Chapter 12: Listing Agreement and Servicing Listings

Net Listings

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. It's not technically a type of listing agreement. They are generally viewed as unprofessional and are illegal in many state. 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.

Conflicts of Interest

As we mentioned on a previous page, this provision would state any possible conflicts of interest the broker or his or her agent may have. For example, a buyer's representation agreement would state that the buyer understands the broker has other buyers who may potentially be in competition for a similar property. Likewise, a listing agreement may state the broker may have other listings similar to the seller's property.

Special Expiration Considerations

A listing agreement will often address the obligations of the parties after expiration of the contract. Three important considerations include: 1. The seller is not required to notify the agent of intent to cancel the agreement after its expiration. Once the expiration date has passed, the agreement has expired. 2. The broker is not obligated to show the seller any offers after the expiration date unless the agreement is extended. 3. The seller may still be liable to pay compensation if the property is sold to a buyer who was first shown the property during the term of the listing agreement.

Bilateral Employment Contracts

The owner hires the broker and promises to pay a commission in exchange for the broker's promiseto locate a "ready, willing and able" buyer or tenant for the owner.

Listing Agreements

Must be in writing to be enforceable. Oral listings don't give a broker any legal protection in that a broker could not collect his or her commission if the seller refused to pay.

Names of Parties

Representation agreements will always include the name of the seller or buyer and the name of the broker. Remember, an agency agreement is always between the client and the broker, not the client and the licensee.

PA Law requires that brokers follow these rules regarding listings:

1. A broker may act for more than one party in a transaction ONLY with the knowledge and consent in writing of all the parties involved. 2. A broker may place a "for sale" or "for rent" sign on or advertise a property ONLY with the written consent of the owner or the owner's authorized agent. This included MLS sites. 3. A broker must voluntarily furnish a copy of the listing, sale, lease, or other contract relevant to the transaction to all persons signing the contract at the time of execution. 4. The listing contract must specify a definite termination date that is not subject to prior notice. 5. A broker may not induce any party to an existing contract to break that contract for the purpose of substituting a new contract, when the substitution is motivated by the broker's personal gain. 6. A broker must abide by the Pennsylvania Human Relations Act by refusing to accept a listing if the seller wants or expects the broker to discriminate illegally against a prospective purchaser.

PA rules also apply:

1. A broker must not solicit the sale of a property from an owner so frequently that it becomes clear harassment of that owner. 2. A broker may not make frequent efforts to sell a property in a particular neighborhood because of fear of declining real estate values when the fear is not based on facts relating to the intrinsic value of the real estate itself. (Panic selling) 3. A broker must provide the Consumer Notice (discussed in an earlier chapter) to any person who wants to sell or purchase residential or commercial real estate. 4. A broker who sells or leases his own real estate must disclose that he or she is a real estate licensee when advertising the property, unless the property is listed with a real estate company.

An exclusive agreement may NOT contain:

1. A listing period exceeding 1 year 2. An automatic renewal clause 3. A cancellation notice to terminate the agreement at the end of the listing period on the date set as the ending date in the agreement 4. Authority of the broker to execute a signed agreement of sale or lease for the owner or lessor 5. An option by the broker to purchase the listed property 6. Authority of the broker to confess judgment against the owner or lessor for the Commission in the event of a sale or lease

3 Most Common Types of Listing Agreements:

1. Exclusive Right to Sell Agreement 2. Exclusive Agency Agreement 3. Open Listing Agreement

The provisions normally found in listing and buyer representation agreements include the following:

1. Names of the parties 2. Term of contract 3. Property information 4. Pricing information 5. Description of services 6. Conflicts of interest 7. Compensation 8. Rights, obligations, and liabilities of all parties 9. Dispute resolution 10. Fair housing 11. Criminal information 12. Binding agreement 13. Fax and electronic signatures 14. Signatures of all parties

Similarly, in order for the broker to fulfill the obligations set forth in the contract, the seller also has obligations, including:

