Chapter 12 - Listing Agreements Flashcards
A listing agreement, the document that puts
an agent or broker in business, is a legally enforceable real estate agency agreement between a real estate broker and a client, authorizing the broker to perform a stated service for compensation
The unique characteristic of a listing agreement is tha
it is governed both by agency law and by contract law.
The cornerstones of agency law in the context of a listing agreement are:
definition of the roles of parties involved
fiduciary duties of the agent
agent’s scope of authority
The principal parties to the contract are the
listing broker and the client.
A broker or salesperson who assists the listing broker in finding a customer is an
agent of the listing broker and a subagent of the client
A listing agreement establishes an agency relationship between agent and client that commits the agent to
the full complement of fiduciary duties to the client in fulfilling the agreement.
Customarily, a listing is a special agency, or limited agency, agreement. Special agency limits
the scope of the broker’s authority to specific activities, generally those which generate customers and catalyze the transaction
A listing, like any contract, may terminate for any of the following causes:
performance, infeasibility, mutual agreement, rescission, revocation, abandonment, lapse of time, invalidity, and breach.
A valid listing may be
oral or written. However, many states consider only a written listing to be enforceable, particularly an exclusive right-to-sell listing
An oral listing, even if enforceable, limits a broker’s ability to remedy problems:
a contested oral listing must be supported by considerable evidence to be enforced
a broker may not be able to sue a principal for damages incurred under an oral lease
if the client dies, the broker may not be able to obtain compensation for a successfully performed oral listing
An express listing, verbal or written, manifestly authorizes
the broker to pursue certain actions for the client.
Since a listing agreement is a personal service contract, it is not
assignable
A broker may represent any principal party of a transaction:
seller, landlord, buyer, tenant
An owner listing authorizes a broker to
represent an owner or landlord. There are three main types of owner listing agreement: exclusive right-to-sell (or lease); exclusive agency; and open listing
A buyer agency or tenant representation agreement authorizes a broker to
represent a buyer or tenant. The most commonly used form is an exclusive right-to-represent agreement, the equivalent of an exclusive right-to-sell
Multiple listing is an authorization
to enter a listing in a multiple listing service.
The exclusive right-to-sell, also called exclusive authorization-to-sell and, simply, the exclusive, is the most
widely used owner agreement
An exclusive agency listing authorizes
a single broker to sell the property and earn a commission, but leaves the owner the right to sell the property without the broker’s assistance, in which case no commission is owed
An open listing, or, simply, open, is a
non-exclusive authorization to sell or lease a property. The owner may offer such agreements to any number of brokers in the marketplace
A net listing is one in which an owner sets
a minimum acceptable amount to be received from the transaction and allows the broker to have any amount received in excess as a commission, assuming the broker has earned a commission according to the other terms of the agreement
buyer and tenant representation agreements are subject to the same laws and regulations as those applying to owner listings. Thus:
a representation agreement may be an exclusive, exclusive agency, or open listing. As with owner listings, the most widely used agreement is the exclusive. In this arrangement, the buyer agrees to only work with the buyer representative in procuring a property.
an exclusive listing generally must have an expiration date along with other requirements of a valid listing.
state laws require an exclusive authorization to be in writing
At the formation of the relationship, the buyer agent has the duty to
explain how buyer or tenant agency relationships work. This is culminated by a signed agreement where the principal understands and accepts these circumstances.
In terms of agency, a transaction broker is in a
non-agency relationship with the seller or buyer
A multiple listing service is an organization of
member brokers who agree to cooperate in the sale of properties listed by other brokers in exchange for a share of the broker’s resulting commission.
An agent performs a listing agreement by achieving the result specified in the agreement. When and if the result is achieved
the agent’s performance is complete.
A ready, willing, and able customer is one who is:
amenable to the terms of the transaction (ready and willing)
financially capable of paying the price and legally capable of completing the transaction (able)
A listing agreement authorizes a broker to undertake actions relevant to
achieving the performance objective
Authorized activities by the client usually include the following:
show or seek property
locate buyer, seller, tenant, or landlord
communicate the client’s transaction terms
promote features and advantages of the terms to customers
assist in negotiating a meeting of the minds between parties
Due diligence in the listing context refers to
verifying the accuracy of the statements in the listing regarding the property, the owner, and the owner’s representations
Especially important facts for a broker or agent to verify during due diligence for a listing are:
the property condition
ownership status
the client’s authority to act
The amount of a broker’s commission is whatever amount the client and broker
have agreed to. Compensation may be in the form of a percentage of the sale or lease price, or a flat fee
Buyer agency agreements stipulate how
the agent will be compensated in the relationship.
A listing may terminate on grounds of:
performance: all parties perform; the intended outcome
infeasibility: it is not possible to perform under the terms of the agreement
mutual agreement: both parties agree to cancel the listing
revocation: either party cancels the listing, with or without the right
abandonment: the broker does not attempt to perform
breach: the terms of the listing are violated
lapse of time: the listing expires
invalidity of contract: the listing does not meet the criteria for validity
incapacitation or death of either party
involuntary title transfer: condemnation, bankruptcy, foreclosure
destruction of the property
Revoking a listing: Power vs. right
Both principals to the listing agreement have the power to revoke the contract at any time. They do not, however, always have the right. That is, client or broker may cancel a listing but remain liable for damages to the other party.
