Facts: A real estate broker entered into an exclusive listing agreement with a seller of land. The listing agreement stated any buyer’s broker would be entitled to a fee, upon close of escrow, as a third party beneficiary under the listing, if the buyer’s broker submitted an offer at the listed price “…or on other price or terms acceptable to the seller.” A buyer made an offer at the listed price, which the buyer’s broker submitted to the seller’s broker. The seller countered, raising the purchase price.  Negotiations failed and an agreement was never reached. The buyer’s broker made a demand on the seller for his fee since he submitted a full listing price offer. The seller refused to pay the fee.

Claim: The buyer’s broker claimed he was due a fee as the third party beneficiary provided for in the listing agreement since he submitted an offer for the full price set in the listing agreement.

Counter claim: The seller claimed the buyer’s broker was not entitled to a fee, since the buyer’s offer, while at an amount equal to the listing price, did not satisfy the “other price and terms acceptable” to the seller, thus the offer was never accepted and escrow was never closed.

Holding: A California appeals court held the buyer’s broker was not entitled to a fee since his buyer’s offer was not accepted by the seller, and no purchase agreement was entered into by the seller and buyer, as required to earn a fee. [RealPro, Inc. v. Smith Residual Co., LLC (2012) 138 CA3rd 255]

Editor’s Note: The buyer’s broker assumed he needed only to present a minimum threshold offer (the listed price) on the property. However, a listing price is designed only to initiate negotiations between the seller and potential buyers. This intent is evidenced in the listing agreement, which provides the seller with the right to opt for “other price and terms acceptable” to the seller, rather than being held to the minimum threshold amount set forth in the listing.

In effect, an offer satisfies the listing conditions for payment of a fee only if the seller found the price and terms acceptable, whether or not it met the minimum listing price threshold, and escrow closed. The seller did not find the buyer’s offer based on the full listing terms acceptable, thus the offer did not satisfy the specifications of the listing, so the buyer’s broker received no fee.

Forms — first tuesday Form 102, Seller’s Listing Agreement; first tuesday Form 103, Buyer’s Listing Agreement; first tuesday Form 105, Fee Sharing Agreement; first tuesday Form 273, Broker Fee Addendum