What this episode adds to the story: Watch what happens when a seller rejects a full asking price offer on substantially the same terms for payment as called for in the seller representation agreement.  

The prior episode in this series covers the broker’s ongoing orchestration of a basket of due diligence activities.

Earning a fee when the seller rejects an offer

Occasionally, during a period of rising real estate prices, a seller broker and their agent locate a buyer who submits an offer at the full asking price on substantially the same terms for payment called for in the seller representation agreement. The offer is reviewed with their seller-client.

The seller rejects the offer despite the fact the offer meets all the terms for earning a fee under the seller representation agreement.

Rejection occurs when the seller:

  • refuses to accept the offer; or
  • counters seeking a higher price or better sales terms.

The seller now believes the property is worth more than the price offered. The seller instructs their agent to prepare a counteroffer at a higher price, which the agent does and the seller signs.

The counteroffer is submitted to the prospective buyer. However, the buyer rejects it and terminates negotiations.

The broker promptly makes a demand on their seller-client for payment of a fee as earned by producing a buyer willing to pay the asking price on terms set in the seller representation agreement. The seller refuses to pay. The seller claims a fee has not been earned since the counteroffer was rejected and a sale of the property did not occur.

Here, the broker earned a fee under either an exclusive or open seller representation agreement, since the broker or one of their agents:

  • located a qualified — able — buyer to purchase the property who signed an offer — ready and willing — on the terms of sale stated in the representation agreement; and
  • submitted a copy of the buyer’s written offer and reviewed it with the seller. [Barnes Osgood (1930) 103 CA 730]

The fact the seller rejected the offer by making a counteroffer the buyer rejected has no effect on the broker’s right to a fee under the representation agreement. The fee was earned on presentation of the buyer’s purchase agreement offer which met the seller’s asking price and terms for payment.

However, before the broker earns a fee for obtaining and submitting a full asking price offer, the broker needs evidence the buyer is financially and legally capable to close escrow on the purchase agreement offer. The prospective buyer making the offer needs to be ready, willing and able to perform for the broker to earn a fee. Specifically, the broker needs evidence the buyer:

  • intended to enter into a binding purchase agreement with the seller by making an offer to buy, called ready;
  • made an offer on substantially the same terms as the terms sought in the seller representation agreement, called willing; and
  • legally and financially qualified to perform — close escrow — on the offer, called able.

Once the seller broker submits a full asking price offer to their seller, signed by a buyer who meets each of the ready, willing and able criteria, the broker has earned their fee.

However, when a buyer offers to purchase the property on terms other than those sought in the seller representation agreement, the offer is treated differently.

To earn a fee, the seller-client needs to accept the buyer’s offer made on terms substantially different from the asking price and terms agreed to in the representation agreement.

Editor’s note – The final episode in this series will cover a fee earned for locating §1031 reinvestment property.