Commission Lost Over Contract Contingency

Classic Homes Realty v. E.J.G. Properties, Inc., Superior Court of New Jersey, Appellate Division

September 1, 2009

A New Jersey seller doesn't have to pay the commission on a transaction that closed after a protection period on the agent's listing agreement expired, a state appellate court ruled.

In the case, which is now being appealed to the New Jersey Supreme Court, the agent and the seller entered into an exclusive right-to-sell listing contract. The contract included a protection clause allowing the brokerage to recover a commission if the transaction closed within 180 days from the expiration of the listing agreement, as long as the sale was "to a buyer introduced to the property during the term of the listing agreement."

The seller reached a purchase agreement with a buyer after the listing agreement expired but before the protection period ended. However, the seller added a contingency to the purchase contract, giving the buyer an additional 60 days to make certain inspections. If the property condition was found to be unacceptable, the buyer had the exclusive right to terminate the deal.

The transaction closed after the listing agreement's protection period. When the seller refused to pay commission, the brokerage filed a lawsuit, arguing that sellers could always deny commissions to brokers simply by including contingencies that extend beyond the listing protection period. The trial court ruled in favor of the seller, and the brokerage appealed.

But the Superior Court of New Jersey also rejected the brokerage's argument, saying that brokers can avoid this situation by inserting concise language in their listing agreements.

The NATIONAL ASSOCIATION OF REALTORS® and the New Jersey Association of REALTORS® are contributing funds to support the broker's appeal.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.