The way that brokers are paid are usually spelled out in the commission agreement. Sometime the formula changes, but the terms and conditions are usually kept the same. Because of this, standard terms and conditions of commission agreements are often ignored by brokers and owners once the agreement is signed. Since the broker’s income is tied to the terms of those agreements, it is vital that all parties involved pay close attention to detail.
Tough lessons can be learned after lawsuits that show the importance of paying close attention to commission agreements.
A building owner in Detroit was forced to pay a commission because the original agreement did not contain an expiration or termination date. The building owner argued that there are a number of key terms understood and agreed to prior to signing the agreement that were not contained in the final written agreement. The judge overruled this argument. Why? He believed that the contract was written clearly.
Judges and juries are not real estate professionals. The term “procuring cause” may have a standard definition in the real estate business, but mean nothing to a juror. All parties involved must make sure the language is clear. A judge or jury will not rewrite a contract to save either party from a bad business decision.
It is never a good idea to simply file away your contract, even if is has successfully been negotiated. Either party cannot claim they forgot about the agreement.
What to do?
The lesson here is to carefully note important terms and conditions, especially those that relate to performance, compensation, and termination.
Legal disputes are not unique to any location. Judges and juries nationwide are showing resistance to insert terms into commission contracts or allow parties to ignore the terms of a contract. Recently, there have been an increase in the number of disputes. Some have settled out of court, yet a fair number have gone to litigation. This can be reversed through the efforts of brokers and owners who invest more time and effort putting together agreements and abiding by them. This is the best method of prevention.
Good luck to you, Dwan.