1. Provide the broker complete and accurate information regarding the property 2. Grant entry to potential buyers to view the property 3. Allow for inspections, if applicable 4. Maintain the property 5. Allow the broker to take and use photos and/or videos in relation to marketing the property

PA Licensing Law requires all written agreements to contain the following statements:

1. The broker's fee and the duration of the contract have been determined as a result of negotiations between the broker and the consumer. 2. A description of the nature and extent of the broker's services that will be provided to the consumer and the fees the broker will charge. 3. An explanation of the possibility that the broker or any licensee employed by the broker may provide services to more than one consumer in a single transaction with an explanation of the duties that may be owed to each party and the fees the broker could receive for those services. 4. A description of the broker's policies regarding cooperation with subagents and buyer agents or listing agents (depending on whether the consumer is a buyer or seller) and the potential for disclosed dual agency. 5. A notification that the broker will hold any money received by him or her in connection with a sale until the sale is consummated or terminated. 6. An explanation of the Real Estate Recovery Fund and a telephone number where the consumer can receive further information about the fund. 7. A statement regarding any possible conflicts of interest and informing the consumer the licensee has a continuing duty to disclose any conflicts in a timely manner.

An Exclusive Listing Agreement (whether exclusive-right-to-sell or exclusive agency) must contain:

1. The sale or lease price 2. The commission, fees or other compensation expected on the sale or lease price 3. The duration of the agreement 4. In the case of an exclusive-right-to-sell agreement, a statement in bold print that the broker earns a commission on the sale of the property during the listing period, regardless of who makes the sale, including the owner 5. In the case of an exclusive-right-to-lease agreement, a statement in bold printthat the broker earns a commission on the lease of the property during the listing period, regardless of who makes it happen, including the lessor

Buyers are Obligated to:

1. Work with the broker exclusively (if an exclusive right to buy agreement) 2. Provide adequate information to help the broker find a suitable property 3. Assist the broker in negotiating and finalizing a purchase contract

Examples of Broker Duties to Buyers Include:

1. help locate a property that is suitable to the buyer 2. represent the buyer during the negotiations and throughout the transaction

Open Listing Agreement

A non-exclusive contract, authorizing a broker to serve as the agent for either the sale or the purchase of property. 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 contract. A seller could sell the property him/herself and a buyer could make a purchase him/herself without having to pay any commission to a broker. They are rare, since they offer the least assurance that the broker will receive compensation for his/her efforts. 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 light of this, brokers may not put much effort into marketing the property. Negative situations arise when licensees from 2 competing broker negotiate with the eventual purchased of the property, leading the way for a dispute over which licensee was actually the procuring cause.

Buyer Agency/ Tenant Representation Agreement

A type of listing agreement, authorizing a broker to represent a buyer or tenant in the search for a property to rent or purchase.

Description of Services

Agency representation agreements will always include provisions on what services the broker will provide to either the seller or buyer. For example, in a listing agreement, the broker and the broker's agents will do their best to secure a sales contract for the property that is acceptable to the seller. In a buyer representation agreement, the broker and his or her agents will do their best to find a property the buyer wants to purchase and represent the buyer throughout the transaction.

Rights, Obligations, and Liabilities of all Parties

As you can imagine, there are various paragraphs throughout agency representation agreements that address the rights, obligations, and liabilities of both parties. Examples of obligations a broker owes to a seller in a listing agreement include: 1. Use the broker and the broker's agents' best effort to secure a contract for sale 2. Market and advertise appropriately to find a buyer 3. Communicate with the seller regarding the status of the broker's efforts 4. Present all offers to the seller, unless indicated by the seller otherwise On both listing and buyer representation agreements, there will be a clause discussing how the broker is not liable for damages related to services, assistance, and value in relation to a transaction for sale that arises from the broker's services.

Owner Listing

Authorizes a broker to represent an owner or landlord in the sale or lease of a property.

Term of Agreement

Both listing agreements and buyer representation agreements will include the beginning and end dates of the contract. It is important for all parties to be aware of the expiration date outlined in the agreement. Most brokers prefer a listing agreement for at least six months, but the term of the agreement can be negotiated.

