Legal FAQs for REALTORS®
— Contracts and Forms
Terminating Contracts and Earnest-Money Disputes
My client received a full-price offer on a property I listed for him after signing a Residential Real Estate Listing Agreement Exclusive Right to Sell (TAR 1101), but he now states he is no longer interested in selling his property and refuses to accept the offer. I believe that I still deserve my commission because I fulfilled my obligation under the listing agreement by bringing him a suitable buyer. Am I still entitled to receive my commission? (Updated Feb. 20, 2015)
Yes. Paragraph 5 of the TAR Listing Agreement explains that a seller will pay the broker either a percentage of the sales price or a set fee when the compensation is earned and payable. This paragraph also lists the circumstances when compensation is deemed “earned” and “payable.”
In this situation, you could argue that the compensation was earned when you procured a buyer who was ready, willing, and able to buy the property at the listing price, and the compensation was payable when the seller refused to sell the property after your compensation had been earned. Alternatively, you could argue that the seller’s refusal to sell the property was a breach of the TAR Listing Agreement, and that compensation was earned and payable as a result of that breach.
If negotiations with your client fail and your client is not willing to pay your compensation, you may need to contact an attorney.
My seller’s contract didn’t close by the date specified in the contract. He and the buyer blame each other, and both want the earnest money. The contract hasn’t been terminated yet, but my client wants to put the property back on the market. What should I do? (updated Feb. 11, 2015)
Have your client talk to an attorney about the legal liabilities of proceeding with a sale without the termination of the original contract. Remember, there are two ways to formally terminate a contract:
1. The parties can agree to terminate and sign a document like Release of Earnest Money (TAR 1904) that releases both parties from further obligations under the contract.
2. A judge can order a contract termination.
My buyer gave the seller a timely, written notice that she’s terminating the contract under the termination option in Paragraph 23 of the One to Four Family Residential (Resale) contract. The seller is upset and won’t sign the TAR Release of Earnest Money form. What can my buyer do to get her earnest money? (updated March 23, 2016)
Under the provisions of Paragraph 18 of the contract, your client could make a written demand to the escrow agent that the earnest money be released. As long as the seller doesn’t object in writing to that disbursement within 15 days after the escrow agent provides a copy of your client’s demand to the seller, the escrow agent may release the funds to your client. Following these steps for disbursement releases the escrow agent from liability related to the disbursement.
If the seller does make a written objection to the disbursement, or his own written demand for the earnest money, the buyer will have written evidence to substantiate the seller’s wrongful refusal to release the earnest money. This might make it easier for the buyer to recover the liquidated damages stated in Paragraph 18:
-The earnest money
-Reasonable attorney fees
-All costs of suit.
Although the amount of earnest money involved in any given transaction may not be substantial, a party who wrongfully fails or refuses to sign a release could end up liable for more than just the amount of the earnest money held by the escrow agent.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.
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