing period.

The Vasquezes argued on appeal that because they "terminated" the agreement and Century 21 did not provide them with a list of prospective buyers within 5 days, they were not liable for payment of any commission. The Court of Appeal disagreed, reversed the summary judgment and returned the matter to the trial court.

The Court of Appeal stated that the Vasquezes "had the right to end the agency before the agreement expired, but doing so did not eviscerate Century 21's right to compensation. ... Under the agreement, Century 21 earns the compensation stated therein if the listed property is sold during the listing term ... spelled out in the first paragraph of the agreement."

The Court held that the Vasquezes breached the agreement when they refused to pay the commission stated therein to Century 21 upon the sale of the property in February 1993. Century 21 earned its commission because the Vasquezes, through Hockenberry and Brooks, sold the property in February 1993, before the exclusive listing period expired.

According to the Court, "the word 'termination' as used in ... [the listing] agreement refers to the end of its term." In that regard, the Court rejected that Vasquezes' attempts to characterize their withdrawal from their agency relationship with Century 21 before the agreement's expiration date as a "termination".

Summary

The Century 21/Vasquez decision serves as an excellent reminder to sellers that terminating their broker does not necessarily insulate them from liability for payment of a commission. To the contrary, the agreements which sellers sign in connection with marketing and sale of properties are binding and must be understood and performed. If they are not, the sellers who terminate an agency relationship may expose themselves to claims for money damages resulting in litigation.

© BRIGIT S. BARNES & ASSOCIATES, INC.