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No Commissions Owed Without Proper Documents

Question: For several years I have owned a lot in the Wickenburg area that I inherited from my parents. I have been trying to sell this lot since last summer. One of my neighbors is a real estate broker, and he emailed me last week to ask if I would pay him a 5% commission if he found a buyer that would pay $300,000 for this lot. I emailed him back agreeing to his proposal. The next day this real estate broker emailed me a cash offer from a buyer for $300,000, with $25,000 earnest money. In the offer the buyer also wanted a survey and a soils test. I rejected this $300,000 cash offer. The real estate broker says that I now owe him a 5% commission because our emails were a written listing agreement and he produced a ready, willing, and able buyer for the full listing price of $300,000. Do I owe this real estate broker a 5% commission?

Answer: No. First, your emails with the real estate broker were not a valid listing agreement, e.g., a listing agreement must be signed by the seller and must have a definite inception and expiration date. Second, even if these emails were a valid listing agreement, a 5% commission would only be owed if the listing broker produced a ready, willing, and able buyer for the list price of $300,000 with no material contingencies. A survey and a soils test are material contingencies.

Note: The purchase contracts in most commercial transactions, e.g., the sale of an office building, generally provide for payment of any brokerage commissions in the purchase contract, not in a separate listing agreement. These purchase contracts also generally provide that no brokerage commissions will be paid unless the commercial transaction closes.

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