A listing agreement contains a clause stating 'commission is earned when a ready, willing, and able buyer is procured.' The seller refuses to complete the sale after such a buyer is found, claiming they changed their mind. What are the agent's rights regarding commission?
Correct Answer
C) Full commission is owed because the agent fulfilled their contractual obligation
When a listing agreement specifies that commission is earned upon procuring a ready, willing, and able buyer, the agent's entitlement to commission is not dependent on completion of the sale. The agent has fulfilled their contractual obligation regardless of the seller's subsequent refusal to sell.
Why This Is the Correct Answer
Option C is correct because the listing agreement specifically states that commission is 'earned' when a ready, willing, and able buyer is procured. Under Canadian real estate law and common law principles of contract, once the agent fulfills this specified condition, they have earned their commission regardless of the seller's subsequent actions. The agent's contractual obligation was to find a qualified buyer, not to ensure the seller completes the transaction. The seller's refusal to proceed does not negate the agent's entitlement to the earned commission.
Why the Other Options Are Wrong
Option A: No commission is owed because the sale did not complete
Option A incorrectly assumes that commission entitlement depends on sale completion. However, the listing agreement clearly states commission is 'earned' upon procuring a ready, willing, and able buyer, not upon closing. The agent fulfilled their contractual obligation by finding the qualified buyer, making them entitled to full commission regardless of the seller's decision to withdraw.
Option B: Half commission is owed due to the seller's breach
Option B incorrectly suggests a partial commission arrangement that has no basis in the listing agreement terms. The contract specifies that full commission is earned upon procuring a ready, willing, and able buyer. There is no provision for reduced commission based on seller breach. The agent either earns the full commission or none at all based on performance of their specified duties.
Option D: Commission is only owed if the agent can force the sale to complete
Option D is incorrect because it misunderstands the agent's role and commission entitlement. Agents cannot force sales to complete, nor is their commission dependent on having such power. The listing agreement makes commission contingent on procuring a qualified buyer, not on ensuring transaction completion. The agent's obligation is fulfilled when they present a ready, willing, and able buyer to the seller.
Deep Analysis of This Contracts & Agreements Question
This question examines the fundamental principle of commission entitlement in real estate listing agreements. The key concept is that when a listing agreement specifies commission is 'earned' upon procuring a ready, willing, and able buyer, the agent's right to compensation becomes vested at that moment, regardless of whether the transaction ultimately completes. This principle protects agents from seller misconduct and ensures they are compensated for fulfilling their contractual obligations. The distinction between 'earning' commission versus commission being 'due upon completion' is crucial in Canadian real estate law. This concept connects to broader agency law principles where performance of contractual duties creates entitlement to compensation, even if external factors prevent the ultimate goal from being achieved. Understanding this principle is essential for agents to protect their interests and for sellers to understand their obligations when entering listing agreements.
Background Knowledge for Contracts & Agreements
Commission entitlement in Canadian real estate is governed by the specific terms of the listing agreement and general contract law principles. A 'ready, willing, and able buyer' is one who has the financial capacity, legal ability, and genuine intention to purchase at the agreed terms. When listing agreements specify commission is 'earned' upon procuring such a buyer, this creates immediate entitlement regardless of completion. This differs from agreements where commission is 'due upon closing.' Provincial real estate legislation and RECO/BCFSA/RECA regulations support agents' rights to earned commissions, protecting them from seller misconduct while ensuring clear contractual obligations.
Memory Technique
The EARNED PrincipleRemember 'EARNED' - when commission is EARNED (not just due upon closing), the agent gets paid regardless of what happens after. Think of it like a delivery driver who gets paid when they deliver the package to your door - they've earned their fee even if you decide you don't want the package anymore.
When you see commission questions, immediately look for whether the agreement says commission is 'earned' versus 'due upon completion.' If it says 'earned' upon finding a buyer, the agent gets paid regardless of what the seller does afterward.
Exam Tip for Contracts & Agreements
Look for the specific wording in listing agreements. 'Commission earned when...' creates immediate entitlement upon meeting the condition, while 'commission due upon closing' requires completion. The word 'earned' is your key indicator.
Real World Application in Contracts & Agreements
An agent lists a property and finds a buyer who submits a full-price offer with proof of financing and no conditions. The seller initially accepts but then discovers their dream home fell through and refuses to sign. Despite the seller's breach, the agent is entitled to full commission because they fulfilled their obligation of procuring a ready, willing, and able buyer. The agent can pursue legal action for their commission even though the sale never completed, protecting their time and effort invested in the transaction.
Common Mistakes to Avoid on Contracts & Agreements Questions
- •Assuming commission requires sale completion
- •Confusing 'earned' with 'due upon closing'
- •Thinking agents must force completion to earn commission
Key Terms
More Contracts & Agreements Questions
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In a listing agreement, what does the term 'holdover period' refer to?
Which of the following is NOT typically considered an essential element for a valid contract under Canadian common law?
When can a conditional offer become unconditional in a real estate transaction?
A buyer submits an offer with a financing condition that expires at 11:59 PM on Friday. The buyer's mortgage application is approved at 10:30 AM on Saturday. What is the legal status of the offer?
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A listing agreement contains a 'holdover clause' stating that if the property sells within 90 days after expiry to anyone shown the property during the listing period, the brokerage is entitled to commission. The seller lists with a new brokerage immediately after expiry and sells to a buyer who attended an open house during the original listing period. Who is entitled to commission?