Commissions on Unaccepted Offers ~ Yes or No?
Here’s an interesting question: is a commission payable on an unaccepted offer?
And, if a buyer offers full price, does the seller have to sell?
These two questions often go hand in hand. Whether a property is listed or not listed, and if indeed it is listed either exclusively or on MLS, the seller never has to accept an Offer. So, even if he gave out a number previously, he can change his mind. There’s no deal and no obligation until there is an actual agreement of purchase and sale.
The same is not true when it comes to commissions. These can be real risks!
The Listing Agreement
The trigger for payment of a commission in a Listing Agreement is the Offer, not the Agreement. So, a full price Offer which meets all the terms and conditions proposed in the listing generates the obligation to pay the commission. The Offer can be rejected but the agreement to pay the commission is still there.
This is the case, whether the listing is exclusive or MLS.
There are certain rules written by boards to assist brokerages with MLS obligations.
The MLS rules could certainly be written better than they are. Under Rule 710 you do need an accepted offer to proceed to arbitration for adjudication and payment.
Under Rule 760, the accepted offer is not a requirement. The co-operating broker may sue in the name of the Listing agent. This is due to the fact that otherwise they would not have a claim. If they did, they could go under Rule 710. Here, they may take an assignment of the “debt represented by the unpaid commission” in accordance with the listing agreement. This, of course, gets us into the unaccepted offer issue.
Now, going a little further, there is no restriction on multiple offers. So, there is nothing at all in the listing agreement which restricts the obligation to the best offer in a bidding war. You will appreciate that would be absurd! And, the Courts will not interpret a contract to create an absurdity. There are no Court cases on point, to my knowledge.
I had written about the absurdity of this issue (bidding wars) 5 years ago. There haven’t been any changes, but changes do in fact take a long time, I suppose.
While there is the risk of exposure to commissions in multiple offer situations, in my view that would be limited to one and only one commission.
Brian Madigan LL.B., Broker