Ch. 6 - Listing Contracts
NET LISTING
A net listing is not technically a type of listing agreement. In a net listing, an owner sets a minimum amount that he wants to receive from the sale of the property and lets the broker have as commission any amount above the set minimum. For example, Seller John tells Broker Bill that he wants $100,000 from the sale of his home. Broker Bill sells the home for $125,000, so Bill gets a $25,000 commission. While in this type of situation the seller is getting what he or she wants for the sale, it creates a conflict of interest for the broker. It essentially violates the broker's fiduciary responsibility of putting the client's interests above his or her own. Net listings are generally viewed as unprofessional and are discouraged in California. Net listings are illegal in many states.
When the broker and seller agree that the broker can receive commission for a specified number of days after the listing expires if selling to a "named" party on a list, it's referred to by what term?
Safety clause
Which of the following statements is not true about a net listing?
Sets a limit on the commission a broker can earn.
RESIDENTIAL LISTING AGREEMENT
The California Association of REALTORS® listing agreement is probably the one that you will use most frequently. Since it is a legal, binding contract, it's important that you understand it and can fill it out correctly. Depending on the details of a particular transaction, the wording you use on the form may vary. However, the listing contract contains several basic components. Click here to open and print the Residential Listing Agreement* and we will review this form over the next screens. * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied.
EXCLUSIVE-AUTHORIZATION-TO-ACQUIRE-PROPERTY
This listing agreement is similar to the exclusive-authorization-and-right-to-sell listing brokers have with sellers, which we will go over in detail in this chapter. However, this agreement authorizes the broker to act as the agent of the buyer rather than the seller. When legally becoming an agent for the buyer, the broker owes the same duties and responsibilities to the buyer as a listing agent owes to a seller. The commission is negotiable and, as with exclusive seller listing agreements, this agreement must also specify a definite termination date. The commission might be paid by the seller as part of an agreement through the local Multiple Listing Service. If a buyer chooses to compensate the broker, the broker is more apt to show all types of available properties, including FSBOs, foreclosures, probates and other available but unlisted properties. Click here to view and print a copy of the Buyer-Broker Agreement*. * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied.
What does the security and insurance clause of the listing agreement address?
This section states that the broker is not responsible for loss or damage to the property, even with a lockbox present. The seller must take steps to safeguard any valuables and obtain insurance to cover the risks.
What does the safety clause in the listing agreement do?
Allows the broker to receive a commission under certain conditions if he or she sells the property within a specified number of days after the listing contract expires.
EXCLUSIVE AGENCY
An exclusive agency agreement gives one broker the exclusive right to market and sell the property, while the owner retains the right to find a buyer and sell the property without owing the broker a commission. The seller must pay a commission only if the home is sold by the broker or an authorized agent or subagent of the broker. In other words, if Broker Bill sells the property, he gets the commission. But if owner Jim sells his own property, Bill gets no commission.
OPEN LISTING
An open listing is a non-exclusive contract, authorizing a broker to serve as the agent for either the sale or the purchase of property. With this type of listing, a broker is not under the same obligation to perform as with other listing agreements; so an open listing is often considered to be a unilateral contact. This type of listing gives the seller or buyer the right to engage any number of brokers as agents. With an open listing, all contracted brokers can market the property or search for property at the same time. But only the one broker who brings the ready, willing and able buyer to the seller or who finds the right property for a buyer will receive the commission. In addition, with an open listing, a seller could sell the property himself or herself and a buyer could make a purchase himself or herself without having to pay any commission to any broker. Open listings are rare, since they offer the least assurance that the broker will receive compensation for his or her efforts.
Describe an open listing.
An open listing is a non-exclusive listing that allows a seller or buyer to engage a number of different brokers to sell or help purchase property. The broker who brings the buyer or finds the suitable property gets the commission. If the owner sells the property or the buyer finds his or her own property, no commission is owed to any broker.
An agent must give a copy of the listing agreement to the sellers:
At the time the agreement is signed.
The Lead-Based Paint Disclosure is required for homes built:
Before 1978
In the listing agreement, a seller can choose to decline/disapprove all but which of the following items?
