Real Estate Broker’s Commissions: What to Know Before the Sign Is Placed on Your Front Lawn
Julia Jensen Smolka

The record number of Chicagoland area real estate sales in the last decade has been replaced with a record number of homes on the market for sale for a long time. Hiring a seasoned, licensed real estate broker may help you sell your property more quickly. The broker will require you to sign a listing agreement. This listing agreement and Illinois law controls the relationship between you and the broker, and dictates if and when the broker earns a commission.

A homeowner usually enters into an exclusive real estate listing agreement with a broker. It includes a time duration, anywhere from 90 days to one year, and a means of payment to the broker if the real estate is sold or leased. The means of payment is customarily a percentage of the sales price. Other terms, such as “open house,” advertisements and Internet presentation may be included. It is important that you have these provisions included in the agreement so that there is a clear understanding of your expectations.

An exclusive listing agreement typically states that the broker is entitled to a commission if the broker obtains a purchaser, or if the property is sold, gifted, or otherwise transferred to a third party during the term of the listing agreement. Additionally, the owner will owe a commission if the broker obtains a purchaser during the listing period but the owner decides to sell the property to another purchaser without the aid of the broker.

Under Illinois law, if the parcel is commercial property, the broker also has the right to place a lien on the property for the commission owed. The broker can file suit to enforce the lien and his contract rights. Illinois law recognizes a broker’s entitlement to a commission if the broker furnishes a purchaser who is ready, willing and able to buy the property upon terms set forth in the listing agreement, or agreed to by the owner if the owner then calls off the closing before it was to take place.

Recently, Di Monte & Lizak represented a broker who listed a six-flat apartment building in Chicago. The broker procured an offer that the owner accepted. Several days before the closing, the owner learned she would have to bring approximately $4,000 to the closing in order to pay off her lender, pay the broker’s commission and for other closing costs. Rather than bring the money, the owner called off the closing and transferred the property to a third-party investor to avoid paying the $10,200 commission.

The owner argued that the broker was not entitled to a commission because the owner had to bring funds to the closing to sell the property, and because she found a third- party investor to acquire the property on her own, without assistance of the broker. The broker argued that she performed her functions - she supplied a purchaser - but it was the owner who backed out of the deal. The listing agreement provided that it did not matter who found the purchaser – as long as the property was sold during the term of the listing agreement, the owner was obligated to pay the commission.

The judge found that the owner owed the broker the commission. The listing agreement stated the broker was entitled to interest, attorneys’ fees and costs, bringing the court’s judgment against the owner to over $28,000, almost triple the commission.

In this slow market, where properties are sitting longer, and brokers and owners are working harder than ever to close a deal, it is important to understand the terms of your listing agreement.