Must I Pay Commission if the Sale is Canceled?

Question: After my husband retired we signed a listing agreement with a real estate broker to sell our Tempe home because we wanted to move to a condominium in east Mesa. Our real estate broker quickly located a buyer, and we executed a purchase contract to sell our Tempe home to that buyer. Our children have been very unhappy about us selling our Tempe home because they were all born in this home. We believe now that we acted too quickly in signing the purchase contract. We contacted our buyer, and our buyer agreed to cancel the purchase contract if we would pay $900 to reimburse him for the appraisal fee and the home inspection fee. When we contacted our listing broker to cancel the purchase contract, our listing broker said that, although we could cancel the purchase contract, we would still owe her the full real estate commission under the listing agreement. I thought we only owed a real estate commission if the sale of our Tempe home actually closed. Do we owe our listing broker a real estate commission?

Answer: Probably. Under the standard residential listing agreement a listing broker has earned a real estate commission if a ready, willing, and able buyer is produced, i.e., there are no material contingencies remaining such as a home inspection or buyer financing. The buyer does not have to close on the purchase of the home for the listing broker to earn a commission. Therefore, even though you and the buyer agreed to cancel the transaction, you probably still owe a real estate commission to your listing broker.

Note: Most listing brokers do not want commission disputes with their clients, and you should at least be able to negotiate a significant reduction in the commission owed. Furthermore, if you informally agree with your listing broker to list your Tempe home with them sometime in the future, your real estate broker may waive any real estate commission now.