Is the MLS co-broker fee owed if the seller terminates the contract?

QUESTION: I helped a buyer client put an MLS listing under contract. Just before closing, the listing agent called me to say that the seller had decided not to sell the property. The seller has offered to reimburse the buyer her Due Diligence Fee and all of her Due Diligence Costs, and although she is upset, the buyer is likely to accept the seller’s offer rather than seek specific performance of the contract. My question to you is whether I am entitled to the fee that the listing agent offered in MLS? I think I did my job!

ANSWER: When an MLS participant lists a property in MLS, he or she makes a blanket offer of compensation to all other MLS participants. Entitlement to the compensation is determined by the cooperating broker’s performance as the “procuring cause” of the sale or lease. So what exactly does the phrase “procuring cause” mean? According to NAR policy, procuring cause in broker to broker disputes is defined as an “uninterrupted series of causal events which results in the successful transaction.” The phrase “successful transaction” is defined as “a sale that closes or a lease that is executed.” We agree that you did your job, but unfortunately, if the transaction doesn’t close, a cooperating broker in a situation like yours simply does not have a contractual claim to the cooperative compensation offered by the listing firm.

Having said the foregoing, we offer the following additional thoughts. First of all, the listing firm may well be entitled to recover its fee from the seller according to the terms of the Exclusive Right to Sell Listing Agreement (form 101). If the listing firm receives all or part of its fee from the seller, would it then be obligated to pay you the cooperative compensation offered in MLS? It may be argued that since the transaction never closed, you still don’t have a contractual basis to recover the cooperative compensation from the listing agent according to MLS rules. However, your firm may have an “unjust enrichment” claim to the offered compensation, on the theory that it would be unjust to allow the listing firm to retain the entire fee at the expense of your firm, since it was the efforts of your firm in procuring a ready, willing and able buyer that triggered the listing firm’s entitlement to its fee in the first place.

Secondly, your firm may possibly have a claim to your fee against the seller as a so-called third-party beneficiary of the listing agreement. To establish a claim based on the third party beneficiary doctrine, you would have to prove that the listing agreement was valid and enforceable, and that it was entered into for your firm’s direct, and not incidental, benefit. Form 101 specifically authorizes the listing firm to cooperate with and compensate other brokers and specifies the amount of compensation that will be offered. Although your firm is of course not identified by name in the listing agreement, it could be argued that your firm is one of a class of persons for whose benefit the listing contract was made.

The claims described above are novel claims as applied to the facts of your situation and would be handled through the court system rather than the arbitration facilities of an association of REALTORS®. We would strongly recommend that you speak with an attorney before you consider pursuing either of them.

Release Date: 07/19/2018

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