Daily Development for
Friday, February 6, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

BROKERS; COMMISSION: Where agreements provide that a commission is owed only if the property is "sold or exchanged" within ninety days from the effective date of the broker's withdrawal, and the contract defines the term "sale" mean any exchange to which the property owners consent in writing, owners do not owe a commission if they do not sign a written sale agreement during the ninety day term, even if they do agree to sell and later complete the sale.

RE/MAX R.E. Professionals, Inc. v. Armstrong, 680 N.E. 2d 520 (Ill. App. 4 Dist. 1997).

Brokers entered into a ninety day listing agreement with owners. Two weeks later, owners withdrew, on the grounds that they did not wish to sell their property. A few days after that, sellers showed the property to buyers. The parties reached a verbal agreement as to all the terms of the sale within the 90 day withdrawal period; but they never entered into a written contract. They ultimately closed (outside of the 90 day period) without entering into a written agreement.

Under the withdrawal contract, the commission was owed only if the property was "sold or exchanged" within 90 days from the effective date of the withdrawal agreement. Furthermore, the listing agreement defined the term "sale" to be any exchange in which the property owners consent in writing.

The trial court granted summary judgment for the brokers.

On appeal: Held, Reversed: The appeals court concluded that the property had been "sold" within the 90 day period as the term is generally used, but that it had not been "sold" as that term was defined in the contracts for the purposes of entitling the broker to a commission. Although the requirement that the sale be in writing appeared in the listing agreement, and not in the separate withdrawal agreement, the court pointed out that the two agreements ought to be read together on this point, so that the term "sold" in the withdrawal agreement necessarily is modified by listing agreement identying what type of sale triggered a commission:

"We note in passing that, on appeal, RE/MAX argues as if the withdrawal agreement states the following: "If the property is sold or exchanged or a verbal or written agreement for the sale of the property is entered into within 90 days from the effective date of the withdrawal agreement, the seller agrees to pay RE/MAX a commission in the amount provided in the listing agreement." Clearly, that is not what the terms of the withdrawal agreement provide. If that is what RE/MAX wants the withdrawal agreement to provide, then it should write the agreement so that it states exactly that."

The appeals court further held that the brokerage agreement was an adhesion contract and, were it necessary, it would have construed any ambiguity against the broker. But it basically found no ambiguity. The reference to "sold," in the court's view, necessarily and unequivocally meant "sold by written agreement."

One judge specially concurred and found that there was no liability for commission because the property was not shown to the Buyer by the broker during the term of the listing agreement and withdrawal agreement. If the contract could be construed otherwise (this one quite clearly could be), the this judge would have viewed that as "overreaching" on the part of the broker. This judge, however, would have found that a written agreement was not necessary if the broker could show that the parties had fraudulent intent in entering into a verbal agreement in order to avoid a commission.

Comment 1: Brokers should be responsible to draft clear and fair agreements in residential listing agreements and related agreements. They generally do not encourage (and sometimes discourage) the owner's consulting an attorney in connection with such contracts, and rarely change them significantly. It is appropriate that a rigorous standard be applied in construing those agreements.

Customs regarding the actual sale agreements vary from state to state, but where the sale agreement also is not reviewed by counsel and contains language protecting the broker's interest, that language should be subject to the same harsh scrutiny.

That having been said, the editor concludes that, in general, a clear verbal agreement to sell property, which agreement in fact is carried out, ought to fall outside the meaning of "sold" within the withdrawal agreement here. Such a construction basically invites fraud on the part of the seller. Here the broker's choice to limit its commission rights to written sales in the listing agreement creates a special complication., but the court could have construed in favor of the broker in this special case.

Comment 2: As the concurrence points out, the fact that the broker did not show the property to the buyer and was not a "procuring cause" may have some relevance, particularly in the construction of a withdrawal agreement that takes effect after only a short listing period.

But the editor believes that brokers should be permitted to draft contracts that do provide for an absolute right to a commission if property is sold during a "tail" period following expiration or withdrawal. The editor would like to see such language highlighted and explained. It is a severe result, and may sometimes operate as a "gotcha;" but on the other hand many brokers, following execution of an exclusive listing agreement, enter into relatively extensive and expensive marketing efforts that display the property to the market. There is no way to be sure that a potential buyer hasn't been notified of the property's availability through that process, even if the buyer first sees the property during the "tail." In any event the broker has the marketing cost to recover, and a reasonably short "tail" - 90 days is a stretch for these purposes - 60 days would be better - provides protection for the broker. (The editor would condone a longer "tail" if the commission were payable only upon "procured" sales - especially if a list of "broker's contact" names is used.)

Unfortunately, we have the difficulty that consumer protective regulation of this sort is most appropriately the function of the legislature, and not courts. But brokerage organizations are quite powerful lobbyists, and consumer protection in this area, if it occurs, will come only at a very high price in terms of other protections for brokers' interests.

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