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Legal Blog

The Legal Blog, brought to you by NVAR's Professional Standards department, helps you stay on top of the latest rules and regulations in the industry.

Must a lender pay agreed-upon commission on a short sale transaction?

Sep 5, 2016


ANSWER: This is an interesting question. For short sale listing agents and brokers who have struggled with banks to receive the full amount of the commission outlined in the listing agreement, a court in Iowa has offered some hope. The broker in that case not only got his commission, but the court awarded it to him despite the fact that the deal did not go to settlement!

Here is what happened in that case. The owner of a warehouse was in financial distress and was working with the bank to wind down his business activities and sell the warehouse. The warehouse was rented to a tenant who had a right of first refusal to purchase the property.

The listing broker listed the warehouse for sale and received an offer to purchase the property. The bank authorized the broker to counter the offer and the parties reached an agreement. The broker then drafted a document estimating the distribution of funds at closing, which reflected that the bank would net $110,000.

At this time, the tenant exercised his right of first refusal. The tenant gave his earnest money to the broker, and the broker informed the parties involved, including the bank. The bank responded by stating that it would not accept less than $130,000. The tenant refused the new terms and the deal died.

The broker filed suit asking for his commission stating that he had satisfied all the terms of the listing agreement by bringing a qualified buyer at terms the bank had agreed to. The Court found in favor of the broker, holding that the bank was not entitled to mislead the parties into thinking that they had agreed upon a price when the bank knew the price would not actually satisfy its requirements and that it would seek a higher amount through various concessions.

This case is illustrative only of the law in Iowa, but can give brokers and their attorneys useful information about how to handle lenders in short sale transactions. For the full text of the opinion, go to:

Stewart v. All States Quality Foods, 2009 Iowa App. LEXIS 427, 2009 WL 1499539 (2009)
  • Compensation and Commission