Pricing Information

Both listing and buyer agency representation agreements will include a provision that addresses price. In a listing agreement, the price the home will be listed at is provided. On a buyer representation agreement, the price range the buyer would like to search for properties is included. However, with both seller and buyer representation agreements, the pricing information may change over the term of the contract. For example, a buyer might decide to purchase a property for more than originally indicated on the representation agreement. Similarly, a seller may decide to reduce the list price during the term of the agreement.

Commission Sharing

Commission sharing between cooperating brokers is also addressed in agency representation agreements. Listing agreements often require confirmation from the seller that the broker can share commission paid by the seller with a cooperating broker. This essentially allows the seller's broker to share commission with the buyer's broker. If a seller refuses to share commission with cooperating brokers, the seller's broker may not be authorized to list the property on a multiple listing service.

Commission

Compensation is typically represented as either a percentage of the sales price or a fixed dollar value. Listing agreements usually state that the fee will be earned and due to the broker when the owner has signed a sales contract. In reality, the seller pays commission at closing, but the compensation is actually earned when the broker has fulfilled their responsibilities under the agreement. When the buyer's representation agreement is filled out, the licensee should explain to the buyer that the commission could be received in three different ways: 1. The seller could pay the commission. 2. The buyer could pay the commission. 3. The seller and the buyer could both pay the commission. Most buyers are going to pick the option that the seller will pay the commission. However, the buyer's representation agreement indicates that it is ultimately the buyer who is responsible for paying the commission if the seller or the listing broker does not pay all of the required commission or if the transaction does not close.

Section 35.283

Disclosure of interest states that a licensee who provides financial services, title transfer and preparation, insurance, construction, repair, or inspection services, may not require a consumer to use any of these services.

Section 35.284

Disclosures of business relationships states the exception that the disclosures requirements under the law do not apply to transactions involving the sale or lease of commercial property to consumers who are not individuals.

Exclusive Agency Listing Agreement

Gives a broker the right to market and sell a property for a specified time period, 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. It's exclusive in the sense that the property is listed with only one broker. This type of listing isn't very common in residential transactions because it increases the chances of a dispute over the commission between the broker and the seller over who was actually the procuring cause of the sale. It doesn't give the agent or broker incentive to spend time and money on marketing the seller's home since there isn't a guarantee that they will receive a commission on the home selling.

Signatures of all Parties

Lastly, all agency representation agreements must be signed by the client (seller or buyer) and the broker (or authorized licensee). Many states also require initials from the broker and the client on every page of the agreement. A copy of the agreement with all parties' signatures should be provided at the time or immediately following the signing of the documents.

Seller's Disclosures

Listing agreements include provisions that address the obligation of sellers to provide appropriate disclosures. The following are three common disclosures: 1. A property disclosure provision would state that the seller does not know of any material defects related to the property that isn't already disclosed in writing. 2. A lead-based paint disclosure clause says that if the property was built before 1978, the seller is required by law to include a lead-based paint disclosure form to the listing agreement. 3. The seller allows the broker to disclose information about the property with other brokers and prospective buyers.

Additional Monetary Considerations

Listing agreements may also include additional provisions related to earnest money, specifics on the fee paid to cooperating brokers, and expenses paid by the broker to be reimbursed by the seller.

Marketing and Advertising

Listing agreements usually have additional provisions regarding the use of a lockbox, internet marketing, signs, and listing the property on a multiple listing service. All of these influence the ability of the broker to perform his or her duties as outlined in the agreement.

Section 35.282

Misleading advice, assurances and representations states that: 1. A licensee may not give assurances or advice concerning an aspect of a real estate transaction that he or she knows, or reasonably should be expected to know, is incorrect, inaccurate or improbable. 2. A licensee may not knowingly be a party to a material false or inaccurate representation in a writing regarding a real estate transaction in which he or she is acting in a representative capacity.

