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            Listing or Commission Agreements

When a Commission is Earned

The parties to a listing or commission agreement must be aware
of the difference between when a commission is earned and
when a commission is payable.  A commission is earned when
the broker has satisfied their obligations and is entitled to a
commission, such as when they identify a purchaser who is
ready, willing, and able to purchase the subject property,
however the commission may not be payable until later, such as
when the sale of the property closes.  If a commission has been
earned then is must be paid when payable or when the event
that would have made the commission payable should have
occurred.  Failure of the event that would have made the
commission payable does not negate the fact that the
commission had been previously earned.

It is important to ensure that when the commission is earned is
clearly defined in the listing or commission agreement.  The
concept of when a commission is earned includes not only the
time or event that triggers this obligation to pay the commission
but also any conditions that may be placed upon that obligation.
 
If a listing or commission agreement is silent as to when a
commission is earned then the broker is presumed to have
earned the commission when they bring together a purchaser or
tenant who is ready, willing, and able to consummate the
proposed transaction and the party who wishes to sell or lease
the property.  But the broker and their principal can agree that
the commission will be earned at other points.  For example the
parties can agree that the commission will be earned when the
sale of the real estate actually closes; when the lease for the
real estate is fully executed by both landlord and tenant; when
the broker has effected a sale of the property (which in the
context of a listing or commission agreement means
either the
proposed transaction closes or the broker procures a purchase
and sale agreement or a leasing agreement on terms
acceptable to the principal that is not subject to any
contingencies); or when the broker has procured a buyer,
seller, tenant, or landlord (which in this context means a
purchase and sale agreement or a leasing agreement, that may
have contingencies, has been fully executed).  Because a
commission can be earned at any of these times or by any of
these events or at any other time agreed to by the parties,
explicitly describing in the listing or commission agreement when
the commission will be earned is important.  

But equally important are any conditions that may be placed
upon the obligation to pay the commission.  Any such condition
should be clearly and explicitly described in the listing or
commission agreement and one should be able to definitively
ascertain when and if the condition is satisfied because if such a
condition is not satisfied then the commission is not payable.  

An example of a condition that may apply to a broker earning a
commission for the purchase and sale of real estate is the
condition that the commission will be paid from certain
designated funds, such as the purchase price.  Failure of such
funds to be collected will result in the condition not being
satisfied and the commission will therefore not be earned even if
other provisions of the listing or commission agreement dictate
otherwise.  Similarly if a commission is to be drawn from funds in
excess of a certain amount then the commission being earned is
conditioned on such excess funds actually being raised.  If
sufficient funds are not raised then the condition is not satisfied
and the commission is not earned.


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Law Office of
Craig W. Little, P.A.