California Real Estate Practice Chapter 2 Rockwell Slides

Lead-based paint disclosure

-Disclosure required for dwellings built before 1978 The seller of a home built before 1978 must disclose whether or not there is lead-based paint present on the property. The buyer has 10 days in which to have the property inspected for lead-based paint, during which time she may rescind the purchase contract. Federal law requires a disclosure regarding the possible presence of lead-based paint whenever housing built before 1978 is sold or leased. If the property is being sold, the buyer has 10 days to conduct an inspection for the presence of lead-based paint, and may rescind the agreement based on the disclosure form or the inspection results. The buyer may also choose to waive the right to inspect the property. When you list a home built before 1978, you'll need to use a Lead-Based Paint Disclosure form. On this form, the seller states that she has no knowledge of or records related to lead-based paint in the house, unless she specifies otherwise. The seller and the listing agent must sign the form, then give the form to the buyer.

Filling out the form

-Don't change the wording of the form The transfer disclosure statement is a statutory form (the content of the form is set by state statutes). Neither you nor the seller should ever change the wording of any part of the form. Some cities and counties require additional disclosures, in which case you should use the standard local form in addition to the required state form. The first portion of the form, Sections I and II, should be filled out by the sellers. (You'll fill out the last section.) You should never fill out the first parts of the form yourself, or help the sellers answer the questions. If you provide any of the information that appears on these sections of the form, you could be liable for any inaccuracies. If the sellers fill out these parts of the form by themselves, you won't be liable for inaccuracies, as long as you had no personal knowledge that the information was incorrect. Each question on the form should be answered; no space should be left blank. Questions should be answered on the basis of the sellers' actual knowledge. If the sellers answer 'yes' to any yes-or-no question, they need to explain their answer more completely in the blank area on the last page of the form. Remind the sellers that they must initial and date each page of the disclosure statement.

Modifying the Listing Agreement

-Listing agreement may be modified only with written consent of both parties. Once a listing agreement has been signed, its terms can be modified only with the written consent of both parties. The written changes should also be dated, to avoid confusion. Changes should usually be made on a special addendum or amendment form, especially if the changes are numerous or complicated. This means that both you and the seller must write down any changes and then initial and date them. If you just talk about making a change, or write down a change but fail to initial it, the change will be ineffective and the original terms will remain enforceable. If the change is simple, you may be able to make it on the original form. Cross out the original language, replace it with whatever you've agreed on, and then have all parties initial the change. However, it's a better practice to use an addendum or amendment form to make changes to a contract, especially if the changes are numerous or complicated. After you've filled out a form amending a listing agreement, the form should be dated and signed by the sellers and by you, the agent representing the broker. You should give a copy of the amendment to the sellers at once.

Ready, willing, & able buyer

-Makes offer on seller's terms -Has enough cash or qualifies for financing A buyer is considered ready and willing if he makes an offer to purchase the property on the seller's terms. In most listing agreements, the seller promises to compensate the broker if a buyer makes an offer that meets the terms stated in the listing agreement, or any other terms that the seller decides to accept. To be considered able, the buyer needs to have the financial ability to complete the transaction. In many cases, a broker won't insist on getting a commission if the sale fails to close. When you present the offer to the seller, she tearfully tells you her husband has just died and she can't possibly consider moving right now. Or perhaps the seller has just lost his job and knows he wouldn't qualify for the loan he'd need to purchase a new house. Under circumstances like these, your broker doesn't try to collect a commission from the seller, even though he may be entitled to. Your broker doesn't need a reputation for coldheartedness. He knows that future business depends on treating current clients decently. Furthermore, it simply may not be cost-effective in terms of time and money to sue a seller for a commission when the sale hasn't closed.

Mello-Roos lien disclosure

-Paid for with Mello-Roos liens -Seller must deliver copy of tax notice to buyer Many properties are subject to Mello-Roos liens, which secure local special assessment levies for community improvements. If a property is subject to such a lien, the seller must disclose it by giving the buyer a copy of the notice from the appropriate taxing authority. A seller must also disclose if a property is subject to a lien that secures a special assessment under the Mello-Roos Community Facilities Act. The Mello-Roos Act allows the creation of special taxing districts to provide community services such as police or parks The seller is required to make a good faith effort to obtain a copy of the tax notice from the local agency that levied the special assessment. If the seller or the seller's agent delivers a copy of the notice to the buyer, no further disclosure is necessary. It may be advisable, though, to mention the existence of such a lien on the supplemental statutory disclosure form.

