When Is A Real Estate Commission Earned?

Real estate agents are generally paid on a commission basis.  That usually works well, but there can also be a few problem areas.  One potential problem can occur when a real estate agent’s employment is terminated for some reason.  A dispute might then arise over whether the agent “earned” and was thus entitled to a commission for a sale that was in the works at the time the agent’s employment ended but had not yet closed.

There are at least three different methods of earning a commission under an agency contract for sale of real estate.  First, by effecting a binding contract of sale under authority given to the agent to make such a contract for the principal.  Second, by producing a purchaser to whom a sale is in fact made.  Third, by producing a purchaser ready, willing and able to buy on terms specified in the agency agreement.  These are the three common instances in which a real estate salesperson earns a commission before the transaction actually closes.

Please note that Iowa law draws a distinction between the point in time when a commission is earned and when it is actually paid.  Those are separate events.  So a real estate agent’s contract may state that the commission is not owed until the sale closes and money is received, but that is not the same as the agent earning the commission as soon as the sale process is begun between the buyer and the seller.  Most often, a real estate agent earns a commission as soon as the purchase agreement is signed, then is paid at closing when the sale money actually changes hands between the parties to the transaction.  But that standard arrangement can always be modified by express agreement between the real estate agent and the agent’s brokerage or clients.

I can help you with any employment law or labor law questions that you might have.  Please feel free to contact me for a free initial consultation about employment law or labor law.


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