Buyer and Listing Agreements Flashcards
You’ve spent the last two levels in the course learning about agency relationships. An employment agreement formalizes those agency relationships, and spells out exactly what each party needs to do.
Indeed, employment agreements are sometimes called agency agreements.
The Definition
Arizona license law defines a real estate employment agreement as “a written agreement by which a real estate broker is entitled to compensation for services rendered.”
In Arizona, a real estate employment agreement is not required for a licensee to represent a party in a transaction. However, I sure do advise you to get one. If there’s no written agreement, an agent cannot sue to receive their commission.
The Types
There are two general types of employment agreements:
The listing agreement, which is the agreement between a seller and a broker
The buyer representation agreement, which is the agreement between a buyer and a broker
In either case, the real estate employment agreement describes what the broker (or their sponsored agent) will do for the client, as well as what the client’s responsibilities are.
Agency relationships are unique in that the relationship between the client and broker is focused on the completion of a service, and the agreement does not extend beyond that completion of the objective. This differs from the traditional ongoing employer-employee relationship.
The Requirements
Under Arizona license law, all real estate employment agreements must:
Be written in clear and unambiguous language
Fully set forth all material terms, including the terms of broker compensation
Have a definite duration or expiration date, showing dates of inception and expiration
Be signed by all parties to the agreement
Between Employing Broker and Client
An employment agreement is always between the employing broker and the client. Even though the sponsored agent may be the one doing all the legwork, they are acting on behalf of the employing broker, while being supervised by the designated broker.
Employment Agreements: The Basics
Employment Agreements: The Details
Not Assignable
An employment agreement is not assignable. This means that an employing broker must not assign a real estate employment agreement to another broker without the express written consent of all parties to the agreement at the time of the assignment.
In other words, a broker can’t just hand their contract off to another broker unless everyone agrees to the change in writing. A brokerage can’t be all, “Hey, client, you’re getting on my nerves, I’m gonna give you to the brokerage down the street.”
No Interfering with Exclusive Agreements
If you enter into a contract with a buyer or seller who is already under contract with another licensee, you have procured an additional agreement.
For the most part, this isn’t allowed. Under the Arizona license law, a licensee must not procure, or attempt to procure, a real estate employment agreement from a party who is already subject to an existing exclusive real estate employment agreement.
EXAMPLE
Client Callie is exclusively represented by Broker Brenda. Broker Frankie may not try to steal Client Callie away from Broker Brenda.
Exception
In Arizona, a licensee can procure this additional agreement if the potential client approaches the agent:
Have received written acknowledgment from the party that the execution of additional real estate employment agreements could expose the party to liability for substantial additional commissions.
Have advised the client to get a release of liability from the first licensee.
If a licensee doesn’t follow these two rules, they are interfering with exclusive representation, and that, my friend, is a license law violation.
EXAMPLE
Broker Frankie has Client Callie sign an acknowledgment that if she signs an employment agreement with him, she may be on the hook for double commission – once to Broker Brenda, and again to Broker Frankie.
Broker Frankie also advises Client Callie to get a release of liability from Broker Brenda.
Although Arizona does allow licensees to procure a second contract this way, this act could still violate the National Association of REALTORS® Code of Ethics. If you’re a Realtor, you may have committed an ethics violation.
But wait! Before you sign an employment agreement with anyone, you must provide the agency disclosure form. Remember, an agency relationship can NOT be established without agency disclosure via the Real Estate Agency Disclosure and Election form.
Let’s review from earlier in the course, shall we?
First Substantive Contact
First substantive contact is a trigger for agency disclosure. This is the critical point at which agency disclosure is required. It generally occurs at the first face-to-face meeting with the customer and prior to:
Sharing of confidential information
Any discussion or action regarding a specific property
Informed Consent
Informed consent refers to the principle that clients and customers must understand and be aware of certain actions or agency relationships prior to implementation.
Before an individual agrees to an agency relationship, they need to understand what it is they are getting into. And if they are not entering into an agency relationship with a licensee, they still deserve to know of any existing agency relationships.
