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william-e-duquette-jr-smallThis is the sixth article in a series of articles about Buying and Selling a Home in New York State. Click here for the first installment in the series. Subscribe to this blog for future installments.

Q: Can I be responsible to pay a real estate broker a commission or pay multiple brokers a commission when my house does not sell?

A: Yes. The general rule in New York is that a licensed real estate broker earns a commission when the broker produces a buyer that is ready, willing, and able to buy the house on the terms set by the seller. As an example, the current standard Greater Hudson Valley Multiple Listing Service Exclusive Right to Sell Listing Agreement provides as follows: “If during the period of this agreement or any extension thereof, a transfer, sale or exchange of the property is made, effected or agreed upon with anyone, the Owner agrees to pay the Broker a commission of _____% of the selling price at the time the brokerage commission is earned by the broker but in no event, later than the date of closing.” Once the terms of the sale have been agreed upon in writing, the sale was “agreed upon.” If you as the seller cannot or will not close and the broker can prove that the buyer was financially able to buy your house, you are responsible to pay the commission. A modification to the Listing Agreement can be negotiated to provide that the commission is not earned until the closing occurs.

A word of caution: A formal contract prepared by your attorney is not necessary to commit you to the sale of your home. The “binder,” “sales agreement,” “Offer to Purchase,” or whatever other title given to the term sheet prepared by the real estate agent with the buyer’s offer to purchase your home, if the term sheet contains the essential terms of the transaction and is signed by the seller and buyer, can commit you to the sale of your home. To avoid this possibility, always make sure that any term sheet provides that it is subject to “attorney approval” and the parties entering into a formal contract prepared by their attorneys.

If your listing agreement provides for an extension or “tail” period, you could face a situation where you may have to pay 2 brokers for the same sale. A “tail” period provisions generally provides that if you sell your house within a set period of time after the expiration of the Listing Agreement to someone who was shown the house during the listing period, you will pay the listing broker a commission. The length of the “tail” period in your listing agreement is negotiable. After the expiration of your listing agreement and during the”tail” period, if you were to sign another exclusive right to sell listing agreement with a second broker, and you sign a binder or contract to sell the house to a buyer who saw the house during the first listing period, you may be responsible to pay both brokers a commission. The current standard Greater Hudson Valley Multiple Listing Service Exclusive Right to Sell Listing Agreement provides “Owner will not, however, be obligated to pay such commission if owner enters into a valid Exclusive Listing Agreement with another NYS licensed real estate broker after the expiration of this agreement.”

By getting your attorney involved early in the process and having them review and approve the listing agreement and any term sheets or binders prior to you signing and committing your self, you can avoid these unintended consequences.

William E. Duquette, Jr. is an associate on the firm’s Real Estate Team. He can be reached by phone at 845-778-2121 toll free or 845-778-2121 and by email.

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