Posts Tagged ‘property’

When trying to sell a home, it is important to understand the relationship between the seller, the buyer, and the broker. The seller typically enters into a contract with the broker, which gives the broker some type of agency, or capacity, to act on behalf of the seller. Under this contract, the seller becomes the principle, or the individual who is represented by the agent. The most common contract that a broker will present to a seller is called an exclusive right to sell listing. Under this contract, the seller agrees to pay the broker a commission regardless of who sells the home.

Some sellers may instead seek a broker who offers an exclusive agency listing. Under an exclusive agency, listing the broker is the sole agent acting on behalf of the principle and is entitled to commission. However, if the principle sells their property themselves, no commission is owed. The event leading to the sale of the property is called the procuring cause. In the case of an exclusive agency listing, the procuring cause would determine whether commission is owed.

If a friend or relative of the principle bought the property listed based solely on the principle’s word of mouth then the word of mouth would be the procuring cause and no commission is owed. Under anyone of these listings, a fiduciary relationship is created between the broker and seller. A fiduciary relationship means one based on trust.

Brokers present contracts to protect their right to commission. In order to be legal, a contract must have five elements; offer, acceptance, consideration, capacity, and legality. In regards to an offer, an offer must be made. This means that the offer is voluntary and extends between the offeror and offoree. Acceptance as an element of a contract would mean that both parties sign the contract and acknowledge they will agree to the terms of the contract. Consideration is a term that means both parties had an opportunity to negotiate the contract to suit their needs.

Capacity, as an element of a contract, means that both parties have the ability to enter into the contract. This means there are of clear and sound mind and in many cases would mean both parties are legal adults. Lastly, legality as an element of a contract means that the subject matter of the contract must be legal. If an element of the contract is illegal, such as leasing a residential property for a commercial use, the contract is null in void.

The contract entered into by the seller and the broker often includes several clauses intended to protect both parties. One of the more common clauses is the liquidated damages clause. There is often a compensatory clause, which extensively states the amount of compensation either party is entitled to in the event of a breach of contract. The broker protection clause states that if a buyer makes an offer within a reasonable amount of time after the contract has expired, the broker is still entitled to commission. This is done because the broker is still the procuring cause and does not extend to all contracts.

The liquidated damages clause simply states what will happen in the event of a breach of contract. However, there are several possible outcomes. Court costs can be expensive so many contracts include alternative dispute resolution as part of the liquidated damages clause. These resolutions include arbitration and mediation. Arbitration occurs when a third party renders a decision after hearing the dispute and may be binding or nonbinding. Mediation does not render a decision, but brings both parties together and seeks to find middle ground.