A Choice of Agency Relationships
In the form, the broker discloses the three possible types of agency relationships that are available. The three possible agency relationships are:
Buyer’s Broker: Exclusive, fiduciary representation of the buyer
Seller’s Broker: Exclusive, fiduciary representation of the seller
Broker Representing both Seller and Buyer (Limited Representation): Dual agency representation of both seller and buyer
Your Copy of the Disclosure Form
Here’s your personal copy of the Arizona Association of REALTORS® Real Estate Agency Disclosure and Election form. Click it to see the whole thing!
The Arizona Real Estate Agency Disclosure and Election form.
Agency Disclosure: A Review
Alright! Now that you have reviewed what needs to happen before the employment agreement (agency disclosure!) let’s get familiar with the types of employment agreements.
Listing Agreements
Written agency between a broker and a seller will usually take the form of a listing agreement, in which a principal authorizes the broker and any affiliated salespersons to assist the principal in the sale of real property.
Signing this agreement transforms the customer into a client and the broker into a listing agent.
Buyer Representation Agreements
Written agency between a broker and a buyer will usually take the form of a buyer representation agreement (also known as a buyer agency agreement or an exclusive right to locate property) in which a buyer authorizes the broker and any affiliated salespersons to assist the buyer in the procurement of real property.
Signing this agreement transforms a buyer into a client and the broker into a buyer’s agent.
A hand signs a contract held on a clipboard.
Overview of Agreements
Employment agreements are governed by two law domains: agency law and contract law. Employment agreements are written contracts that oversee the practice of agency, so it makes sense that agency agreements would need to adhere to the laws that govern both areas.
Agency Law
There are laws that regulate the practice of agency, including:
The roles of the broker and client
The fiduciary duties of the agent
The scope of the agent’s authority
Contract Law
Contract law governs the practice of using contracts, including:
The validity of a contract
The legal form of a contract
How a contract can be terminated
Agency Law and Contract Law
You know what goes into the creation of an employment agreement, but what about termination? Let’s review the ways a written employment agreement can come to an end.
Expiration
It’s not ideal, but if the obligations of the contract are not met (ex: a house didn’t get sold) by the expiration date on the contract, the agreement automatically terminates.
Infeasibility
This occurs under circumstances that make the performance of the contract impossible. If the listed property is somehow destroyed, or in cases of condemnation, bankruptcy, or foreclosure, it’s no longer feasible to sell the property as agreed.
A contract can also terminate via infeasibility if the parties are no longer able or qualified to perform. If a broker’s license is revoked, they legally cannot represent the client.
Bankruptcy, Death, or Incapacitation
If the broker or client dies or is incapacitated, that’s also grounds for termination.
Note 1: While a listing can be terminated if the broker or seller goes bankrupt, it cannot be terminated if the buyer goes bankrupt.
Note 2: If a sponsored agent dies, goes bankrupt, etc., the designated broker could reassign the client to another sponsored agent in the firm. A sponsored agent’s incapacitation is not grounds for termination.
Mutual Agreement
If things just aren’t working out and both parties decide it’s a good idea to terminate the contract, they can do that. It’s a contract, not a prison sentence!
Abandonment
If a broker isn’t even attempting to fulfill their duties, that is considered abandonment and the contract can terminate.
Breach or Invalidity
If the contract is not valid for some reason (it wasn’t signed, there wasn’t an expiration date, etc.), it ceases to exist. If a party breaches or violates the terms of the contract, the other party may choose to terminate it.
Revocation
Both parties to an agency agreement have the power but not the right to revoke it. This means you can always revoke a contract; you just might have to pay some damages.
Revocation by the client is only possible if the broker has not yet earned the commission. The client may walk away without paying a dime, or they might be responsible for compensating the broker for their expenses and not the commission, all depending on the details of the contract.
If the broker cancels or defaults on the agreement, the client may be able to sue for damages.
Agency Coupled With Interest
A seller or the broker, then, can unilaterally terminate a listing. Depending on the contract, the other party may be able to seek damages. However, a seller may NOT unilaterally terminate a listing without cause if there is agency coupled with interest. This might mean that the broker pays the seller’s loan debt to avoid foreclosure, the broker pays to fix up the house to increase its marketability, etc.
