Real Estate Broker Entitled to Commission Even When Sale Fails Through No Fault of the Seller
The Wisconsin Supreme Court recently decided that a real estate broker was entitled to a commission from the seller under a listing contract between the real estate broker and the seller even though the underlying purchase and sale agreement failed to close through no fault of the seller. (Ash Park, LLC v. Alexander & Bishop, Ltd, et. al., 2015 WI 65).
The Case Details
Re/Max Select, LLC solicited a single-party listing contract from Ash Park. The listing contract identified Alexander & Bishop, Ltd as the party Re/Max intended to present to Ash Park. Re/Max presented an offer to purchase on behalf Alexander & Bishop which was accepted by Ash Park. Alexander & Bishop subsequently defaulted on the purchase and sale agreement. Notwithstanding Ash Park obtaining an order for specific performance requiring Alexander & Bishop to purchase the real estate, the circuit court was unable to compel such performance on behalf of Alexander & Bishop as it had no means to obtain the funds necessary to purchase the subject property.
Despite the party presented by Re/Max, Alexander & Bishop, being unable to honor the terms of its contract with Ash Park, Re/Max sued Ash Park for its full commission under the listing contract as though sale had occurred. The basis for such claim on behalf of Re/Max was that the listing contract provided that a commission was due once Ash Park and Alexander & Bishop entered into an “enforceable contract” as provided for by the standard listing contract promulgated by the Wisconsin Department of Safety and Professional Services.
The circuit court initially dismissed Re/Max’s claim for a commission under the theory that the purchase and sale agreement between Ash Park and Alexander & Bishop was not an “enforceable contract” because the court could not compel Alexander & Bishop to comply with its obligations under the contract. Re/Max appealed. Re/Max asserted that the term “enforceable contract” required only that the contract be “legally enforceable” and not necessarily “capable of enforcement”. The Wisconsin Supreme Court agreed. The Wisconsin Supreme Court concluded that the purchase and sale contract between Ash Park and Alexander & Bishop was an “enforceable contract” and required Ash Park to pay a commission under the single-party listing agreement even though Alexander & Bishop lacked the funds to purchase the property and could not be compelled to honor the circuit court’s prior order for specific performance.
Conclusion: Broker’s Commission Earned Once Contract Has Been Entered
The Supreme Court’s decision is the first in Wisconsin where a seller has been responsible for payment of a broker’s fee even though the transaction failed to close through no fault of the seller. The Court’s reasoning was the pre-printed language of the listing agreement. Interestingly, all such listing agreements, which are approved by Wisconsin Department of Safety and Professional Services, have the same language regardless of the type of real estate being sold or leased. In other words, a broker’s commission is earned once the contract has been entered into between a seller and purchaser and all contingencies have been satisfied or waived, regardless of a buyer’s subsequent default. Most would agree it is not the intent of a seller to pay a commission to a broker without selling the seller’s property. From a seller’s perspective, a seller should consult with legal counsel before entering into any listing agreement with a real estate broker. From a real estate broker’s perspective, the right to a commission has been dramatically expanded. However, the broker must consider the future relationship with the seller when deciding whether to pursue a claim for a commission on a failed transaction. Obviously, the seller would not expect to pay a broker commission when the transaction fails to close through no fault of their own.