Listing Input Sheet

-Seller must be given a copy of entire listing agreement at time of signature When you take a listing, you will also fill out a listing input sheet for submission to the multiple listing service. This form provides detailed information about the property for MLS agents who might be interested in showing it to buyers. The input sheet should be treated as part of the listing agreement. Most likely, the multiple listing service to which your broker belongs will have its own listing input sheet. This form accompanies the listing agreement and provides specific information about the listed property. The listing input sheet typically includes a wide range of information useful to anyone who might be interested in showing the property. Always complete the listing input sheet as thoroughly as possible. If certain information is required, the MLS won't accept a listing that's missing these items. The information provided on the input sheet will be made available in a variety of places, including online databases used by cooperating agents as well as numerous websites accessible to the public. So make sure that the information given is absolutely correct. The contents of the listing input form will vary from MLS to MLS, although every form will ask basic questions such as the location of the property, the square footage of the house, and the number of rooms. Most forms will also ask for information such as: -how to access the property (whether or not there is a keybox, a security system, or any pets on the premises); -what sort of financing the seller is currently using; -whether the property is on a sewer or septic system; -energy source (electric, gas, or oil) and presence of energy-efficient features; -unusual amenities such as landscaping, views, and waterfront access; -neighborhood resources, such as any schools, parks, and shopping areas; and -manufacturer, model name, and serial number, if the house is a manufactured home. The listing agreement is a contract between the seller and the broker. The seller must be given a copy of the listing agreement at the time she signs and initials it. The seller should also receive a copy of the listing input sheet together with the rest of the agreement. It is important to have the entire listing agreement and the listing input sheet filled in before the seller signs. Do not take the forms back to the office to fill in later. If the agreement is incomplete or, worse yet, modified by you later so that the copy submitted to the MLS is different from the copy held by the seller, you are exposing yourself to potential legal problems and possible license disciplinary action.

Exclusive right to sell listings

-Seller pays agent a commission regardless of who finds the buyer -You get a commission if: 1. You find the buyer. 2. Another agent finds the buyer. 3. Seller finds the buyer. In an exclusive right to sell listing, the seller agrees to pay the agent a commission regardless of who finds the buyer. This is the type of listing agreement that is used most often. This is the type of listing agreement most commonly used in residential sales. Under an exclusive right to sell listing, if the property sells during the listing term, you earn a commission regardless of who sells it. You get the commission if you find the buyer, if another agent finds the buyer, or if the seller finds the buyer. Now let's take a look at the language typically found in an exclusive right to sell listing agreement. Like the exclusive agency listing, the exclusive right to sell listing includes a clause that grants your broker the exclusive right to sell the property. The difference is that in an exclusive right to sell listing, this clause applies not only to sales procured by other brokers, but also to sales procured by the seller. This clause explains the seller's obligation to pay your broker a commission. The seller agrees to pay a commission if "Broker, Seller, or any other person procures a ready, willing, and able buyer(s) whose offer to purchase the property on any price and terms is accepted by Seller..." No matter who finds the buyer—you, the seller, or any other agent—the seller owes you a commission if the property is sold during the listing period. An exclusive right to sell listing gives you a great deal of protection and decreases the chances of a dispute over who has earned the commission.

