I've had the privilege of representing a number of Realtors over the years in a wide variety of matters, and one situation that occurs every so often is when a homeowner tries to shut their listing agent out of the deal to avoid paying a commission. In fact, I just successfully wrapped up such a matter earlier this month.
Which is why a brand new case from the North Carolina Court of Appeals caught my eye. Let's start with the lesson from the case first. Just because you give in to a homeowner's request to terminate a listing agreement doesn't mean you can't still recover a commission if they wind up selling it to someone to whom they were introduced during the term of the agreement. I'd also add that you should consider changing up your termination agreements, too. Perhaps making your homeowners state in the termination that they're not currently in negotiations with anyone could help avoid this type of dispute altogether.
But back to the case. Here are the facts.
A Wake County agent (whom we'll refer to as "Plaintiff") acted as the listing agent for a husband and wife ("Homeowners") in the attempted sale of their home. In the Listing Agreement, they agreed to list the home for $1,640,000.
The Listing Agreement contained the standard provision that Plaintiff would earn her commission upon the execution of a contract during the term of the Listing Agreement. The Listing Agreement, in standard fashion, also provided that Plaintiff earned her commission if, within the sixty days after the expiration of the Listing Agreement, the Homeowners entered a contract with someone they had communicated with during the term of the Listing Agreement. Any earned commission was to be paid at the closing.
Less than a month into the listing, potential buyers (a married couple) made an offer, which the Homeowners promptly rejected. In the ensuing weeks, Plaintiff had a number of conversations with the Homeowners and the potential buyers about the home. Unfortunately, the Homeowners later approached Plaintiff about terminating the Listing Agreement, well ahead of when the agreement was supposed to end. The Homeowners said they no longer wished to list their home. Plaintiff promptly sent them a proposed Termination Agreement. The Homeowners signed the Termination Agreement and sent it back.
We can guess where things went from that point.
Unbeknownst to Plaintiff, the Homeowners met sometime thereafter with the potential buyers and even agreed to a tentative sales price. The potential buyers submitted a written offer directly to the Homeowners. Before they sealed the deal by signing the contract, the Homeowners called Plaintiff and asked her if she'd had a chance to sign the Termination Agreement. They made no mention of their dealings with the potential buyers.
Plaintiff signed the Termination Agreement at the Homeowners' request, and the next day they signed the contract with the buyers. The house sold for $1,450,000, and Plaintiff, presumably learning about the whole thing after the closing, filed suit to collect her $63,800 commission.
Here's what happened in court:
The trial court promptly threw the case out. After all, the Termination Agreement, entered into before the actual sales contract, wiped out the Listing Agreement (and its commission provisions) entirely. The sixty-day "savings provision" wouldn't help either, since that provision only kicked in when the Listing Agreement expired. It didn't expire in this case. It was terminated.
But Plaintiff was persistent (as real estate agents are), and she appealed. That's where she made some progress. The Court of Appeals noted that while the parties did kill the Listing Agreement, the agreement during its short life still imposed upon the parties certain obligations. One of those obligations was the age-old "duty of good faith and fair dealing." This is an obligation that exists in every single contract. Said the Court, "it is a basic principle of contract law that a party who enters into an enforceable contract is required to act in good faith and to make reasonable efforts to perform his obligations under the agreement."
During the life of the Listing Agreement, the Homeowners had a duty to act in good faith. The Court of Appeals then rattled off a number of facts from which a jury might find that they violated such duty. These facts included:
- Plaintiff presented an offer from the buyers to the Homeowners, which would involve the paying of a commission to Plaintiff;
- The Homeowners rejected the offer and then informed Plaintiff that they no longer wanted to list their house for sale;
- The Homeowners made an offer to Plaintiff to terminate the Listing Agreement;
- The Homeowners began negotiating directly with the buyers;
- The Homeowners received a written offer in hand from the buyers that they were prepared to sign and which would not involve the paying of any real estate commission;
- With that offer in hand, the Homeowners contacted Plaintiff and asked her to accept their offer to terminate the Listing Agreement;
- The Homeowners did so without disclosing to Plaintiff that they were about to accept the buyers' offer; and
- The Homeowners accepted the buyers' offer, thus forming a contract for sale, almost immediately after receiving the fully executed Termination Agreement from Plaintiff.
The Court of Appeals then sent the case back to the trial court, and it may wind up before a jury at some point, unless the matter settles before then.
A copy of the Court of Appeals' opinion (Blondell v. Ahmed) can be found HERE.