When the Contractor Walks Away, Who Gets to Keep the Commission?

O*NO! Ever wondered if a non-exclusive agency agreement could set the stage for a real estate commission nightmare? That’s exactly what happened in a recent matter, and it’s a situation many agents and agency owners might want to learn from. 

In this case, a contractor, with no restrictions in their contractor agreement, left the company. No big deal, right? Well, not exactly. The property they were handling was left in limbo, and the client was left with questions—mainly, “Will I be paying double commission?” The issue stemmed from the contractor wanting to re-sign agency agreements with the client. While the client was open to it, they were unsure whether doing so would leave them on the hook for double commission. 

And that’s when the legal problems began to pile up. Here’s how it all unfolded, and what other agent’s can learn from it.  

The Case: A Contractor Walks Away, and Chaos Ensues 

The contractor, who had a non-exclusive agency agreement, departed their role without any form of contractual restriction on working with mutual clients. With non-exclusive agreements, multiple agents are free to market and sell a property, but only the agent who brings the buyer to the table gets the commission. 

In this case, the client was concerned that they might end up paying double commission, especially since the contractor had no formal restraint on continuing their work with the property. Without clear documentation showing who was responsible for bringing the buyer, both agents involved could have claimed the commission. That’s when the call came through to us: who gets the commission? 

It’s also important to clarify that while the contractor had worked on the property during their time with the company, their engagement was through the company—not as an independent agent. This means that once they left, the company remained engaged under the existing agreement. If the contractor wanted to sign a new agency agreement independently, they could—but the implications would depend on the type of agreement. 

If it was a non-exclusive agency agreement, the key legal question would be whether the contractor was the "effective cause" of the sale, determining their entitlement to commission. However, if it was an exclusive agency agreement, the contractor would not be allowed to sign a separate agreement with the client while the company’s exclusive arrangement was still in place. 

The Problem: The Risk of Ambiguity in Non-Exclusive Listings 

Here’s where things got tricky. A non-exclusive agency agreement can be an agent’s best friend or worst enemy. On one hand, it creates competition among agents to sell the property faster, and sellers have the freedom to work with multiple agents. On the flip side, it can lead to confusion, misunderstandings, and even legal disputes, especially when there’s no clear documentation showing who actually caused the sale. 

For this particular case, the situation became a legal headache because there was ambiguity about what constituted the “effective cause” of the sale. Was it the contractor's efforts that led the client to sign, or was it the other agent’s work that made the difference? 

The Law: Clarity Is Key in Determining Commission Entitlement 

Under the law, the commission ultimately goes to the agent who is determined to be the effective cause of the sale. When it comes to non-exclusive listings, the law boils down to one key point: clarity. If you're entering into a non-exclusive listing agreement, ensure that it clearly defines who will be entitled to the commission if the property sells. You need to make sure the agreement outlines the steps that will be taken to establish the “effective cause” of the sale. When it comes to ‘effective cause’ of the sale, the mere introduction of a purchaser isn’t enough to establish this. All the circumstances surrounding the sale must be carefully considered. 

That means we need a clear, comprehensive agreement that outlines what actions or efforts will be credited as the decisive factor in closing the deal. Ensuring that your agency agreements define these parameters is crucial to avoid costly legal disputes down the road. Additionally, ensure that there are no conflicting clauses in the contractor agreement. This can prevent legal disputes down the road. With no restraints or conditions preventing a contractor from continuing to work with mutual clients, things can get messy quickly, just like in this case. 

Practical Tips for Real Estate Agents to Avoid Commission Chaos 

Review Your Agency Agreements: Whether exclusive or non-exclusive, always ensure that the agency agreement clearly defines the terms of the sale, including commission entitlements. If in doubt, always consult a legal professional to help draft or review the agreement. 

Document Everything: Track the steps taken to market the property, particularly the efforts that led to the successful sale. This will help in the event of any dispute. 

Non-Exclusive Listings Can Be Risky: While they offer flexibility, non-exclusive listings can also create confusion and competition that leads to lower prices or no marketing at all. If you're handling a non-exclusive listing, consider how you might protect your client’s interests. 

Set Clear Expectations with Contractors: If you're working with contractors, make sure their agreements include specific guidelines around working with mutual clients. No restrictions might sound like a good idea at first, but they can cause problems later. 

Watch for Double Commission Scenarios: Always clarify which agent has the right to claim commission. Keep communication open between agents and clients to avoid disputes. 

Key Takeaways: 

• Ensure that your agency agreements explicitly define commission entitlement and what constitutes being the effective cause of a sale. This clarity can prevent disputes before they start. 

• While non-exclusive listings encourage competition, they also increase the risk of commission conflicts. Understand the potential pitfalls before opting for this approach. 

• When drafting contracts with contractors, include well-defined restraint clauses. Without restrictions, a contractor may work with mutual clients post-departure, leading to ambiguity and potential commission dispute 

• Keep detailed records of all client communications and interactions. This documentation is invaluable for establishing a clear timeline of efforts, helping to resolve any disputes regarding who was the effective cause of the sale. 

Your Next Steps

If you’re unsure about your contractor agreements, agency contracts, or need help navigating commission disputes, we’re here to help. Book a FREE call today to review your agreements and ensure your commission is fully protected. Let’s make sure your contracts work for you, not against you! 

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.