PA Rules on Written Agreements

Section 35.281 of the Code states that all contracts, commitments, and agreements between a broker (or a licensee employed by the broker) and a principal or a consumer who is required to pay a fee, commission, or other valuable consideration must be in writing. A licensee may perform services before an agreement is signed, but the licensee is not entitled to recover a fee, commission, or other valuable consideration in the absence of a signed agreement. However, there are a few exceptions: 1. Open listing agreements or nonexclusive buyer agency agreements may be oral if the seller/buyer or landlord/tenant is provided with a written memorandum stating the terms of the agreement. 2. Transaction licensees or subagents cooperating with listing brokers are not required to obtain a written agreement from the seller/landlord. 3. Transaction licensees or subagents who provide services to the buyer/tenant but are paid by the seller/landlord or listing broker must provide, and have signed, a written disclosure statement describing the nature of the services they will perform.

Other Fees

The compensation section may also include service or retainer fees that may or may not be credited against the commission. Remember, all fees and commissions are negotiable. Your broker may even include a clause stating this in their representation agreements.

Exclusive Right to Sell Listing Agreement

The seller is the principal and creates a contract with a brokerage. The broker has the exclusive right to market the seller's 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 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. It limits any conflict with the seller over who was the procuring cause. An exclusive 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. 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.

Compensation

There are various components regarding compensation that are addressed in the agreements, including commissions, other fees, and sharing commissions with cooperating brokers.

Type of Listing

There are various types of listing agreements, including open listing, exclusive agency, and exclusive right-to-sell. Each type of listing affects the duties and responsibilities of the agents. It also could alter if the broker has earned a commission.

Binding Agreement

There is usually a provision or a paragraph before the signature section that states the agreement is binding in its entirety. Additionally, you may see verbiage that the parties are legally able to enforce the agreement if the other party defaults.

Agreement to Sell

This clause states the seller will agree to sell the property if a buyer makes an offer with terms suitable to the seller. Additionally, the seller agrees to follow through on examining the title and other necessities to ensure a closing. Brokers want to make sure if they do the work to find a buyer for the property, the seller will follow through with the sale.

Property Information

This provision provides basic information about the property. For example, a listing agreement would include the full address of the property to be listed with the brokerage. Many listing agreements will also include the lot and block property identification and a tax identification number. You'll also find a statement regarding any personal property that may be included with the sale of the property. As a reminder, there are a few important terms regarding property: realty, personalty, and fixtures. 1. Realty is the actual property or land. 2. Personalty refers to personal property that is not realty. This can include both tangible and intangible items. 3. Fixtures are one type of tangible personal property item. These are personal property items that often stay with the property, such as a furnace or chandelier. Buyer representation agreements also include a property information provision with less detail than a listing agreement. For example, a buyer representation agreement often specifies the type of property the buyer is seeking, such as residential or commercial. It also indicates the general area, general description, price range, and any other conditions the buyer has in a property. The property description provided in a buyer representation agreement may change and the buyer is not obligated to buy a property that fits those exact specifications. However, this provision provides a general idea of what type of property the buyer would like to purchase.

Fax and Electronic Signatures

This provision says that signatures obtained via fax or any electronic means are binding and an acceptable means of transferring signed and/or initialed documents.

Criminal Information

This provision says that the broker is not liable for disclosing or obtaining information regarding criminal activity associated with a property or information in the local or federal Sex Offender Registry.

Dispute Resolutions

This provision specifies how the parties will resolve a dispute, should one arise. This usually includes the parties participating in mediation. While it is a good idea to read and understand all provisions in the contract, it is especially important to review the obligations, duties, liabilities, and dispute resolution sections. While these provisions often don't require information to be written on the form, they are important clauses for all licensees to fully understand and accurately explain to clients.

Fair Housing

This provision states that all parties in the agreement will follow all federal and local Fair Housing Laws.

Maintenance

This provision states the owner agrees to maintain the property until the day of closing. This section might also specify that heating, plumbing, and electrical systems should be operating during the term of the agreement.