With the uptick in real estate activity it is helpful to recap the two primary ways that a licensed sales agent is entitled to a commission from the sale of real estate.
Contract
Most agents have their clients execute a listing agreement, which primarily comes in two forms and entitles the agent to a commission in different contexts.
Generally, the exclusive right to sell agreement entitles an agent to a commission irrespective of who sells the property. For instance, an owner who executes an exclusive right to sell agreement and consummates a sale to a buyer without the aid of the agent is still obligated to pay the commission. Intuitively, an owner might think that once the contract expires without the agent procuring a buyer, the agent’s right to a commission is extinguished. However, most exclusive right to sell agreements contain “protection period” provisions that extend the agent’s right to a commission for a certain number of months after expiration of the agreement. These provisions trigger the agent’s right to a commission if a sale is consummated with a buyer whom the agent or seller communicated with (regarding the property) while the listing agreement was in effect.
The second type of agreement is the exclusive agency agreement. Contrary to the exclusive right to sell agreement, this contract simply means the owner will not enlist another agent to sell the property. These agreements normally do not entitle the agent to a commission unless the agent procures a ready, willing and able buyer. Thus, an owner who consummates a sale without the agent’s aid is not obligated to pay the agent a commission.
Doctrine of Procuring Cause
In the absence of an agreement, agents may rely on the procuring cause doctrine, which Florida courts recognize when the agent brings the parties together and the sale is consummated from continuous negotiations inaugurated by the agent. Invariably, the doctrine is a fact intensive inquiry into the circumstances of the sale. A court will look to various factors to determine whether the doctrine applies:
- Is there any agreement between the parties? If so, is it in writing?
- An exclusive right to sell agreement is normally dispositive of an agent’s right to commission. However, merely titling the agreement with that caption is insufficient; the agreement must contain language delineating the agent’s right to a commission regardless of who consummates the sale.
- In situations where the agreement does not contain a “protection period,” the length of time between the expiration of the agreement and the sale.
- A break in continuity of events leading to the sale indicating that the agent’s involvement may be questionable.
- A breach by the agent of the listing agreement.
Bottom line: Disputes regarding real estate commissions can be avoided by a well drafted listing agreement. Realtors and property owners would be well served to elicit guidance from a real estate attorney to review listing agreements to ensure they align with the parties’ intentions.