5 Important Lessons from the Supreme Court Regarding a Broker’s Commission

“Do not think of money. Just try to serve your clients. The money will come.”

–  Jose E. Sabater, Real Estate Broker, Attorney and Author

By Realttorney^®

In a previous article, I said that a Listing Agreement or an Authority to Sell is the most important document that needs to be signed before marketing and selling any piece of real estate property. This is the concluding part of that article.

It should be emphasized that a licensed real estate broker earns compensation only when he or she successfully procures a buyer who can complete the transaction at a price and on the terms and conditions that are stipulated in the Listing Agreement or Authority to Sell signed and executed by the owner-seller.

There are 3 cases decided by the Supreme Court that we will highlight here. First is De Castro vs. Court of Appeals, G.R. No. 115838, July 18, 2002. Second is Manuel vs. Sarmiento, G.R. No. 173857, March 21, 2012. And third, Oriental Petroleum and Minerals Corporation vs. Tucsan Realty, Inc., G.R. No. 195481, July 10, 2013.

It is encouraging to note that in all these 3 cases the Highest Court in the country awarded the real estate brokers the commissions that were withheld from them by the owner-sellers. But, as licensed real estate brokers, what are the lessons we can learn from these 3 cases?

First, the Oriental Petroleum case reminds us of the principle of “procuring cause” in ordering the payment of the broker’s commission. The term “procuring cause” refers to a cause that starts a series of events and results, without break in their continuity, in the accomplishment of a broker’s prime objective of producing a purchaser who is ready, willing, and able to buy on the owner’s terms.

Second, the Listing Agreement, whether exclusive or non-exclusive, is a contract of agency. Hence, if the Agreement is not contrary to law, public order, public policy, morals, or good custom then it is a valid contract and constitutes the law between the parties. This is according to De Castro vs. Court of Appeals.

The basic job of the broker is to locate a person (natural or juridical) who is ready, willing, and able to buy the real property registered in the name of the owner-seller, with the end goal of consummating the sale.

As such, the contract of agency executed by the owner-seller and the real estate broker should be complied with following its terms and conditions in good faith. However, it must be recognized that the owner-seller has the right to revoke the Agreement at any time. Now, this leads us to our third important point.

The Court (in the Oriental Petroleum case) has always recognized the real estate broker’s right to his commission, although the owner revoked his authority and directly negotiated with the buyer whom he met through the broker’s efforts.  It would be unfair not to give the broker the reward he had earned for helping the owner find a buyer who would pay the price. So, make sure that there is a hold-over provision in the contract of agency.

Fourth, care must be taken to ensure that the Authority to Sell was validly executed. It must be emphasized that the authority to sell in the case of Manuel vs. Sarmiento was notarized. Take note that a notarized document has in its favor the presumption of regularity and can be contradicted only by clear and convincing evidence.

Fifth and final point, when one has secured an exclusive authority to sell it is incumbent upon the broker to serve his or her principal well. The effort expended should be commensurate to the professional fee agreed upon by the owner-seller and the broker.

In the case of Manuel vs. Sarmiento, the broker went out of her way to spend for the survey of the land, the reconstitution of the title of the property that was sold, and paid for the real property taxes and tax clearances. These are mere examples of “going the extra mile” for the interests of a particular client.

As mentioned before, the Supreme Court has always defended the right of the real estate broker to his or her commission as against an owner-seller, who thinks of fraud and deceit towards the service provider. The Listing Agreement or Authority to Sell (if drafted correctly) is designed to protect the real estate broker from scheming sellers who think it is convenient to disregard the broker just to save and pocket more money for themselves when the sale is consummated.

Think less of the compensation and let us focus on serving our clients to the best of our talents and abilities. Yet, it doesn’t hurt if we have a good Listing Agreement or Authority to Sell in place to protect us from any eventuality. The best evidence in court is a notarized contract of the agency that will serve to protect the rights of the real estate broker when the owner-seller decides to deploy bad faith and intentionally breaches the contract in the name of cost-saving.

So, are you the type of licensed real estate broker who fails to secure a signed Listing Agreement or Authority to Sell and just proceeds to market the property? If yes, then you may want to consider the insights provided by this article.

If you know someone who has experienced being screwed over by an owner-seller, let me know so we can discuss what safeguards can be deployed to counter any bad intentions of the owner-seller toward a licensed real estate broker. As a matter of principle, suing your client is not the best way to end a transaction. But, we must also be assured that as licensed professionals we are compensated based on the agreement with the owner-seller.

Finally, I am writing a book entitled “The Law & Jurisprudence on Compensation in Real Estate Brokerage in the Philippines” which will be published in the second quarter of 2024. It gives the history of how real estate brokerage began in the 1900s under the American colonization period, what laws regulated the practice from the 1900s to the present, and the right to compensation of licensed real estate brokers. Let me know if you desire to have a copy of the book. Leave a comment below. God bless always.

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Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.