Buyer default: Who gets the deposit?

A buyer’s broker recently called the Hotline and asked whether she was entitled to an equal split of the buyer’s deposit that was forfeited to the seller after the buyer breached. As provided for in Paragraph 7 of the PAR Exclusive Listing Contract for Residential Property, the seller paid the listing broker half of the defaulting buyer’s $20,000 deposit. The buyer broker demanded half of the $10,000 from the listing broker. The buyer’s broker position was that she had procured the buyer and based upon the offer of cooperation in the MLS was entitled to half the compensation paid to the listing broker.

A cooperating broker’s entitlement to a share of the listing broker’s commission arises from the offer made by the listing broker in the MLS. By virtue of membership in the MLS, the listing broker agrees to offer a portion of his commission to a cooperating broker who is the procuring cause of a sale. The keyword is “sale.” Here, the buyer broker was not entitled to a portion of anything because there was no sale. The buyer produced by the buyer broker was not a ready, willing and able buyer, at least not so at settlement.

Entitlement to a fee as the procuring cause requires a successful transaction. A successful transaction is defined in NAR’s Code of Ethics and Arbitration Manual as “a sale that closes or a lease that is executed.” When the buyer defaults, absent any written agreement between the listing broker and the cooperating broker to the contrary, the listing broker’s obligation to pay a cooperating broker a commission split is excused.

The buyer broker can seek to enforce the buyer agent contract and try to recover her fee that was lost by virtue of the buyer’s breach. This remedy is provided for in the standard PAR Buyer Agency Contract.