Written by Alan Ackerman
A ChatGPT search indicates that a broker forfeits the right to a fee when the listed property is acquired through eminent domain. Typically, brokers are paid when deals “close.” The statement in Shaw v Avenue D Stores, 115 N.Y.S. 2d 194 (N.Y. Sup. Ct. Kings Cnty. 1952) is often cited for the rule that, “In the absence of a specific provision in a broker’s contract to the contrary, disposition of the title to real estate through Condemnation proceedings does not constitute a sale, transfer or assignment.”
As with any other contract, a brokerage agreement involves an offer and acceptance between the broker and the property owner selling a property. Most brokerages do not include a clause specifying whether proceeds from an eminent domain proceeding occurring during the listing are handled differently. One national brokerage included a clause explicitly treating eminent domain transfers as “sales.” When a brokerage agreement specifically states that a “sale” includes an eminent domain proceeding, the broker will likely succeed in securing a broker’s fee. However, an eminent domain proceeding is not a “sale” in the traditional sense. Courts will look to the brokerage as the author of the contract. Contract interpretation rules will consider the absence of any language related to an eminent domain transaction as a reason to deny payment to the broker. At the same time, there are situations where brokers are involved with a property that both parties, the buyer and the broker, know may be acquired as part of a government or utility acquisition.
Exacerbating this issue is the recognition that the brokerage business has had to address the 2024 antitrust settlement, which considers the fixed 6% brokerage fee to be an antitrust violation. See Burnett v National Association of Realtors, Case No. 19-cv-322 (W.D. Mo. 2023). The litigation envisions a change to the traditional 6% brokerage fee. In its own way, it has now given brokers the chance to include clauses that were not previously used and to provide for payment of a brokerage fee when an eminent domain proceeding occurs. Furthermore, this is an opportunity to negotiate other issues that were often missing from most brokerage agreements, as some jurisdictions have passed laws to formalize how commercial real estate brokerages secure liens for their work over the past decade. For example, see Michigan Compiled Laws Annotated § 570.584 and Ohio Revised Code Section § 1311.85.
There are a few situations where this rule does not apply. An example is when a government agency asks a broker to find a specific property to facilitate a voluntary transaction. See, e.g., Keyes Co. v. Florida Nursing Corporation, 340 So. 2d 1254 (Fla. Dist. Ct. of App. 1976). Another example is when the owner notifies the acquiring entity of the broker’s representation at a time when the government has plans to acquire the property. See, e.g., Smith v. Shannon, 666 P. 2d 351 (Wash. 1983). Moreover, in St. Joe Corp v McIver, 875 So. 2d 375 (Fla. 2004), the Florida Supreme Court held that a triable issue of fact existed as to whether a condemnation qualified as a “sale” and, therefore, a brokerage fee. However, no written contract existed between the broker and seller in that case, and the record demonstrated that the seller and broker were aware of, discussed, and took active steps to have the subject property condemned in order to obtain a higher price. Consequently, when a broker and seller agree or take actions demonstrating agreement to pursue condemnation or use condemnation as a method of sale, a brokerage fee could be recoverable.
It is important to note that at least Wisconsin has rejected the standard rule. In Sonday v Dave Kohel Agency, 293 Wis 2d 458 (2006), the Wisconsin Supreme Court held in broad terms that a condemnation constituted a “sale” under governing listing contracts, entitling the broker to a commission even though the acquisition was involuntary. However, this decision remains a minority rule.
Many government organizations are looking for specific properties for water detention, open space, or other uses beyond physical infrastructure. Florida seems to be the epicenter of the “voluntary purchase” programs, but I have also seen such offers to clients in Michigan and Ohio. If payment is involved, it is highly recommended that brokers include language in their contracts with sellers that addresses a “sale to government agencies” or “condemnation” to avoid barriers to recovery or litigation.