Terminating an Employment Agreement
I saved the best method of termination for last!
Clearly, the most desirable way to terminate an employment agreement is through the fulfillment of its purposes — such as the home getting sold or bought. The term you’ll hear often to describe this is performance.
Performance is the fulfillment of an obligation, duty, or contract.
Performance in Action
Performance means different things for different agents. It can look like:
A listing agent attracting a ready, willing, and able buyer who purchases the seller’s property 👀
A buyer’s agent assisting in the evaluation of a property 🔎
A listing agent assisting in the marketing of a property 📰
An agent assisting their client in the negotiation of a sales price 💰
Performance Is Tied to Compensation
Compensation is often tied to performance. As you learned, an employment agreement should clearly state the terms of broker compensation.
As you may remember from earlier in the course, all compensation must go to the employing broker. The designated broker will then pay sponsored licensees (that is, the salespersons and/or associate brokers who worked with the client on behalf of the broker).
Performance
You’re studying to get your real estate license because you want to help people find their dream homes and to make some money. By understanding Arizona’s laws in regards to employment agreements, you can help ensure that you earn your well-deserved compensation, Anthony.
But before you go, let’s review some of the important terms, concepts, and principles you’ve learned along the way.
Key Terms
Here are the key terms you learned in this chapter:
employment agreement
a written agreement by which a real estate broker is entitled to compensation for services rendered
performance
the fulfillment of an obligation, duty, or contract
due diligence
a legal term used to describe the reasonable steps a person must take in order to satisfy a legal requirement
Key Concepts & Principles
Here are the concepts and principles you’ll want to master from this chapter.
Real Estate Employment Agreements
The must-haves and can’t-haves of an employment agreement.
Image description
General Types of Employment Agreements
Written agency between a broker and a seller will usually take the form of a listing agreement, in which a principal authorizes the broker and any affiliated salespersons to assist the principal in the sale of real property. Signing this agreement transforms the customer into a client and the broker into a listing agent.
Written agency between a broker and a buyer will usually take the form of a buyer representation agreement in which a buyer authorizes the broker and any affiliated salespersons to assist the buyer in the procurement of real property. Signing this agreement transforms a buyer into a client and the broker into a buyer’s agent.
Terminating Employment Agreements
Here are the ways a written employment agreement can come to an end:
Expiration
Infeasibility
Mutual agreement
Abandonment
Breach or invalidity
Revocation
Performance (most desirable!)
Chapter Summary
You’re studying to get your real estate license because you want to help people find their dream homes and to make some money. By understanding Arizona’s laws in regards to employment agreements, you can help ensure that you earn your well-deserved compensation, Anthony.
But before you go, let’s review some of the important terms, concepts, and principles you’ve learned along the way.
Key Terms
Here are the key terms you learned in this chapter:
employment agreement
a written agreement by which a real estate broker is entitled to compensation for services rendered
performance
the fulfillment of an obligation, duty, or contract
due diligence
a legal term used to describe the reasonable steps a person must take in order to satisfy a legal requirement
Key Concepts & Principles
Here are the concepts and principles you’ll want to master from this chapter.
Real Estate Employment Agreements
The must-haves and can’t-haves of an employment agreement.
Image description
General Types of Employment Agreements
Written agency between a broker and a seller will usually take the form of a listing agreement, in which a principal authorizes the broker and any affiliated salespersons to assist the principal in the sale of real property. Signing this agreement transforms the customer into a client and the broker into a listing agent.
Written agency between a broker and a buyer will usually take the form of a buyer representation agreement in which a buyer authorizes the broker and any affiliated salespersons to assist the buyer in the procurement of real property. Signing this agreement transforms a buyer into a client and the broker into a buyer’s agent.
Terminating Employment Agreements
Here are the ways a written employment agreement can come to an end:
Expiration
Infeasibility
Mutual agreement
Abandonment
Breach or invalidity
Revocation
Performance (most desirable!)
Chapter Summary
