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One man’s $50,000 real estate commission lesson

When you sign an agreement with a real estate brokerage to sell your home, you are responsible to pay commission if you make a deal with someone who was introduced to your home during the listing period. If you try and make a private deal to avoid paying commission, you are likely to get burned.

Here’s why:

Seller Mr. Kim signed a listing agreement with Peggy Laidlaw, an agent with Sutton Group All Pro Realty, for the sale of his home in Fenelon Falls, Ontario, in March of 2012, with an asking price of $990,000. The Agreement was signed on March 21, 2012 and had an expiry date of October 31, 2012. The commission payable was five per cent plus HST.

Every listing agreement also contains a holdover clause. This says that if the seller signs a deal with someone who was introduced to the property during the listing, even up to 90 days after the listing expires, the seller still owes commission, unless they sign a new listing agreement with another brokerage firm and pays them instead.

Mr. Kim called Ms. Laidlaw in the middle of October of 2012, stating that he had buyers who were interested in his home. Laidlaw attended and showed the potential buyers the property on October 17, 2012. Mr. Kim told Laidlaw that these were his buyers and he would not be paying commission.

Laidlaw reminded him that her listing did not expire until October 31, 2012, and that she expected to be paid if he signed a deal with these buyers. Laidlaw agreed to reduce her commission to three per cent as a compromise.

Mr. Kim later signed a deal privately with the buyers on November 1, 2012 for $895,000 and refused to pay commission. Sutton sued for the full amount of the commission, plus HST.

Mr. Kim later said in court that he thought the listing actually expired at the end of September, 2012, that Laidlaw never gave him a copy of the listing, and that he started advertising the home himself on Kijiji in October, 2012. He also pointed out that even though the listing was for a period of more than six months, his agent did not have him initial this term on the listing form, which is a requirement under the agent’s code of ethics. He also said that Laidlaw did not explain the holdover clause to him so he did not understand that he might have to pay commission.

The buyer later said in court that he only learned the home was for sale through Mr. Kim’s ad on Kijiji, not through any advertising done by Laidlaw or her company. He also said in court that he first saw the property in 2011 and was shown around by a tenant who lived there, after he saw a for sale sign near the property.

Laidlaw told the court that as this was the fourth home that she had sold for Mr. Kim, he was fully aware of the terms of the listing agreement, including the holdover clause. She also had emailed him a copy of the listing agreement before he signed anything with the buyer.

The case was decided by Judge Graeme Mew on February 26, 2014 in the Ontario Supreme Court of Justice. Judge Mew decided that even though the listing agreement may not have been signed and initialled properly, it was binding on Mr. Kim, even if he carelessly did not read all of the terms. It was clear that he preferred the evidence of Ms. Laidlaw when he wrote:

On an assessment of the evidence, the defendant (Mr. Kim) knew full well what the term of the Agreement was. His evidence to the contrary should be rejected because it is not consistent with either his own actions at the time or the email traffic between the defendant and Ms. Laidlaw in which he failed (until after his transactions with the buyers had been effected) to refute Ms. Laidlaw’s assertions that the listing period expired at the end of October and that a commission would be payable in respect of a sale of the Property to the buyers.

Judge Mew ordered Mr. Kim to pay the full commission of $44,750 plus HST of $5,817.50 for a total of $50,567.50.

The case is interesting because the judge noted that even though the listing agreement was for greater than six months, the failure to have the time period clause initialled should not render the listing agreement invalid. Still, the lesson to all real estate agents is to make sure to be careful to explain all clauses in the listing agreement to sellers, have them initial all key clauses and leave them with a copy of the agreement after they sign it.

By Mark Weisleder

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