Broker compensation to other brokers
LISTING PACKET FORMS
Completed Residential Listing Agreement (RLA) This is the listing agreement form we explained in detail on the previous screens of this chapter. A buyer has no need to ever see this agreement. Seller's Advisory (SA) This form talks about some things regarding disclosures that sellers need to think about and do as they market their property. Disclosure Regarding Real Estate Agency Relationships (AD) This disclosure describes the agency relationships available in California - Seller's agent, Buyer's agent and Dual agent. We covered this form in the earlier chapter on mandatory disclosures. Seller's Affidavit of Nonforeign Status and/or California Withholding Exemption (AS) This form deals with an IRS requirement that a buyer may need to withhold income tax if the seller is a "foreign person." A seller may need to consult a tax advisor for help filling out the form. The buyer should also get a copy of this form. Real Estate Transfer Disclosure Statement This is the disclosure of the property's condition that we discussed in the chapter on mandatory disclosures. Supplemental Statutory and Contractual Disclosures (SSD) The seller fills out this form to disclose awareness of a number of factors, such as death on the property, insurance claims against the property, location in or near an industrial zone, etc. Sellers who don't feel qualified to answer the questions on this form can hire someone to help with it. Smoke Detector Statement of Compliance (SDS-11) California law requires at least one operable smoke detector in every single-family dwelling. Many local requirements are stricter. This form, signed by the seller, states that the home is in compliance with CA law. Water Heater Statement of Compliance (WHS-11) This mandatory seller disclosure deals with the law requiring water heaters to be strapped, braced or anchored to resist earthquake motion. It's important to check local ordinances for stricter requirements. Lead-Based Paint and Lead-Based Paint Hazards Disclosure, Acknowledgment and Addendum (FLD-11) This disclosure deals only with properties built prior to 1978. We covered this disclosure in a previous chapter. Natural Hazards Disclosure Statement (NHD) and Combined Hazards Book California requires the disclosure of several natural hazards. As we explained in the earlier chapter on mandatory disclosures, providing this booklet fulfills many of these disclosure requirements. Estimated Seller's Proceeds (ESP-11) This form estimates what the seller can expect to walk away with after the sale. We discussed this form in the chapter on listing presentations. Notice to Buyers and Sellers - Defective Furnaces in California This is not a standard form, but one that the broker should create to give to sellers. It explains that the Consumer Product Safety Commission has issued a warning for a certain type of horizontal gas-fired attic furnace, manufactured by Consolidated Industries, which has been known to cause fires. The form should have a place for signatures of both the sellers and the buyers, acknowledging receipt of the form and their understanding of the warning and what it implies. Having clients sign this form may help to relieve brokers of any responsibility if a problem arises in the future. Home Warranty Application or Waiver Many sellers offer home warranties as a sales incentive to protect the buyer from any major failures for up to a year after purchase. If the seller is not interested in providing this warranty, you should have the seller sign a waiver indicating the policy was explained and declined. Note: If the seller is not interested, offer the warranty option to the buyer. If the buyer is also not interested, be sure to get a waiver signed. Brokers can also choose to purchase a home warranty as a good incentive to offer clients.
Which of the following forms is non-standard and should be prepared by a broker to give to sellers?
Defective Furnaces in California
Which kind of listing gives one broker the right to sell, but allows the owner to sell the property and not owe a commission to the broker?
Exclusive agency
What is the agreement that a broker can enter into with a buyer?
Exclusive-Authorization-to-Acquire-Property agreement authorizes the broker to work as the agent for the buyer rather than the seller.
Which is true of an exclusive-authorization-to-acquire-property agreement?
It must specify a definite termination date
What does the Water Heater Statement of Compliance address?
It's a mandatory seller disclosure dealing with the law requiring water heaters to be strapped, braced or anchored to resist earthquake motion.
All of the following are valid listing agreements. Which one is illegal in many states?
Net
Which of these documents is for sellers only and not for buyers?
