How the absence of a comma in a Listing Agreement cost a broker a $340,000 commission.
How important is it to be accurate in your listing agreement? Plenty, as one broker found out. Take the February 2012 case of RealPro Inc. vs. Smith Residual Company LLC. Smith Residual was the seller of 46.8 acres of vacant land in Riverside County. Smith listed the property with MGR Services Inc., a real estate broker. The listing agreement set forth the following price and terms: “$17,000,000.00 cash or such other price and terms acceptable to (Sellers), and other additional standard terms reasonably similar to those contained in the (standard AIR purchase agreement) …”.
The Listing Agreement went on to authorize MGR to cooperate with other brokers, and stated that a cooperating broker may, as a third party beneficiary, enforce the terms of the listing agreement against the Sellers or MGR.
RealPro delivered to MGR a written offer to purchase the property for all cash at the full listing price of $17 million, and stated that the buyer was ready, willing, and able to purchase the property on all material terms contained in the listing. Smith received the offer and counter-offered with a new listing price of $19,500,000. Other than the increased price, all the other terms of RealPro’s offer were acceptable. Both MGR and the Sellers confirmed the brokerage fee of 4%, split 50/50 between RealPro and MGR.
The increased price was not accepted by RealPro, and RealPro subsequently filed its complaint for a broker’s commission of 2%. RealPro argued that the use of the word “or” in the listing agreement meant that RealPro could procure an offer of either $17 million, or some other offer on terms and conditions acceptable to the sellers.
The Sellers argued that the listing price was “$17,000,000 cash or for such other price and terms acceptable to the owner” and that escrow must close prior to the obligation to pay any commission.
The trial court sustained the Sellers’ demurrer, meaning the court tossed RealPro’s case out, and RealPro appealed.
The Court of Appeals said, “Regardless of all the arguments raised by both parties, the outcome of this appeal is solely dependent upon interpretation of the language in the Listing Agreement.” Then, after some discussion, the Court of Appeal said, “The confusion centers on the use of the word “or” in the Listing Agreement . . .. RealPro interprets the word “or” as separating $17 million from “such other price and terms acceptable to (Sellers).” however, we interpret it to include “such other price.” Thus, the listing was for $17 million or such other price, plus terms acceptable to Sellers.”
The Court of Appeal thus concluded that the presentation of an all cash offer for the full listing price of $17 million did not obligate the Sellers to sell at that price. Rather, it was merely an offer to purchase the property for $17 million plus terms acceptable to Sellers.
It is not that the interpretation of the Listing Agreement by the Justices of the Court of Appeals is necessarily the correct one. (It is made correct by the fact that they are the Justices of the Court of Appeals.) A different interpretation of the language of the Listing Agreement could be just as soundly and correctly reached by someone else. But the thing that screams from the pages of this case is that RealPro could have earned their $340,000 commission by just the judicious placement of a single comma.
Another remarkable thing about this case, at least to me, is that it was even necessary for the Court of Appeal to parse the language of the listing agreement to arrive at its conclusion. Very little discussion was given, and even that only at the end, to the question of whether a listing is an offer to sell at the listing price. Most of the cases that have addressed this question have been pretty consistent that a “listing” is a solicitation for offers, not an offer itself. This might by why a prospective buyer submits an “offer” instead of an “acceptance,” and the buyer’s “offer” is usually followed by the seller’s “acceptance” or “counter-offer” until a contract is formed.
In any event, it is probably a very good idea to be precise in the language of your listing agreements and all your other important real estate contract documents. The omission of a mere comma just might cost you $340,000!
If you or someone you know may need legal assistance regarding such matters, don’t hesitate to contact Brewer Offord & Pedersen LLP at (650) 327-2900, or visits our firm website to learn more about our attorneys and their practice areas at www.BrewerFirm.com.