Commission

Real Estate meaning of Commission

In the words of the Encyclopedia of Real Estate Terms about Commission: Remuneration paid to an agent or broker for his services in conducting a specific duty, such as introducing a purchaser of a property, effecting a sale of a property to a third party, or obtaining a loan facility. The compensation or reward paid to an agent or broker for successfully transacting business for the principal, the amount of which is generally based on a percentage of the value of the transaction, or sometimes the profit resulting to the principal as a result of the agent’s or broker’s actions. Usually this remuneration is made payable only on the successful conclusion of the specified function, e.g. on completion of a sale; or the introduction of a person who is ‘ready, willing and able’ to purchase a particular property. (Annotation: 71 ALR3d 586: Real Estate Agents’ Agreement—Commission; Annotation: 12 ALR4th 1083: Recovery of Real Estate Commission). No commission is payable unless there is a contract, express or implied, between the agent and the principal and commission is generally only payable for carrying out the task with which the agent has been entrusted (Reeve v Reeve (1858) 1 F & F 280, 175 Eng Rep 727; Toulmin v Millar (1887) 58 LT 96, 3 TLR 836 (HL); Hodges & Sons (G. T.) v Hackbridge Park Residential Hotel, Ltd [1940] 1 KB 404, [1939] 4 All ER 347 (CA); Bianchi v. Vere, 17 F.2d 22 (1st Cir. Puerto Rico 1927); 12 C.J.S., Brokers, § 143). Generally, for this purpose, an option is not the same as a sale (or similar transaction), unless the option is exercised (Annotation: 32 ALR3d 321: Broker’s Commission—Finding Optionee). Although, in English law, a 99-year lease with an option for the tenant to acquire the landlord’s interest has been considered as good as a sale (Rimmer v Knowles (1874) 30 LTNS 496). Finding a party to take a lease is not the same as finding a purchaser. However, a broker who is retained to find a purchaser, but introduces a party who takes a lease, should be entitled to a commission commensurate with the benefit obtained by the property owner. “It is common knowledge that few real estate transactions are consummated on the exact terms of the original offer. The substitution of a lease for a sale, or a sale for a lease, is not so great a departure as to make a broker a pure volunteer when he transmits such an offer to his principal.” Al Herd, Inc. v. Isaac., 271 Cal App.2d 749, 76 Cal Rptr 697, 700, 42 ALR2d 1425, 1428 (1969) (Chamberlain & Willows v HBS (Trust) Ltd (1962) 184 EG 849 (CA); cf. Mote v Gould (1935) 152 LT 347).

Commission is not intended as a payment for work done, but as a reward for achieving that which the principal required of the agent or broker. Commission is not payable until the particular result required by the principal has been achieved, strictly in accordance with the terms by which the broker was appointed. However, in the absence of an express stipulation as to the act that would entitle the agent or broker to a commission, a payment is normally due upon the completion of a transaction to the party who was the procuring cause thereof.

More about Commission in the Encyclopedia of Real Estate Terms

Normally commission is only paid to an agent or broker when the transaction that he was employed to bring about is concluded or, at least, brought to an irrevocable stage. On the other hand, the principal cannot ordinarily avoid payment of commission by, for example, refusing to consummate a transaction, or by canceling the broker’s agreement and selling through another agent (Macnamara v Martin (1908) 7 CLR 699 (Aus); Gorman v Young (1921) 64 DLR 51 (Can); Bechtel Properties, Inc. v. Blanken, 299 F.2d 928 (DC Cir. 1962); Blank v. Borden, 115 Cal Rptr 31, 524 P.2d 127 (1974); Buckaloo v. Jackson, 112 Cal Rptr 745, 537 P.2d 865 (Cal 1975)). If a vendor undertakes to pay commission to an agent or broker on completion of a ‘sale’, that payment is due, as a rule, when a binding and unconditional contract is executed. If the vendor then withdraws in breach of contract, he may still remain liable to pay commission as a form of damages for loss suffered by the agent, the agent having performed the duty required of him (Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 142 (HL) obiter; Leonard Duckworth v. Michael L. Field & Co., 516 F.2d 952 (5th Cir. Tex 1975); Annotation: 74 ALR2d 443, 459: Broker—Right to Commission, § 8, Release, cancellation, or rescission; Annotation: 12 ALR4th 1083: Recovery of Real Estate Commission, §§ 18, 19). In any event, there may be an agreement (express or implied) to pay for work done, or expenditure actually incurred by the agent, in the event of a termination of the appointment. In some cases this may amount to payment of the full commission.