Residential Listing Agreement
This section is where you put the name of the owner, the name of the real estate office that is obtaining the listing, the beginning and ending dates of the listing period and the physical address of the property, including city and county. In some situations, you may need to attach a signed copy of a legal description. If you are a salesperson, you should write your broker's name in this section. You will sign the form at the bottom of page 3. Paragraph 2 - Items Included and Excluded This is the section to list any personal property that may be included as part of the sale or any real or personal property that is being excluded from the sale. This will avoid later misunderstandings Paragraph 3 - Listing Price and Terms This is the section to indicate the asking price for the property. There is also space to indicate any financing terms, such as loan assumption, down payment amount, all cash, etc. Note that unless the terms are specified, a seller is not required to pay a commission when refusing a full price offer unless the offer is all cash. Paragraph 4 - Compensation to Broker This paragraph has several subparagraphs. Subparagraph A is the place to fill in the mutually agreed upon commission the seller will pay the broker. It can be a percentage or a specific amount, although percentage is preferred because it will adjust according to the actual sales price. Paragraph 4 - Compensation to Broker Subparagraph A-2 is known as the safety clause. Here the broker and sellers agree to a specific number of days after the listing expiration during which the broker may still receive a commission. This clause is enforceable if the owner, or his or her new agent, sells the property to a buyer whose name appears on a list of persons to whom the original broker showed the property during the listing period. This list must be given to the owner within three calendar days after the listing expiration. Subparagraph A-3 states that the broker is still entitled to a commission if the seller makes the property unmarketable by any voluntary act during the listing period. Subparagraph B states that if a party other than the seller prevents the completion of the sale, the commission due will be the lesser of the commission due under paragraph 4A or one-half of the damages recovered by the seller, after the seller has deducted all expenses. Paragraph 4 - Compensation to Broker Subparagraph C provides for any additional compensation to the broker, such as advertising fees or MLS fees. Note: Some brokers charge a document preparation or transaction fee. If that's the case, those charges should be clearly indicated here. Subparagraph D indicates that the broker has informed the seller of the firm's policy of dealing with cooperating brokers and how the commissions are divided. Subparagraph E indicates that the seller will have escrow pay the broker's commission directly from the sale proceeds. Subparagraph F is the owner's warranty that he or she is not obligated to pay a commission to any other broker if the property sells within the listing period, except if the property is sold to any of the listed prospective buyers. If one of the listed buyers makes the purchase, the current broker will not receive compensation and is then not obligated to represent the seller in the transaction. Paragraph 5 - Ownership, Title and Authority This section warrants that the owners are the only title-holders of the property and therefore have authorization to sell it. Paragraph 6 - Multiple Listing Service This section states that the broker will provide the transaction terms to the Multiple Listing Service, unless the seller signs a form to withhold the listing. Paragraph 7 - Seller Representations This section indicates that the seller is unaware of any legal, financial or physical reasons that would affect the seller's ability to sell the property. If the seller becomes aware of any such reasons, the seller must notify the broker immediately. Paragraph 8 - Broker's and Seller's Duties In this section the broker agrees to use due diligence to achieve the purpose of the listing agreement. The seller agrees to consider all good faith offers on the property, to make the property available for showings, to take responsibility for all information the seller provides to the broker and to hold the broker harmless for any claims resulting from the information given to or withheld from the broker. Paragraph 9 - Deposit This section authorizes the listing agent to accept and hold any deposits on the seller's behalf which will be applied to the purchase price. Paragraph 10 - Agency Relationships This section explains that the broker represents the seller. The broker will not represent the buyer; however, if the listing agent finds a buyer, it may be necessary for the broker to act in the capacity of a dual agent. This section also informs the seller that the broker represents other sellers. Agency relationship must be confirmed prior to or concurrent with the execution of a purchase agreement. Paragraph 11 - Security and Insurance This section states that the broker is not responsible for loss or damage to the property, even with a lockbox present. The seller must take steps to safeguard any valuables and obtain insurance to cover the risks. Paragraph 12 - Keysafe/Lockbox This section defines a lockbox and states that persons using the lockbox are not insured against