Important Tasks Covered by a Listing Agreement
One of the main purposes of a listing agreement is to grant a broker authority to help you sell your property. The scope of that authority will depend entirely on the terms of the listing agreement and how it’s worded. In other words, a listing agreement allows a broker to do whatever specifically agreed to do in the written listing agreement. It’s not uncommon for a listing agreement to say the listing broker is authorized to advertise the sale of your property, show it to prospective buyers, and assist you with negotiation of the terms of a sale. In addition to those general activities , a broker may be granted powers to act on their client’s behalf to.
Disclosure of Material Information
The listing agreement may give a broker the power to disclose information regarding various types of conditions associated with the property, including:
Ability to Engage Additional Service Providers
A listing agreement may grant a listing broker the power to hire a home inspector, home stager, or organize cleaning. Many listing brokers will pay for these services up front and require reimbursement by the homeowner at the time of closing.
Different Types of Listing Agreements
There are a couple main types of listing agreements available. The seller can enter into an "exclusive right to sell" agreement; an "exclusive agency" agreement; or an "open" listing agreement.
An exclusive right to sell agreement is typically what is used. It gives the listing agent the exclusive right to market the property during the term of the agreement for a specified amount of time. If the property sells, the listing agent is entitled to be paid a commission and is entitled to the commission regardless of who sells the home. Many sellers and buyers sign this type of agreement in their State and the agent that assists the seller or buyer from another State on the sale or purchase of the property. The exclusive right to sell agreement gives the seller the ability to market the home on his or her own as well.
The exclusive agency agreement gives the listing agent the right to market the home, but the seller retains the right to sell the home on his or her own without paying a commission. Often, the agent and the seller will agree to pay the listing agent a partial commission if the seller sells the home on his or her own.
The open listing agreement allows someone to market the property, but the seller has the right to sell the property on his or her own without paying a commission. This type of agreement can lead to problems. The seller must be careful the agent or broker that he or she chooses to list with fully understands what that means. If the seller hires more than one agent, the seller really needs to track who has shown the property and what price they have been offered. The seller can actually receive no offers on the property in the MLS because other agents from other firms are working continuously with their buyers by showing properties that may be listed with that seller. If the seller uses an open listing, he or she must be proactive in seeking offers.
Agent’s Rights and Responsibilities
A listing agreement gives the broker certain rights — and obligations. The listing agreement is not a blanket license to do anything the broker wants. In fact, for the seller to be responsible for a broker’s actions, the broker must be acting within the scope of his authority or with the seller’s knowledge.
So what are the rights and obligations to which the broker is entitled? The standard broker practices the same way in every state.
Right to Compensation: It is clear that the broker earns a commission only when a ready, willing, able buyer is secured under terms acceptable to the seller, unless otherwise agreed. You may think that this concept is so obvious as to require no discussion, but unfortunately, this is not the case. Far too often, sellers want to attempt to impose other obligations on the broker. For example, the broker may find a buyer who wants to purchase on terms not acceptable to the seller. The seller then either blames the broker or ties up the broker’s time, telling the broker that the buyer is "buying the house, anyway." The seller expects the broker to persist in trying to convince the buyer to raise his bid, even though he knows that the buyer is not going to increase his offer. When that fails, the seller then blames the broker for having wasted his time. This scenario invariably leads to claims against the broker, who cannot be expected to do the impossible. As a result, brokers should explain to their clients their right to compensation and that right to compensation arises only when they find a purchaser on the terms the seller has set.
Exclusive Right to Represent: In an exclusive right to represent, the broker is entitled to the commission if, after the termination of the listing, the property is sold to a buyer the broker has obtained, usually during the listing period. Of course, the seller can still sell his property to that buyer without paying the broker a commission if the seller can show that the broker was retained by the seller in bad faith, on false pretenses, or with deliberate intent to deceive the seller.
Obligation to Cooperate with Other Brokers: In most listing agreements the broker agrees to cooperate with other brokers. An obligation is created by this provision, as it is commercially usual and indispensable. The seller, and the agent, expect and want cooperation. The compensation, however, should not be more than the normal level. For example, if a 10% total commission was the market norm for the industry, the total commission payable should not exceed 10% of the selling price, even if the seller sells the property on his own to one of those brokers who cooperates with listing brokers if the seller is not entitled to the full commission, he will have no one to blame but himself for signing the listing or other agreement.
