For Clarification

Locally, our "Buyer Representation Agreement" in addition to the agreed compensation, it also contains the following:


Therefore, in a instance where a dispute may have arisen between the seller and the listing broker and the seller refuses to pay the listing broker and the listing broker's position is that the co-op fee is contingent upon them receiving payment and that in the event they do not get paid then there are no funds available to pay the co-op fee.

Therefore, pursuant to the Buyer's Representation Agreement, the buyer is liable for the Buyer's agents compensation, as agreed therein.

A knowledgable buyer would prefer to avoid that risk and therefore seeks to discharge this liability out of the balance of funds due on closing.

okay, that was an important clarification.

in this case, the question will be how the escrow holder will handle the seller's refusal to pay the commission to listing broker, if it were to get to that point, which is unlikely. the escrow holder may need to file an interpleader action with the court in order to resolve the dispute. the language of any commission and co-op agreements will determine if a breach has occured. listing broker should definitely advise his seller client to refuse such a stipulation by buyer, as this would presumably obligate the seller to erroneously pay a commission to buyer's broker inside the transaction, that only the buyer is liable for.

another question is whether the buyer's broker would accept that provision in a buyer's broker representation agreement, which is where it belongs. It is not a standard provision, as it would put the buyer's broker in a precarious position. this is a negotiation between buyer and buyer's broker, not buyer and seller. it cannot be negotiated in the buyer-seller transaction itself, as broker compensation is a separate issue, and brokers are NOT parties to the transaction.

If buyer's broker gets stiffed, he would need to seek damages against the buyer via the courts, outside of the transaction. escrow holders are NOT courts, and they cannot favor or advocate for either buyer or seller during the course of an escrow.

shana

Hopefully, I will be able to further clarify the issues you have skillfully raised, in relation to the hypothetical subject matter .

Escrow Holder - locally, it is primarily the buyer’s lawyer who holds the buyer’s funds in trust pending the completion of the transaction and pursuant to their clients (lawful) instructions.

Duty
It is the fiduciary duty of every agent working in the best interest of their principal, to endeavour to reduce and/or eliminate any potential risk to their principal and with litigation being one of those risks.

In the Event of Litigation -

1. Buyer’s agent could possibly sue their buyer for payment and breach of contract based of the Buyer Representation Agreement.

2. Buyer could possibly sue the seller and seller’s agent alleging among other things, misrepresentation and damages together with their legal costs.

3. Seller could possibly sue their agent alleging a breach of their fiduciary duty, together with the damages they have sustained as a result of the buyer's lawsuit.

Buyer’s Broker & Contractual Provision

The contractual term in relation to the buyer’s agent being “paid out of the balance of funds due on closing,” would not be in the Buyer Representation Agreement, but inserted in the buyer’s offer of Agreement of Purchase and Sale at the express and lawful request of the buyer.

Seller’s Viewpoint

From the seller’s point of view, there is no insurmountable problem, as their agent has offered, lets say 2.5 % on the MLS System to any selling broker or buyer’s agent, and therefore it would make little difference, if any, to the seller's net proceeds on closing.

Records would clearly indicate that the buyers agent had been paid and would only require the seller and listing broker to agree. Locally we now have a standard form, that covers such issues and which is signed by all parties, agents and principals.

IMPORTANT NOTICE: This information is provided as basic educational information by the author and is not a substitute for the advice of an expert and/or the advice of a Lawyer. There is NO representation as to legality, accuracy, correctness of the herein information and the reader is strongly urged to consult a lawyer in the relevant jurisdiction to ensure accuracy before acting on this information.