theft, damage, vandalism, etc. that could be attributed to lockbox use. There is a box for the seller to check if he or she does not want a lockbox used. Paragraph 13 - Sign In this section the seller checks a box if he or she does not want a sign on the property. Paragraph 14 - Equal Housing Opportunity This section states that the property is offered in compliance with all anti-discrimination laws. Paragraph 15 - Attorney Fees This section states that the loser of a suit or arbitration of any disagreement must pay the associated costs. Paragraph 16 - Additional Terms This section provides space for any agreement or terms not covered by any other section, such as a seller paying for a termite report. Paragraph 17 - Management Approval This section states that if an associate licensee entered into this agreement, the broker has a right to cancel within 5 days. Paragraph 18 - Successors and Assigns This section states that the agreement is binding on the seller and the seller's successors and assigns. Paragraph 19 - Dispute Resolution Subparagraph A says that the broker and the seller agree to mediate any disputes that arise from this agreement before taking any other action. Subparagraph B explains arbitration, but arbitration will not be executed unless both the broker and seller have initialed the appropriate spaces at the end of the paragraph. Do not try to explain this paragraph to the sellers. If they do not understand it or don't know how to proceed, advise them to consult an attorney. This paragraph also describes those types of matters that would be excluded from arbitration. Paragraph 20 - Entire Contract This section states that this agreement supersedes all previous discussions, negotiations and agreements between the seller and the broker. Therefore, anything that is not written into this agreement is not part of the agreement. ignature Section All the sellers must sign and date the agreement and provide their addresses, and other available information. You must then fill in your firm's name, sign your name directly below and then provide other information about the firm. California law requires that the sellers receive a copy of the listing agreement at the time the signatures are obtained. Note: If the owner is married, both spouses should sign the agreement, even if the property is held in the name of only one of the spouses. Because of California's community property laws, a buyer might have difficulty suing for specific performance if both seller signatures are not on the listing agreement.
RESIDENTIAL LISTING AGREEMENTParagraph 1 - Exclusive Right to Sell
LISTING AGREEMENTS
The listing agreement is a legally-binding contract that creates an agency relationship authorizing a broker to serve as the agent for a principal in a real estate transaction. Most listing agreements are bilateral employment contracts - meaning that a buyer or seller promises to pay a commission in exchange for the broker's promise to locate a "ready, willing and able" buyer for the seller or a suitable property for the buyer. Listing agreements must be in writing to be enforceable. Oral listings do not afford a broker any legal protection. If the listing agreement is not in writing, a broker could not collect his or her commission if the seller refused to pay.
EXCLUSIVE-AUTHORIZATION-AND-RIGHT-TO-SELL
The most widely used agreement is the exclusive-authorization-and-right-to-sell listing. Under this arrangement, the broker has the exclusive right to market the property for a specified period of time. If the property sells while the broker has the listing, the seller must pay the agreed upon commission, regardless of who actually procured the buyer (who was the procuring cause). This means that even if the seller himself finds the buyer with no help from the broker, the seller still owes the broker the commission. When a broker enters into this type of listing, he or she becomes more willing to expend the time, energy and funds to actively market the property. An exclusive-authorization-and-right-to-sell listing gives the broker the greatest assurance that he or she will receive compensation for his or her marketing efforts. And as a result, sellers usually see a quicker and more profitable sale of the property. Note: All exclusive listing contracts must contain a definite termination date. A licensee could be subject to disciplinary action for receiving a commission for a transaction if the agreement did not have a definite end date. Additionally, a seller may refuse to pay a fee to the broker for finding a buyer if the listing contract does not have a definite termination date.
What is an important thing to remember about listing agreements?
They must be in writing to be enforceable.
What does the paragraph in the listing agreement titled "Entire Contract" deal with?
This paragraph states that the agreement supersedes all previous discussions, negotiations and agreements between the seller and the broker. Therefore, anything that is not written into the agreement is not part of the agreement.
What is the major difference between an exclusive-authorization-and-right-to-sell listing and an exclusive-agency listing?
With exclusive-right-to-sell, the broker has the exclusive right to market the property and receive a commission regardless of who procures the buyer. With exclusive agency, the owner retains the right to find a buyer and sell the property and owe the exclusive broker no commission.