Exclusive agency listings

-Seller would owe listing agent a commission -Seller pays agent commission if anyone but the seller finds a buyer In an exclusive agency listing, the seller agrees to pay the agent a commission if anyone other than the seller finds the buyer. If the agent or any other real estate licensee finds the buyer, the agent is owed a commission. If the seller locates the buyer, no commission is owed to the agent. Under an exclusive agency listing, your broker is entitled to a commission if anyone other than the seller finds a buyer for the home. If you (the listing agent) find the buyer, the seller must pay the commission. And if some other real estate agent working for a different broker is the one who finds the buyer, the seller will still owe your broker the commission under the terms of the exclusive agency listing. But if the seller finds the buyer without the help of any real estate agent, she DOESN'T owe your broker a commission. The major problem with exclusive agency listings is the potential for a dispute between your broker and the seller over who procured the buyer. Now let's take a look at the language typically found in an exclusive agency listing agreement. Here is the clause that grants your broker the exclusive right to sell the property. In other words, the seller cannot enter into a listing agreement with any other agent without breaching his agreement with your broker. This clause explains the seller's obligation to pay the broker a commission. Note one important difference from the open listing agreement: this clause states that compensation will be paid "if Broker or any other broker or agent procures a ready, willing, and able buyer(s) whose offer to purchase the Property on any price or terms is accepted by Seller..." Thus, if any real estate agent—you or another agent—finds a buyer for the property, the seller owes your broker the commission. However, there's nothing in this clause that obligates the seller to pay a commission if the seller finds the buyer. In fact, the agreement states that "Seller reserves the right to sell the Property directly to a purchaser without any obligation to pay compensation to Broker."

Types of Listing Agreements

A listing agreement is used to spell out the contractual relationship between your broker and a home seller. There are three main types of listing agreements: -open listings, -exclusive agency listings, and -exclusive right to sell listings

Termination

A listing agreement will terminate on its expiration date or when the sale of the property closes. It will also terminate if the broker dies, goes out of business, or has her license suspended or revoked. The seller and the broker may mutually agree to terminate the listing, or one party may decide to terminate the agreement on his own. However, if one party terminates the listing agreement unilaterally, he may be liable for breach of contract.

Safety clause

A safety or extender clause provides that if the seller sells the property within a specified period after the expiration of the listing agreement to someone that the agent introduced to the property, the seller must pay the agent the commission. Paragraph 4 also includes a safety clause, also known as a protection or extender clause. It says that the seller owes you a commission if he sells the property to someone who learned about it through you within a certain number of days after the listing agreement has expired. This provision protects you from sellers who put off signing a purchase agreement until the listing agreement expires in order to avoid paying the real estate commission. For example, say you show a listed property to a prospect who seems very interested in the property at first, but cools off considerably after speaking with the seller in your absence. It's possible the prospect and the seller have conspired to wait until your listing expires to sign an agreement. The seller may have agreed to sell the home for less than the listing price if they wait until the listing period expires. This could mean significant savings for both of them: the buyer will get the property for less, and the seller will get out of paying the commission you earned. The safety clause is designed to protect you from this kind of arrangement. Safety clauses vary. The one in this listing agreement is worded quite broadly. It's effective if the seller sells the property to any person who was physically shown the property by you or any other cooperating agent, or who submitted a written offer on the property through a broker. To make this safety clause valid and enforceable, you must provide the seller with the names of individuals who were exposed to the property during the listing period through you and your company and cooperating agents. This list must be given to the seller within THREE days of the end of the listing period. Providing the list is especially important if you have reason to believe a seller or a prospect may be trying to delay a sale to avoid paying a commission.

Seller's disclosures

According to Section II, the form is for disclosure purposes only and is not meant to be part of any written agreement between the buyer and seller. Furthermore, the statements in this section are representations by the seller, not the agent. Section II then asks the seller to check off any of the listed items that are found on the property. This includes whether the property is attached to a sewer or septic system, and if the water supply comes from the city, a private utility, or a well. The seller must specify whether any of the listed items are not in working condition. The seller must also indicate whether he knows of any defects in the structural components of the house, such as the walls, ceilings, foundation, and electrical and plumbing systems. If the seller checks "yes," he must identify which components are affected and explain the defects or malfunctions. Finally, the seller must answer a list of questions about the property. These are all yes-or-no questions. If the answer to any of them is 'yes,' then the seller must include an explanation. The questions deal with potential problems such as environmental and geological hazards, zoning and permit violations, private restrictions, and possible lawsuits affecting the property. Below the questions is a space for the seller to sign and date this section of the form. By signing this section, the seller is stating that the information given is true to the best of the seller's knowledge.

