Can an Arizona Real Estate Listing Broker be Liable for Two Co-Broke Commissions?
Here is an interesting Arizona real estate law scenario: A seller signs a listing agreement with a list price of $200,000. The listing broker places this $200,000 listing in the Multiple Listing Service ("MLS"). The next morning the listing broker receives, at approximately the same time, cash offers for the $200,000.00 list price from two wealthy buyers. Neither offer has any contingencies, such as for financing or a home inspection. The seller decides not to accept either offer. Both buyers and their agents are outraged.
The first question is easy: Does a seller have to accept a full-price cash offer with no contingencies? The answer is no. The advertising of home for sale at a certain price in the MLS, in a newspaper, or by any other form of advertising is simply an offer by the seller for a buyer to make an offer. A seller is never required to accept an offer from a buyer, even if the offer is at or more than the list price. Under the standard listing agreement, however, if the seller rejects both offers, the seller will be in breach of the listing agreement and obligated to pay the listing agent the commission called for in the listing agreement.
The second question is more difficult: Does the listing broker owe a co-broke commission to either or both of the buyers' agents? Under MLS rules a listing broker generally owes a co-broke commission to any MLS member who produces a ready, willing, and able buyer at the list price (or at a price agreed to by the seller). A buyer is ready, willing, and able if the buyer can perform under the contract and there are no material contingencies. Therefore, if the two wealthy buyers could both perform under their respective contracts, and if there are no contingencies in their contracts, both buyers' agents should be entitled to a co-broke commission from the listing broker, even if the listing broker has to pay twice the expected co-broke commission. (As stated above, in this situation the listing broker, in turn, has a claim against the seller for the commission called for in the listing agreement.)
How often is a listing broker obligated to pay two co-broke commissions? Extremely infrequently. The reason is that rarely does an offer, even a full-price offer, not have a material contingency. The Arizona courts have ruled that a financing contingency is a material contingency. A home inspection is probably a material contingency. One Arizona court, however, has ruled without significant discussion that a termite inspection is not a material contingency. Inasmuch as many buyers cancel based on a termite inspection, however, the better reasoning would be that a termite inspection is a material contingency. Even in those situations where two co-broke commissions are owed, however, a settlement is usually reached between the two brokerage firms.
Is there a problem? In my opinion, "If it ain't broke, don't fix it." The MLS system is so successful because buyers' agents know that, if a ready, willing, and able buyer is produced, at the list price (or at a price agreed to by the seller), the buyer's agent will receive a commission, even if the transaction does not close.
The first question is easy: Does a seller have to accept a full-price cash offer with no contingencies? The answer is no. The advertising of home for sale at a certain price in the MLS, in a newspaper, or by any other form of advertising is simply an offer by the seller for a buyer to make an offer. A seller is never required to accept an offer from a buyer, even if the offer is at or more than the list price. Under the standard listing agreement, however, if the seller rejects both offers, the seller will be in breach of the listing agreement and obligated to pay the listing agent the commission called for in the listing agreement.
The second question is more difficult: Does the listing broker owe a co-broke commission to either or both of the buyers' agents? Under MLS rules a listing broker generally owes a co-broke commission to any MLS member who produces a ready, willing, and able buyer at the list price (or at a price agreed to by the seller). A buyer is ready, willing, and able if the buyer can perform under the contract and there are no material contingencies. Therefore, if the two wealthy buyers could both perform under their respective contracts, and if there are no contingencies in their contracts, both buyers' agents should be entitled to a co-broke commission from the listing broker, even if the listing broker has to pay twice the expected co-broke commission. (As stated above, in this situation the listing broker, in turn, has a claim against the seller for the commission called for in the listing agreement.)
How often is a listing broker obligated to pay two co-broke commissions? Extremely infrequently. The reason is that rarely does an offer, even a full-price offer, not have a material contingency. The Arizona courts have ruled that a financing contingency is a material contingency. A home inspection is probably a material contingency. One Arizona court, however, has ruled without significant discussion that a termite inspection is not a material contingency. Inasmuch as many buyers cancel based on a termite inspection, however, the better reasoning would be that a termite inspection is a material contingency. Even in those situations where two co-broke commissions are owed, however, a settlement is usually reached between the two brokerage firms.
Is there a problem? In my opinion, "If it ain't broke, don't fix it." The MLS system is so successful because buyers' agents know that, if a ready, willing, and able buyer is produced, at the list price (or at a price agreed to by the seller), the buyer's agent will receive a commission, even if the transaction does not close.