Seller Perks
All parties, brokers and sellers, benefit from a listing agreement because its terms delineate the work that the broker will perform in exchange for a commission or fee. For example, in a 2010 Appellate Division decision, Jackson v. Cowgill, 2010 N.J. Super. Unpub. LEXIS 239 (App. Div. 2010), the seller enlisted a realtor to sell a residential property. Under the terms of the agreement, the realtor was required to "make a diligent and continuous effort to procure a buyer." The agent produced a photo brochure, ran an advertisement and sent a mass direct mail for the unit. Id. at *6-7. The seller eventually sued the realtor for not marketing the unit more aggressively, and the Appellate Division held that given the nature of the listing agreement between the realtor and the seller, the realtor "satisfied her duty to make ‘a diligent and continuous effort to procure a buyer’ through a photo brochure, an advertisement in two newspapers, and a mass direct mail." Id. at *8. In contrast in Centech Int’l, Inc. v. Responsive Design, LLC, 401 N.J. Super 303 (App. Div. 2008), the seller engaged the defendant property broker to market its property , and the broker agreed, among other things, "to actively place all listings on the [multiple listing service] and related marketing systems." Id. at 306-07. Three years later, the seller filed suit against the broker, claiming that the broker failed to adequately market the property or its website. The Appellate Division disagreed, finding that the seller had not demonstrated that the broker had any duty to consult with the seller or its staff regarding its website or marketing plan. Id. at 316-317. The foregoing agreements are mutually beneficial because brokers will perform more services in consideration for the increased compensation offered by sellers. For sellers, commission is typically 5% in New Jersey which can be divided between the buyer’s and the seller’s brokers. Brokers provide professional services which can help optimize the sale of a property. Those services include marketing the property on a Multiple Listing Service (MLS) which could be accessed through various platforms on the internet, and researching prices for properties nearby to suggest a reasonable price for the property to be sold.
Expiration and Termination
As soon as a listing agreement is signed, it binds the seller to allow the broker to market the property and the broker to procure a purchaser. Once a purchase offer is accepted it is binding on the seller to sell to that purchaser unless something causes the listing agreement to terminate or expire. There are several instances under the rules, regulations and customs of the real estate industry where this may occur: Signed Termination. The seller can sign a document terminating the agreement. An Assignment by the Broker. The broker, if the authorized by the seller, can assign the listing agreement to a third-party broker in exchange for a commission (or portion). Technically, the seller must consent to the assignment. A Broker Expiration. The force of the most common listing agreement has an expiration date. Upon that date, the listing agreement terminates as a matter of law, and the broker no longer has authority to act on behalf of the seller. Discharge. If the broker violates the fiduciary duties owed to the seller, the seller may be able to terminate the listing agreement. Bankruptcy or Death. If the seller declares bankruptcy or dies, the listing agreement may terminate as a matter of law. In all of these instances, it is a good idea to have the broker give written notice of the termination or expiration of the listing agreement. This way, there is no room for doubt that the listing agreement is no longer in force. Hopefully, with just a few simple steps, the seller will have a clear understanding when a listing agreement terminates or expires, and hopefully the seller will be able to work within the confines of his or her contract.
Legality and Best Practices
The legal landscape of real estate is dynamic, with case law affecting the efficacy of provisions in listing agreements for both brokers and sellers. To protect themselves adequately, brokers should be aware of these legal considerations and implement best practices accordingly.
Under California law, courts have held that a listing agreement may authorize an agent to make an offer to purchase real property on behalf of a principal and take title in the agent’s name for his or her personal use, or as a joint venture interest with the principal. (See Martin v. Vasquez, (2011) 194 Cal.App.4th 366, 373.) However, a listing agreement that does not include the approval of the principal of "the consideration involved in the purchase" is fraudulent because it leaves the principal open to liability for any debts the agent incurs from the purchase of the property. (Mimontieran v. Burbank (1992) 5 Cal.App.4th 36, 44-46.) In addition, the listing agent’s acceptance of the agent’s illegal dual agency can lead to liability for damages and may constitute unprofessional conduct that violates the Code of Ethics and resulting disciplinary action by DRE. (Cal. Code Regs., tit. 10 , § 2725.5.)
Brokers should advise their listing agents to avoid dual agency by declining to act for any buyer of property listed by the same broker while continuing to represent the seller, and instead refer the prospective buyer to a cooperating broker. A listing agreement may include warranties by the seller regarding the condition of the property and legal compliance. Commonly excluded from these warranties and disclaimers are defects, hazardous substances, property conditions, and the accuracy and completeness of information provided by the seller. Brokers should advise their sellers to be prudent in the exclusion section of the listing agreement and duly warn them of the risks associated with not including any expressed warranty with respect to a hazardous substance. The simplest way to protect the seller’s interest from existing or future assessments, fines or penalties imposed on the seller, its property, or any of its agents or contractors is to warrant sales proceeds from an asset representing the sale of the property, free and clear of any and all claims, demands, liabilities, obligations, liabilities, fees and expenses related to hazardous materials, with all applicable warranties and indemnities being provided.