Signatures

All of the sellers must sign the listing agreement. If a seller is married, the seller's spouse should sign the agreement as well. If the listing agreement is signed by an attorney in fact, the power of attorney should be recorded. If the property is owned by a legal entity, the listing agreement may be signed by an authorized corporate officer, a general partner, or a trustee. If the property is part of an estate, the agreement must be signed by the personal representative. The last section of the listing agreement is the signature section. Each seller signs and dates the form and fills in his or her contact information. You fill in your broker's name, your contact information, and both your broker's license number and your own. Then you sign your own name as your broker's agent. Note, however, that a listing agreement signed by the seller is enforceable even without the signature of the broker or the broker's agent. Remember that you should have all the sellers—everyone who has an ownership interest in the property—sign the agreement. If a seller is married, have his or her spouse sign the agreement as well. Each seller's name should be given in full, and their marital status should be noted.

Arbitration

Also involves a neutral party, known as an arbitrator, who is often a retired judge. Unlike a mediator, an arbitrator issues a decision that is binding on both parties. The advantage of arbitration is that it can provide results much more quickly than the often-clogged court system. However, participants give up a number of rights that would be guaranteed to parties to a lawsuit, most notably the right to appeal.

Corporations and other entities

An attorney in fact can't sign a contract on behalf of a corporation, partnership, or trust. If one of these entities is selling the property, you should put the name of the entity first, and then have the authorized person sign for the entity. If the seller is a corporation, an officer of the corporation can sign the listing agreement. Note, however, that an officer is not automatically authorized to sign a listing agreement. The officer must be expressly authorized to list the property by a resolution of the board of directors. You should ask to see a copy of the resolution when taking the listing, and explain that a copy will have to be provided to the title company once a buyer has been found. If the property is owned by a partnership, any general partner can bind the partnership to the listing agreement. Even so, it's best to get the signatures of all of the general partners, if possible. If the property is owned by a trust, the listing should be signed by the trustee. And if the property is part of the estate of a deceased person, the executor or personal representative of the estate must sign the listing agreement.

In writing and signed by seller

An important requirement for a valid listing agreement is that it be in writing and signed by the seller. The statute of frauds requires all listing agreements to be in writing. If you agree to work under the terms of an oral listing and the seller later refuses to compensate you, you can't sue the seller for the commission. To satisfy the writing requirement, you don't have to use a standard pre-printed listing form. Any written agreement will work, as long as it contains all the necessary elements of a valid listing agreement. The agreement must also be signed by the party the contract is being enforced against. So if you're trying to enforce the seller's promise of compensation, the seller must have signed the agreement. Of course, the listing agreement that you'll be using is likely to be more than a jotted note. Your listing agreement will probably be the standard pre-printed form required by your multiple listing service. These forms are drafted by attorneys who specialize in real estate transactions, and they include many provisions besides the basic elements.

Exclusive right to sell

At the top of the listing agreement is the section where you fill in information about the parties, the property, and the term of the agreement. Note that on the fourth line, it says the seller is granting the broker "the exclusive and irrevocable right to sell" the property. Even though you—a salesperson—will probably be filling out and signing the listing agreement, a listing is always made out in the broker's name. This is because only a broker may offer brokerage services to the public. In spite of the traditional phrase "exclusive right to sell," the listing agreement only gives you the exclusive right to act as the seller's agent in selling the property. It DOESN'T actually give you the right to sell the property. In other words, you don't have the power to accept an offer on the seller's behalf. Ex. Suppose your seller listed his property for $235,000. The next day, you find a buyer who immediately offers $235,000 for the property. Even though the buyer has met the seller's listing terms, you can't accept the buyer's offer on the seller's behalf. The seller is always free to reject the buyer's offer if he wants to (although he may owe you a commission anyway).

Right of rescission

Buyers have the right to rescind the purchase agreement within three days after personal delivery of the transfer disclosure statement, or within five days after the disclosure statement is deposited in the mail. Notice of the rescission must be in writing. The decision whether or not to rescind the agreement is entirely at the buyers' discretion. If the buyers don't like any of the information in the disclosure statement—no matter how insignificant—they can rescind the agreement. The buyers don't even have to explain the nature of their concerns to the seller. -Transaction still valid, but seller or agent can be liable for damages If the buyer never receives a required transfer disclosure statement, the transaction is still valid. However, the person who failed to comply (either the seller or the agent) will be liable for any damages the buyer suffers.

Transfer disclosure statement

California law requires a seller of residential property to give the buyer a completed transfer disclosure statement regarding the property. The seller must complete the disclosure form and give it to the buyer as soon as possible after the purchase agreement is signed.

