Facts: P, a licensed real estate broker, entered into a listing agreement with D’s, who
desired to sell certain property. D’s promised to pay P a 7% commission for his services,
and D listed their property at 349k. P presented D with a potential buyer who offered D
251k for the property. D accepted the offer and entered into a purchase agreement,
which, among other things, provided that in the event the buyer failed to complete the
sale, 5k in earnest money was to be considered liquidated damages. The agreement also
provided that P would get a commission of 17.6k. After signing the purchase agreement,
but before the sale was consummated, the buyer refused to honor the purchase agreement
because he was financially unable to do so. D’s property was not sold, but P still
demanded his commission. This placed D in the position where they were entitled to
only 5k in damages from the buyer, but owed P over 17k in commission. Thus Ds would
lose over 12k and still be in the same position as they were in before P presented the
buyer. Both parties moved for summary judgment, and the court granted D’s motion
Issue: Can a purchaser who signs a purchase agreement and later backs out because of
financial inability to consummate the purchase be said to be a purchaser who is ready,
willing, and able to buy?
Holding: Affirmed. It was not the intent of D when they signed the listing agreement
and the purchase agreement to be bound to pay a commission if the sale was never
consummated
Rationale:
- P’s contention is that a real estate broker in entitled to his commission under the
purchase agreement, at the moment the seller and the buyer, procured by the
broker, enter into a purchase agreement, regardless of whether the sale is ever
consummated. This is in direct opposition to the consistent holding that a broker
has not earned his commission unless he produces a buyer who is ready, willing,
and able to by on terms satisfactory to the seller.
- A buyer who is financially unable to buy cannot be “ready” or “able.” Looking to
the intent of the parties in a common listing agreement, it is clear that sellers of
real estate expect to pay a commission only if the sale is completed. Almost
without exception, the only source capable of paying the commission is the
proceeds from the sale of the property. Any other holding would throw such
agreements for commission on sales of real property open to confusion and
possible abuse
- The position advocated by P would place an almost impossible burden on the
seller. The broker is employed because he is an expert. If P’s rule were placed in
effect, it would place the difficult task of determining the financial ability of the
buyer on the seller, and also require that such an investigation be made prior to
the time that he entered into the purchase agreement. It would place a burden on
the seller which was the entire point of paying the expensive commission to the
broker.
- The court further points out that in many real estate transactions, distant parties
never meet face-to-face. To require the seller to check the financial status of a
potential buyer who might live thousands of miles away would be totally
unrealistic.
- A broker earns his commission when: a) he produces a purchaser ready, willing
and able to buy on the terms fixed by the owner, b) the purchaser enters into a
binding contract with the owner to do so, and c) the purchaser completes the
transaction by closing the title in accordance with the provisions of the contract