An agent must act with the utmost good faith and loyalty in order to receive a commission; “it is only an honest agent who is entitled to any commission” Andrews v Ramsay & Co [1903] 2 KB 635, 638 (Low v. Woodbury, 107 App Div 298, 95 NYS 336 (1905); First Church, Etc. v. Cline J. Dunton Realty, 19 Wash App 275, 574 P.2d 1211 (1978); 33 ALR4th 944: Real Estate Broker’s or Agent’s Misrepresentation). The agent is expected to keep the principal fully informed of any information that might affect the principal’s decision to sell or otherwise deal with the subject property; to obtain the best possible terms for the principal or, at least, to present the best terms for the principal’s consideration; and to disclose any other relevant information regarding the prospective purchaser and any other information know to him that may affect the terms of sale (Keppel v Wheeler [1927] 1 KB 577 (CA); Dunton Properties Ltd v Coles, Knapp & Kennedy Ltd (1959) 174 EG 723; Boldin v. Lewis H. May Co., 111 Misc 170, 181 NYS 121(1920); Moehling v. O’Neil Constr. Co., 20 Ill.2d 255, 170 NE.2d 100 (1960); Annotation: 7 ALR3d 693, 696: Real–Estate Broker—Concealing Offer; Bear Kaufman Realty, Inc. v. Spec Development, Inc., 206 Ill Dec 239, 268 Ill App.3d 898, 645 NE.2d 244, 249 (1994); Century 21 Parker Real Estate v. Amos, 894 P.2d 1131, 1132 (Okla Ct App 1994)).

In the US, in most states, a real estate broker must be licensed at the time the service was performed and be employed under the terms of a written agreement, otherwise he may be unable to bring an action to recover any commission due (Annotation: 82 ALR3d 1139: Necessity of Real Estate Broker’s Licence—Commission). cf. fee. See also bad faith, brokerage, dual agency, exclusive right to sell, extender clause, finder’s fee, multiple agency, option, quantum meruit.

Commission in International Trade

Meaning of Commission, according to the Dictionary of International Trade (Global Negotiator): Compensation given by a principal to a party (usually an agent, intermediary, or sales representative) representing it. Sales commission, a percentage of the selling price (usually without including transportations costs), is the most commonly way to pay sales services in foreign trade. Principals using commission for its agents or representatives, normally increase their selling prices to provide for such commission payments. Sales commission agreements often provide that the commissions are not paid until such time as the buyer has paid the principal, thereby assuring that the agent or representative will assist with necessary collection effort. See agent; intermediary; sales representative. Model of International Sales Commission Agreement.

Commission and the European Union

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• European Commission

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Notes and References

Annotation: 38 ALR4th 170: Auctioneer’s Action for Commission.

B.M. Kaplan. Modern Real Estate Law, Practice & Brokerage (1989), pp. 472-486.

J.E. Cribbet et al. Cases and Materials on Property (7th ed. 1996), pp. 1086-1105.

R.J. Werner and R. Kratovil. Real Estate Law (10th ed. 1993), Ch. 10 ‘Real Estate Brokers’, Ch. 13 ‘Fraud and Misrepresentation in Real Estate Transactions’.

12 Am.Jur.2d., Brokers §§ 157-243.

12 Cor.Jur.Sec., Brokers, §§ 2, 116-230.

D.B. Burke. Law of Real Estate Brokers (2d ed. 1992), §§ 3.1-4.7.

J. Murdoch. The Law of Estate Agency and Auctions (3d ed. 1994), pp. 121-122, 169-177, 332-342.

1(2) Halsbury’s Laws of England, Agency (4th ed. Reissue), paras. 115-122. An authority, or request, given to another to carry out some act or duty. In particular, a formal written authority given to one party to act in place of another. See also agency.

A payment, based on a percentage of an insurance premium, made by an insurer to an agent or broker for introducing business. For property insurance, the percentage is generally between 5 per cent and 20 per cent. When insurance is arranged directly by the insured, the premium may be reduced proportionately to reflect the commission saved by the insurer.