What this episode depicts: See how a fee has been earned and is owed to the seller broker, regardless of who produces a buyer or a tenant during the representation period or when the transaction closes, under an exclusive representation agreement.
The prior episode in this series covers the specific contents of the seller representation agreement.
The exclusive aspect of the representation
A broker or their agent solicits a seller of real estate to employ the broker for their services. The broker and the seller enter into an exclusive seller representation agreement authorizing the broker to market and sell the property.
The representation agreement contains broker fee provisions, obligating the seller-client to pay the broker a fee earned on a sale, exchange, option or lease of the property during the representation period.
The fee is earned whether the transaction results from the efforts of the broker, their agents, or others including the seller-client. [Carlsen v. Zane (1968) 261 CA2d 399]
Consider a broker employed by a seller-client under an exclusive representation agreement to market and sell their property. The broker and their agent diligently investigate and market the property to locate a buyer.
However, after several weeks of marketing, they have not located a qualified buyer willing to make an offer to buy.
Before the representation period expires and independent of the seller broker, the seller-client enters into a purchase agreement — or an exchange, option or lease of the property — with an investor located by the seller or a different broker.
Later, after the representation agreement expires without the seller broker locating a willing buyer, the seller-client opens a sales escrow with the investor. Escrow closes and the investor takes title.
On discovery of the sale, the seller broker demands a fee from the seller-client.
The seller-client claims their broker did not earn a fee, since the:
- seller broker did not procure the buyer;
- seller broker did not negotiate and close a sales escrow; and
- sale closed after the representation period expired.
Here, the seller representation agreement entered into contains a broker fee provision with an exclusive representation clause.
The exclusive aspect of the representation obligates the seller-client to pay the seller broker a fee as earned when the seller-client enters into negotiations, directly or through others, for a sale, exchange, option or lease of the property during the representation period.
The fee has been earned and is owed to the broker regardless of who produces the buyer or a tenant during the representation period, or when the transaction closes. [See RPI Form 102 §3.1(a)]
Critical for a seller broker to earn a fee under an exclusive representation agreement is the performance by the broker and their agents in the exercise of due diligence to market the property and locate a buyer.
On entering into an employment under an exclusive seller representation agreement, the broker becomes obligated to diligently:
- gather data on the property conditions;
- market the property to locate buyers; and
- negotiate with prospective buyers to sell the property.
The seller broker employed under an exclusive seller representation agreement does not earn a fee when the:
- broker and their agents fail to faithfully perform their due diligence obligations owed to the seller-client; and
- seller-client cancels the representation before a buyer is located.
Editor’s note – The next episode in this series dramatizes the flip side of the coin – a seller broker’s lack of sufficient due diligence activities.
