A listing broker sells an office building to a syndicate of which the broker is a member without informing the seller of this interest. Before closing, the seller discovers the broker’s interest and refuses to sell. What would happen in a civil suit to collect a commission?
Audio Lesson
Duration: 2:44
Question & Answer
Review the question and all answer choices
The case would be transferred to the Real Estate Commissioner.
Transferring the case to the Real Estate Commissioner would only occur if there were licensing law violations, not for a commission dispute. This option confuses regulatory enforcement with civil litigation over contractual obligations.
No commission would be due.
No commission would not be due because the broker successfully procured a ready, willing, and able buyer. The seller's refusal to close after discovering the broker's interest doesn't erase the broker's performance of their contractual duty.
The broker would be awarded their full commission.
The court would demand a mitigation hearing.
A mitigation hearing is not required in this commission dispute scenario. This option incorrectly suggests a legal process that doesn't apply to this type of real estate commission case.
Why is this correct?
The broker would be awarded their full commission because they fulfilled their primary obligation under the listing agreement: procuring a ready, willing, and able buyer. The seller's refusal to complete the transaction after discovering the broker's undisclosed interest doesn't negate the broker's performance of this essential service.
Deep Analysis
AI-powered in-depth explanation of this concept
Agency relationships are fundamental to real estate transactions, and understanding broker interests in properties they're selling is critical for both legal compliance and ethical practice. This question tests your knowledge of broker disclosure requirements and commission rights. The core concept is whether a broker can earn a commission when they have an undisclosed financial interest in the property they're selling. The correct answer hinges on recognizing that while the broker violated disclosure requirements by not informing the seller of their interest in the syndicate, this doesn't automatically negate their right to a commission. The broker fulfilled their duty to produce a ready, willing, and able buyer - the syndicate was prepared to purchase at the agreed terms. The seller's refusal to sell after discovering the broker's interest doesn't absolve them from paying a commission because the broker had already performed the essential service of finding a qualified buyer. This question is challenging because it pits ethical disclosure obligations against contractual commission rights, forcing students to distinguish between legal duties and contractual remedies.
Knowledge Background
Essential context and foundational knowledge
In real estate agency, brokers owe fiduciary duties to their clients, including loyalty and disclosure. California law requires brokers to disclose any financial interest they have in a transaction they're handling. However, the right to commission is based on contract law - specifically whether the broker performed their obligation under the listing agreement by procuring a ready, willing, and able buyer. The failure to disclose a personal interest may create liability for other damages but doesn't automatically eliminate the commission right if the essential service was performed. This balance protects both sellers who are misled and brokers who properly fulfill their contractual obligations.
Think of the broker as a matchmaker who finds a perfect date for a client but fails to mention they're related to the date. The matchmaker still did their job of finding a suitable partner, even though they broke trust by not disclosing the connection.
When faced with commission questions involving undisclosed interests, ask: 'Did the broker fulfill their primary duty of finding a qualified buyer?' If yes, commission is likely due despite disclosure issues.
For commission questions, focus on whether the broker procured a ready, willing, and able buyer. If yes, commission is typically due regardless of disclosure issues, which are separate matters that might result in other liabilities.
Real World Application
How this concept applies in actual real estate practice
Imagine you're a commercial broker who's also a silent partner in an investment group. You list an office building and sell it to your own group without disclosing your interest to the seller. The seller discovers your involvement just before closing and backs out. Despite the ethical breach, you'd likely still be entitled to your commission because you found a qualified buyer willing to meet all the terms of the listing agreement. The seller could potentially sue you for damages related to the lack of disclosure, but that wouldn't negate your commission right.
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