Legal Definitions - net sale contract

A net sale contract is a specific type of agreement, most commonly encountered in real estate transactions, where a seller sets a minimum, non-negotiable price they wish to receive from the sale of their property. The real estate agent's commission or fee is then defined as any amount the property sells for *above* this predetermined net price.

This arrangement creates a strong incentive for the agent to secure the highest possible sale price, as their earnings directly increase with every dollar above the seller's minimum. However, due to potential conflicts of interest and ethical concerns (such as an agent potentially prioritizing their higher commission over the seller's broader interests or failing to present all offers), net sale contracts are often restricted or prohibited by law in many jurisdictions.

Here are some examples illustrating a net sale contract:

• Example 1 (Residential Property): Sarah wants to sell her house and needs to receive at least $300,000 after all closing costs. She enters into a net sale contract with a real estate agency. The contract states that the agency will receive as their commission any amount the house sells for above $300,000. If the house sells for $325,000, Sarah receives her $300,000, and the agency earns $25,000. If it sells for exactly $300,000, the agency earns nothing.
  • Illustration: This demonstrates a net sale contract because Sarah has set a specific minimum amount ($300,000) she must receive, and the agent's compensation is entirely dependent on selling the property for more than that threshold.
• Example 2 (Commercial Property): A small business owner, Mr. Chen, decides to sell his commercial building. He needs to recover at least $750,000 to pay off his business loans and relocate. He signs a net sale contract with a commercial real estate broker, stipulating that the broker's fee will be any amount the property sells for over $750,000. The broker successfully negotiates a sale price of $810,000.
  • Illustration: Here, Mr. Chen's agreement is a net sale contract because he established a fixed minimum amount ($750,000) he must receive from the sale, and the broker's entire commission ($60,000) is the surplus above that specified net amount.
• Example 3 (Undeveloped Land): A land developer, Green Acres LLC, owns a parcel of undeveloped land they wish to sell quickly. They agree with a land broker that Green Acres LLC must receive a net amount of $1.2 million from the sale. The broker's compensation is structured as a net sale contract, meaning any sale price achieved above $1.2 million will constitute the broker's commission. The broker finds a buyer willing to pay $1.35 million.
  • Illustration: This scenario exemplifies a net sale contract because Green Acres LLC specified a precise minimum net return ($1.2 million) they expected, and the broker's earnings ($150,000) are solely the difference between the actual sale price and that predetermined net amount.