Revocation by client
If the client revokes the listing after the broker has already earned a commission, the client must pay the commission, no matter what type of listing it was.
If the broker has not fully performed prior to the revocation, the following guidelines apply:
exclusive right-to-sell: if the property sells during the term of the revoked listing, the client is liable for the commission. If the property does not sell, the client is liable for the broker’s actual costs.
exclusive agency: if the property sells during the term of the revoked listing, the client is liable at least for the broker’s costs and possibly for the commission. If the property does not sell during the term, the client is liable for the broker’s costs.
open: if revoked prior to performance, the client is generally not liable for any payment
Revocation by the broker.
If the broker cancels the listing or otherwise defaults, the client may sue the broker for money damages
A written listing, particularly an exclusive, is a formal contract which contains
the entirety of all agreements between the parties.
Requirements for exclusive listing agreements vary from state to state. Generally, a written listing agreement requires as a minimum
names of all owners
address or legal description of the listed property
listing price
expiration date
commission terms
authority granted
Exclusive right-to-sell clauses: Parties and authorization
The agreement should name all legal owners of the property, or duly authorized representatives of the owners, as the client party. It must also name the broker.
An authorization clause sets forth the nature of what the broker is allowed to do
Exclusive right-to-sell clauses: Real property
The real property description may include an address, but in some states it must include the legal description.
Exclusive right-to-sell clauses: Fixtures.
Typical agreements list what fixtures are included in the sale specifically, and “all other things attached or affixed to the property” generally. The seller must then enter which items are excluded from the sale.
Exclusive right-to-sell clauses: personal property
The listing agreement should include all personal property that is to be included in the transaction and listing price
Exclusive right-to-sell clauses: Listing price.
A clause usually sets forth the gross price for the property and possibly the financing terms the owner will accept, particularly if seller financing or assumption of the seller’s loan is involved.
Exclusive right-to-sell clauses: listing term
In most states, exclusive listings must have a specific beginning and ending date of the listing agreement
Exclusive right-to-sell clauses: Agent’s duties.
This clause specifies the broker’s responsibilities and authorization to carry out certain activities. These typically include marketing activities, multiple listing service activities, property access and showings, authority to allow other parties access, permission to inspect existing mortgage financing documents, and authority to accept deposits.
Exclusive right-to-sell clauses: Agent’s compensation.
Agent’s compensation. A clause will identify the broker’s fee and the necessary conditions for the fee to be earned.
Exclusive right-to-sell clauses: Protection period.
Many listings include a protection clause stating that, for a certain period after expiration, the owner is liable for the commission if the property sells to a party that the broker procured, unless the seller has since listed the property with another broker
Exclusive right-to-sell clauses: Multiple listing.
This provision obtains the seller’s consent to placing the listing in a multiple listing service and authorization to disseminate information about the listing to members.
Exclusive right-to-sell clauses: Cooperation with other agents.
This clause requires the seller to agree or refuse to cooperate with subagents or buyer agents in selling the property, under what terms, and whether the seller agrees to compensate these parties.
Exclusive right-to-sell clauses: Non-discrimination.
Most exclusive listings contain an affirmation that the agent will conduct all affairs in compliance with state and federal fair housing and nondiscrimination laws.
Exclusive right-to-sell clauses: Dual agency.
In the absence of disclosure and consent, dual agency represents a conflict of interest for the broker. A good agreement specifically asks the owner to consent to or refuse to allow the broker’s representation of both parties.
Exclusive right-to-sell clauses: Other disclosures by agent.
In addition to agency, other disclosures might be included to cover any direct or indirect interest the broker has in the transaction and special compensation the broker might be receiving from other parties connected with the transaction.
Exclusive right-to-sell clauses: Seller’s representations and promises.
the owner represents that he or she in fact owns the property in the manner stated in the listing, and is legally capable of delivering fee simple, marketable title.
The clause may further require the owner to warrant that he or she
is not represented by another party and will not list the property elsewhere during the listing period
will not lease the property during the listing period without approval
agrees to provide necessary information
will refer all prospects directly to the broker without prior direct negotiation
has reviewed a sample “Offer to Purchase and Sell” contract
will make the property presentable and available for showing at reasonable times upon notice by agent.
Exclusive right-to-sell clauses: Seller’s property condition disclosure
Most current listing forms require the seller to disclose the condition of the property to prospective buyers
Exclusive right-to-sell clauses: Seller’s title and deed.
A provision usually requires the owner to promise to deliver good and marketable title, title insurance, and to convey the property using a general warranty deed to a buyer.
Exclusive right-to-sell clauses: Flood hazard insurance
This clause requires the seller to disclose whether he or she is required to or presently maintains flood insurance on the property.
Exclusive right-to-sell clauses: Limitation of liability.
