It’s a bitter lesson. A real estate agent spends money advertising and showing property. But when the deal closes, no commission is paid.
To prove the right to a commission, the agent must prove only two things:
- that the agent was the “procuring cause of the sale”
- that an employment relationship existed between the seller and the agent.
The case Deer Run Properties v Keys to the Lake illustrates that the second point can be elusive.
The listing agreement between the owner of the real estate to be sold and the broker creates the employment relationship between the seller and the agent that completes the obligation to pay a commission.
“Agency” is the role of one person acting on behalf of another. The legal rules for agency have evolved through common law (the process of appellate courts issuing opinions on the facts before them). For real estate brokerage, through the growth of multiple-listing services and statutes and regulations enforced by state real estate commissions that have redefined agency relationships, the law of agency for real estate agents has taken on a life of its own. The court in Deer Run Properties v. Keys to the Lake ignored the complexities of real estate agency and used a basic principle of contract law to decide the case: a person who is not a party to a contract cannot sue to enforce it.
Under the modern regime, real estate agents (who are either brokers or persons whose licenses are held by brokers) commonly attempt to sell their own listings or the listings of other brokers through multiple-listing services. Only a broker may enter into a listing agreement with an owner of real estate, although the broker’s agent may sign the listing agreement on behalf of the broker. At the closing, the commission is owed to the listing broker only, who divides the commission with the selling broker, who then pays a share of the commission to the agent who actually got the contracts signed.
Keys to the Lake was a broker, but did not list the Deer Run condominium units that were offered. The listing was with another broker. Keys to the Lake presented some of the Deer Run condo units to a buyer. The buyer apparently went directly to the owner of the units and signed a contract to purchase the units. Keys to the Lake then filed a notice that Keys to the Lake was entitled to a lien on the sale proceeds on the units shown to that buyer for the commission.
Deer Run filed a suit, asking the court to order the removal of the lien and claiming that it had no relationship with Keys to the Lake that could obligate Deer Run to pay a commission to Keys to the Lake. Keys to the Lake counterclaimed for its commission.
Deer Run filed a motion for summary judgment, alleging that Keys to the Lake was not the procuring cause of the sale and had no agreement for a commission with Deer Run. The court agreed with Deer Run, and Keys to the Lake appealed.
In the Southern District of the Missouri Court of Appeals, most summary judgments granted by trial courts are reversed on appeal. But this one stood, even though Keys to the Lake argued that there was a genuine factual dispute about whether Keys to the Lake was the procuring cause of the sale. But the appellate court, like the trial court, did not accept the argument that Deer Run’s agreement with the listing broker to put the property in the multiple listing service was a contract for the payment of commission to Keys to the Lake.
Keys to the Lake was not the agent of Deer Run. Under the terminology of the Missouri Real Estate Commission regulations, Keys to the Lake was the agent of the listing broker and a “sub-agent” of Deer Run with respect to the listed property. The listing broker was an agent of Deer Run and had a direct relationship that would have allowed the listing broker to sue Deer Run for a commission, if the broker was the procuring cause of the sale or the sale took place during the term of an exclusive-right-to-sell contract.
The listing agreement between Deer Run and the listing broker (who received no commission and chose not to participate in the lawsuit) was an exclusive-agency contract, meaning that Deer Run had the right to sell directly to buyers without being obligated to pay a commission, but would enter into to no listing agreements with other brokers. We can speculate that the listing broker declined to sue Deer Run because the listing broker wanted to preserve its relationship with the seller or that the listing broker wasn’t sure that Keys to the Lake had a strong case that it was the procuring cause of the sale.