California agents may want to read this when taking a listing

No Compensation for Full-Price Offer Under Non-C.A.R. Listing Agreement

A buyer’s broker who presented an all-cash full price offer was unable to recover any compensation as a third-party beneficiary of the listing agreement. Although this case does not involve a C.A.R. listing agreement, our Standard Forms Committee is nevertheless reviewing our commission language in light of this decision.

In this case, the sellers entered into a listing agreement to sell 46.8 acres of vacant land. The listing agreement, which was not a C.A.R. form, stated that the listing price was “$17 million cash or for such other price and terms acceptable to” the sellers. It also stated that a cooperating broker could, as a third party beneficiary, enforce the terms of the listing agreement against the sellers.

RealPro represented a buyer for this property. In November 2005, RealPro submitted an all-cash offer of $17 million for a ready, willing, and able buyer. The listing agent indicated that the terms of the buyer’s offer were acceptable to the sellers, except that the listing price was being increased to $19.5 million. The parties did not enter into a purchase agreement.  RealPro nevertheless sued the sellers for its $340,000 commission as a third party beneficiary of the listing agreement.

The court denied the commission. RealPro argued it was entitled to its commission because the word “or” separated $17 million from “such other price and terms acceptable to” the sellers. The court, however, interpreted “or” to include “such other price.” Stated in another way, the court interpreted the listing to be for $17 million or such other price, plus terms acceptable to the sellers. According to the court’s reasoning, requiring a payment of commission upon receipt of a full price offer had many possible results that could not have been intended by the seller, such as an obligation to pay multiple commissions in a multiple offer situation regardless of the terms of the offers, or an obligation to pay a commission if the buyer backed out.

The broker in this case is seeking a petition for review before the California Supreme Court.

Source: RealPro, Inc. v. Smith Residual Company, LLC (2012) 203 Cal.App.4th 1215.

From C.A.R. Realegal

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