If Buyer Defaults, Seller Still May Owe Real Estate Commission

Question: We signed a purchase contract for the sale of our Peoria home, and escrow is scheduled to close next week.  Although we are prepared to close, we have been having second thoughts about moving to a California beach town.  Therefore, we were not exactly unhappy when the buyer telephoned us that he no longer wanted to buy our Peoria home.  In fact, the buyer said that we could even keep his $6,000 earnest money. When we contacted our listing broker to say that we wanted to cancel the transaction, however, our listing broker said that we would still owe her a 5% real estate commission.  How can we owe a 5% real estate commission to our listing broker when we were ready to close the sale of our home, but the buyer backed out?

Answer:  Under most listing agreements a listing broker is entitled to a real estate commission whether or not the transaction closes, if the listing broker produces a ready, willing, and able buyer with no remaining contingencies in the purchase contract, e.g., inspections or financing. Therefore, if your buyer was a ready, willing, and able buyer with no remaining contingencies in the purchase contract, and simply does not want to close the transaction, you may owe the 5% real estate commission to your listing broker. You then would be entitled to sue the buyer for your damages, including the payment of the 5% commission, because of the buyer’s breach of the purchase contract.

Note: Under the listing agreement with your listing broker, your listing broker may also be entitled to a portion of the $6,000 earnest money forfeited by the buyer.