Termination date

California law requires an exclusive agency or exclusive right to sell listing agreement to have a definite termination date. That's an important protection for the seller, who's effectively prevented from working with another broker while an exclusive listing remains in effect. There is no minimum or maximum length required for the listing period; the length of time is entirely negotiable between the parties.

Transfer disclosure statement

California law requires sellers to give buyers completed property disclosure statements. The law applies to single-family homes, multifamily dwellings with up to four units, condominiums and cooperatives, and mobile homes. Sellers who are selling their own homes 'for sale by owner' must also comply. Certain transactions are exempt from the transfer disclosure statement requirement. For example, exemptions include a sale of new construction in a subdivision if delivery of a public report is required... ...sales by court order, such as a probate sale... ...transfers between spouses or co-owners, or to lineal descendants... ...and sales to or from a governmental entity. Foreclosures, and transfers between divorcing spouses, are also exempt.

Disclosures

California law requires that in a residential transaction, the seller and the listing agent must make certain disclosures to buyers about the property. The seller should fill out a number of disclosure forms during the listing process. This will allow you and the seller to make the necessary disclosures to prospective buyers promptly. We'll conclude this lesson by discussing the various disclosures a seller must make. These include the transfer disclosure statement, the natural hazard disclosure statement, the residential earthquake hazards report, and the lead-based paint disclosure. There are also special disclosures concerning smoke detectors and water heaters, the supplemental statutory disclosure form, and the disclosure of Mello-Roos liens.

Water heater and smoke detector disclosures

California law requires water heaters to be braced, anchored, or strapped to prevent damage in an earthquake. The seller must verify that the water heater in the house being sold complies with state law (or local ordinances, if they're stricter than state law). California law also requires all single-family residences to have an operable smoke detector. The seller must verify that the house being sold complies with this law. The seller can use this same form for the smoke detector disclosure as well as the water heater disclosure.

Residential earthquake hazards report

If a house was built before 1960, the seller must give the buyer a pamphlet on earthquake safety. The required pamphlet contains a form in which the seller must disclose to the buyer whether or not the property has been improved in key ways that will minimize earthquake damage. In any sale of a one- to four-unit residential property built prior to January 1, 1960, the listing agent must give the buyer a copy of a pamphlet published by the California Seismic Safety Commission entitled "The Homeowner's Guide to Earthquake Safety." It is advisable to give the pamphlet in any transfer of real property, not just one- to four-unit residential property. The Homeowner's Guide contains a disclosure form entitled the Residential Earthquake Hazards Report. This form should be completed by the seller and given to the buyer. It asks nine questions concerning whether seismic retrofitting has been performed on the property. For instance, it asks whether the house has been anchored to the foundation and whether exterior parts of the foundation have been strengthened. The form also asks whether the property is located in an earthquake fault zone or seismic hazard zone.

Natural hazard disclosure statement

If a property is located in an area designated as being at increased risk for natural disasters, such as earthquakes, flooding, or forest fires, this must be disclosed on a natural hazard disclosure statement. A listing agent should verify whether a property is in a designated hazard area, using maps issued by the appropriate state or federal authorities. A number of areas in California have been designated as being at increased risk for natural disasters. The seller and the seller's agent must disclose whether the property is located in one of these designated areas. These hazards must be disclosed separately rather than on the transfer disclosure statement. The designated areas include earthquake fault zones, seismic hazard zones, areas designated as flood hazard areas, and areas with high forest fire risks. If the seller's property is subject to any of these hazards, it should be disclosed on a natural hazard disclosure statement. The seller should check 'yes' if the property's located in a designated area for a particular hazard. The seller, the seller's agent, and the buyer must all sign the statement. The seller and the listing agent can't simply rely on their own knowledge of the property in order to answer these questions. To determine whether or not the property is located in a designated hazard area, they must check the appropriate government maps. Alternatively, they may base their disclosures on information provided by a third-party consultant.

Power of attorney

If the listing agreement is signed on behalf of the seller by someone authorized with a power of attorney, the agreement should be signed as shown here. In this situation, you should ask to see a copy of the power of attorney and make sure it authorizes the attorney in fact to sell the property in question. Before the attorney in fact transfers title to a buyer, the power of attorney should be recorded in the county where the property is located.

