Post Due Diligence Contract Termination

[Travis Kremer]

Hey BP,

I am under contract and passed the due diligence period on a tri-plex located in South Carolina. After discussing my concerns around the current market conditions sorrounding COVID-19 with my agent, she mentioned if I were to cancel the agreement and terminate the contract that in addition to losing my earnest deposit, I would also be liable for buyer and seller broker commissions.  I reviewed the contract and could not find any specific language supporting her statement regarding the broker fees. Is a buyer liable for buyer/seller broker commissions when backing out of a deal after due diligence? Or is she just blowing smoke to save her commission? 

[Troy Gandee]

Again, not an attorney and do not know the details, but... I'm a BIC in the state we're discussing, so I have some opinions.

There are lots of good suggestions here, but it's all going to depend on your state law and agency agreements. There's no discussion of when compensation is due in the standard SC sales contract. There's only a line about compensation disputes and/or mediation. These are more about the attorneys' obligations regarding the escrow amounts for compensation to agents.

The compensation is all dependent upon your agency agreements. We have standard agency agreements for both listings and selling. 99% of agents in SC use the same ones because they're written and approved by SCAR. Essentially, they each state that the buyer could be liable for compensation to at least their representative agent in the event that they default. You would likely have to take it all the way to court if you wanted to fight it, but it's not typical that you have to pay the fee if you were acting in good faith or made a mistake. If it's an egregious breach, a judge may make you liable. We usually mediate before we go to court, but it all depends on the findings and circumstances. The "extenuating circumstances" items in the contract refer more to natural disasters, severe weather, illness or death than they do to cold feet or market conditions. It's definitely a sticky one. My opinion is that you SHOULD release your EMD and compensate your agent at an agreeable rate since she did do all that work up to this point. I doubt you would want to be stiffed if you were in her position. At the end of the day, banks are still lending and we have not been told to cease all real estate activities, so you would be expected to continue with the purchase.