When might a broker still earn a commission if a sale fails due to buyer or seller default?

When might a broker still earn a commission if a sale fails due to buyer or seller default?

• A. If the contract provides for damages or liquidated damages to the broker
• B. The broker never earns a commission after default
• C. Only if the buyer defaults
• D. Only if the sale closes

Answer: (A)

The idea being tested is that a broker’s right to compensation can survive a failed sale when the contract between the broker and the client includes a damages provision or a liquidated damages clause. In real estate practice, commissions are usually tied to a successful close, but the agreement with the client can specify remedies if the other party breaches. If the purchase agreement or listing agreement provides for damages or a set liquidated sum payable to the broker upon default, the broker can still be entitled to that amount even though the sale doesn’t close. This makes the broker’s compensation contingent on the contract terms rather than solely on the act of closing. So, a damages or liquidated damages clause is the mechanism that allows a broker to earn a commission despite a sale falling through due to buyer or seller default. The other options imply no possibility of payment after default or restrict payment to one party or to closing, which isn’t accurate when a contract spells out remedies for breach.

The idea being tested is that a broker’s right to compensation can survive a failed sale when the contract between the broker and the client includes a damages provision or a liquidated damages clause. In real estate practice, commissions are usually tied to a successful close, but the agreement with the client can specify remedies if the other party breaches. If the purchase agreement or listing agreement provides for damages or a set liquidated sum payable to the broker upon default, the broker can still be entitled to that amount even though the sale doesn’t close. This makes the broker’s compensation contingent on the contract terms rather than solely on the act of closing.

So, a damages or liquidated damages clause is the mechanism that allows a broker to earn a commission despite a sale falling through due to buyer or seller default. The other options imply no possibility of payment after default or restrict payment to one party or to closing, which isn’t accurate when a contract spells out remedies for breach.