There is often a clause requiring the owner to indemnify the broker against liability resulting from casualty, loss, and owner misrepresentation during the listing period.
Exclusive right-to-sell clauses: Escrow authorization.
The seller authorizes escrow officers to disburse earned commission funds to the broker upon the broker’s instructions to do so
Exclusive right-to-sell clauses: IRS requirements; alien seller withholding
A clause may state that the seller will comply with IRS requirements for providing tax-related information. This ensures that a seller who is an alien understands that a buyer will be required to withhold a percentage of the sale price for the IRS.
Other listing provisions. An exclusive listing might also provide for:
mediation: in the event of a dispute, the owner agrees to arbitrate differences before filing a lawsuit
attorney fees: the losing party in a lawsuit must pay court costs and attorney fees
acknowledgment: the owner acknowledges reading and understanding the agreement
entire agreement: the listing cannot be changed without written agreement; the listing sets forth all agreements made
binding effect: listing is binding and enforceable
saving clause: if a portion of the agreement is invalid or unenforceable, the balance of the agreement remains valid as permitted by law
Notices to owner. Some listing agreements include notices to the seller concerning:
fee negotiability: the broker’s fee is the result of negotiations with the seller
fair housing laws: the broker and seller must comply with discrimination laws
keyboxes; security: the seller should take prudent measures to protect personal property and remove dangerous items that could cause injury
legal advice disclaimer: the broker cannot give legal advice
All owners and the broker must sign
the listing and indicate the date of signing.
Exclusive buyer agency clauses: The clauses which are virtually identical to the exclusive right-to-sell are:
the identity of the principal and the agent’s authorized activity
the description of the property desired in terms of location, price, size, etc.
the term of the agreement and its automatic termination
the buyer’s agreement to work exclusively through the agent
the agent’s duties to locate a suitable property according to the buyer’s specifications
the non-discrimination clause
signatures of the parties
Exclusive buyer agency clauses: Buyer’s representation of exclusivity.
Here the buyer affirms that he or she is not represented by another agent. In addition the buyer acknowledges an understanding of the agency relationship
Exclusive buyer agency clauses: Agent compensation.
This clause sets forth how the agent is to be paid, whether by retainer or commission, who is to pay the commission, and what the buyer owes the agent in the event the seller does not participate in the agent’s compensation. Second, the clause establishes the circumstances under which the agent has earned the commission.
Exclusive buyer agency clauses: Other buyers acknowledged.
In this provision, the buyer acknowledges that the agent is working with other buyers who may be in competition for any property the buyer is shown by the agent.
Transaction brokerage agreements vary
greatly among the states where this brokerage relationship is practiced.
Transaction brokerage clauses: Parties and property identification.
The agreement identifies the principals and if a seller, the description of the property to be sold, or if a buyer a description of the property desired.
Transaction brokerage clauses: Agent’s authorized activity.
This clause gives the agent the exclusive right and authority to sell or locate property for the principal
Transaction brokerage clauses: Non-agency declaration.
The agreement clearly sets forth that it is a non-agency personal services contract with a legally binding effect. This provision expressly states that the broker is not an agent of the buyer or seller and is not acting in a fiduciary capacity.
Transaction brokerage clauses: Transaction broker duties
Like other listings, this clause defines what activities the agent will undertake to earn compensation. Key words are ‘assist,’ or ‘offer information’ or ‘facilitate’ as opposed to ‘represent.’ Activities include web searches, showings, advertising, etc
Transaction brokerage clauses: Other buyers acknowledged.
If a buyer agreement, the buyer will acknowledge that the agent is working with other buyers who may be in competition for any property the buyer is shown by the agent
Transaction brokerage clauses: Compensation
This clause stipulates what the agent will be paid, by whom, and upon what circumstances, much like the buyer agency agreement. The clause will likely include that the compensation may be partially or wholly provided by the seller.
Transaction brokerage clauses: Buyer or seller duties.
Here the agreement states what the buyer or seller commits to do during the listing term, most notably to compensate the agent for fulfilling the agreement.
Transaction brokerage clauses: Agreement term.
the transaction agreement contains a beginning and ending date for the listing term. The term is extendable to closing if the principal buys or sells a property for which the settlement date is beyond the original expiration date.
Transaction brokerage clauses: Non-discrimination.
The agreement affirms that the agent will conduct all affairs in compliance with state and federal fair housing and non-discrimination laws.
Transaction brokerage clauses: Signatures of parties.
The signatures of the principal and agent affirm the agreement as well as acknowledge that the principal has received a copy of the agreement.
The most significant difference between an owner representation agreement and a buyer representation agreement is
the client
One of the most important actions an owner’s agent is authorized to perform under an exclusive listing agreement is
showing the property.
To be valid, a listing agreement
may be oral or written.
A landlord promises to compensate a broker for procuring a tenant, provided the broker is the procuring cause. This is an example of a(n)
open listing.
An owner agrees to pay a broker for procuring a tenant unless it is the owner who finds the tenant. This is an example of a(n)
exclusive agency agreement.
