Conventional wisdom suggests that when you hire a real estate agent to list and sell your property, the agent gets its commission when you have an accepted offer and the deal is completed. The standard Form 200 Ontario Real Estate Association Listing Agreement provides, in Section 2 the terms upon which a commission is payable and provides:
“…the Seller agrees to pay to the Listing Brokerage a commission…if sold…for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this Agreement or such other terms and conditions as the Seller may accept…The Seller further agrees to pay any such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller…is not completed, if such non-completion is owning or attributable to the Seller’s default or neglect…”
In examining the language of the contract, there is a presumption that there has to be an agreement of purchase and sale which has been accepted by the seller.
In a recent decision of the Ontario Superior Court of Justice (T.L. Willaert Realty Ltd. v. Fody (December 12, 2013)), the court upheld the decision of a small claims court award of damages to a real estate agent where the seller never executed an agreement of purchase and sale.
The facts of the Willaert case bear some discussion. The listing agent presented a number of offers to the Seller over the span of two months, which contained gradually increasing prices to the full asking price and with a gradual reduction in conditions so that on the final day of the listing, an offer is made at full listing price. Although the seller had responded and made counter offers to earlier offers from this same purchaser, the seller did not respond to the agent’s presentation of the final offer.
The small claims court determined that the Seller was clearly avoiding and frustrating his agent, not because the offer was non-compliant, but because the Seller had decided not to sell unless he was able to purchase a separate property. The court found that the Seller was not acting in good faith.
When engaging a real estate agent to list and sell your property, understand that you may be liable for the commission even if you never accept an offer to purchase. You should make it very clear what conditions must be satisfied in order to have an offer considered to meet the terms of the listing agreement. You may want to negotiate an amendment to section 2 of Form 200 to provide that the commission is not payable unless you formally accept an offer, even if the offer satisfies all the terms of the Listing Agreement. You may want to add in a provision that the Seller is under no obligation to accept any offer, no matter what the terms of the offer might be and reserve the right to accept or reject any offer in your sole and unfettered discretion.
When you consider that the intention of a listing agreement is to sell a property, you must not lose sight of the fact that you are engaging a real estate professional to assist you in completing a significant and complex transaction for a valuable asset. There is a price to be paid for engaging that professional. But when you start down the road to list your property for sale and then change your mind, while you might have to accept an offer which is otherwise compliant with the terms that you identified, you may still be liable to pay the commission on a sale that might have ensued.