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Legally speaking: The case of the reluctant seller

By Peg Ritenour, OAR Vice President of Legal Services/Administration

The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves a seller who suddenly develops cold feet when an offer is received…

Q: I received a full price cash offer on a property that I have listed. The seller is now having second thoughts about moving and doesn’t want to accept the offer. After I communicated this to the buyer’s agent she responded that the seller is legally required to accept a full price offer and that her buyers plan on suing the seller to force them to sell them the property at the list price. She also indicated that the seller is obligated to pay the listing commission. Is she right? Could the buyer’s agent sue the seller or me for her portion of the commission?

A: The buyer’s agent is right and wrong…

While the seller may owe the listing brokerage a commission, the seller is not required to accept the offer.

When the seller entered into an exclusive right to sell agreement with the listing brokerage, the seller agreed to pay a commission to the listing brokerage if it procured a ready, willing and able buyer on the terms set by the seller. Certainly a full price offer would meet one of the most important terms set by the seller. Assuming the offer to purchase does not contain other terms that are unacceptable to the seller (i.e., seller concessions, a home sale contingency, closing or possession date, etc.), a court would likely find that the listing brokerage performed its duties under the listing contract and would therefore award the brokerage the agreed upon commission.

While the listing brokerage could bring an action against the seller for a commission, the buyer’s agent cannot. First, under Ohio license law only a broker can maintain an action in for a commission. And secondly, any legal action brought the buyer brokerage against the seller would probably fail for lack of standing. That means the buyer broker can’t sue the seller for breach of the listing contract because it was not a party to the listing agreement.

The only type of action that the buyer’s broker could bring would be to file for arbitration against the listing brokerage with the Local Board/Association of REALTORS. This is the appropriate action because it is the listing brokerage (not the seller) that agreed to pay the buyer broker compensation for procuring a purchaser via the MLS. In determining whether the listing broker owes the buyer broker the compensation indicated in the MLS, an arbitration panel would certainly look at whether the listing brokerage was paid a commission by the seller. If the listing broker was not paid, the panel would then consider several factors including whether this was due to the fault of the listing broker, whether it was feasible or financially possible for the listing broker to collect the commission from the seller, how promptly it was communicated to the buyer’s agent that the seller may not pay, etc.

Unfortunately, in many of these situations neither broker is the “bad” guy and instead the REALTORS end up on the short end of the stick because the cost of pursuing a commission against a seller on a typical residential transaction is just too cost prohibitive. The good news is that luckily these situations don’t happen very often.

Tags: legal, Legally Speaking