Separate property

If the property is one spouse's separate property and only that spouse is going to sign the agreement, an explanation should be included in the listing agreement. For example, you might fill in the listing form with the following phrase: "Mary L. Smith, a married person dealing with her sole and separate property." If the property owner is a single person, she should write: "Mary L. Smith, a single person."

Vacant land or income-generating property

If you're a typical real estate salesperson, the majority of your listings will be single-family homes. However, you may occasionally list a different type of property, such as vacant land or income-generating property. A separate listing agreement form is available for non-residential properties like these. The non-residential listing agreement is substantially the same as the residential listing agreement. The primary difference you'll notice is that the transactions that count as a 'sale' are defined more expansively on this form. In Paragraph 1, the agreement gives the broker the exclusive right to sell, lease, exchange, or execute an option on the property. And in Paragraph 4, the agreement states that the broker will be entitled to compensation if, during the safety period, the owner enters into a contract to transfer the property (or an interest in the property) in any of those ways. This agreement also requires the seller to disclose any known environmental hazards concerning the property, such as the presence of asbestos or other toxic or contaminated materials. Naturally, this is more likely to be of concern when listing industrial or commercial properties than single-family residences.

Equal housing opportunity

In Paragraph 15, the seller and broker agree that all antidiscrimination laws will be followed in the sale of the property.

Dispute resolution

In Paragraph 20, the seller and broker agree to use mediation as a preliminary step toward solving disputes related to the listing agreement. The parties agree to split the costs of the mediation. If one party files a lawsuit without attempting mediation first, that party won't be entitled to attorneys' fees. This paragraph also allows the seller and broker to agree to use arbitration to settle any disagreements about compensation issues that can't be resolved through mediation. For the arbitration clause to apply, the parties must initial the boxes within this clause. By initialing the arbitration clause, the parties waive their right to have the case decided in a court of law. A party who wants to retain the right to file a lawsuit can refuse to sign the arbitration clause. People frequently confuse mediation and arbitration, the two dispute resolution methods in paragraph 20, but there are important distinctions between them.

Ownership, title, and authority

In Paragraph 5, the seller promises you that he has the right to sell the property. In other words, the seller guarantees that he actually owns the property and is legally able to convey title to it. You don't want to spend your time and money marketing a property, only to discover that your client doesn't really own it, or that there are other owners who could prevent a sale.

Hold harmless clause

In a listing agreement's hold harmless clause, the seller agrees to take responsibility for the information given to the agent in the listing agreement. If the agent and broker get into legal trouble because of the information provided by the seller, the seller will reimburse the broker for legal expenses. The last part of this paragraph is often called a 'hold harmless' clause. The seller agrees to take responsibility for the information given to you in the listing agreement. If a broker gets into legal trouble because the seller isn't entitled to sell the property, or because the information provided by the seller isn't true, the seller will reimburse the broker for legal expenses. For instance, suppose a buyer sues your broker because of the information provided by the seller. Your broker ends up having to pay the buyer $5,000 in damages. The seller will be obligated to reimburse your broker for the $5,000, plus legal fees and costs. In other words, your broker won't have to suffer any harm because of the seller's statements.

Net listings

In a net listing, the seller sets the net amount she wishes to receive from the sale of the property. If the property sells for more than this amount, the broker is entitled to keep the excess as the broker's commission. Net listings are only legal in California if the broker reveals the amount of the commission before the seller commits to the transaction. Occasionally a home seller might want you to work under a net listing arrangement. A net listing provides that the seller gets a certain amount of cash from the sale, and the real estate agent gets anything over that net amount. For example, your seller may not care what the sales price is, as long as he walks away from the sale with $150,000. He tells you that you can keep the portion of the sales price that is more than $150,000. If the home sells for $160,000, you get a $10,000 commission. If the home sells for $180,000, you get a $30,000 commission. Net listing arrangements are legal in California, although they are discouraged and not widely used. State law requires that a broker using a net listing must disclose the amount of his or her commission to the seller before the seller becomes committed to the transaction. This is because net listings afford too many opportunities for unscrupulous brokers to take advantage of home sellers. For instance, suppose the seller wants $150,000 net. A dishonest broker might agree to accept anything over $150,000 as his commission, knowing full well that the home is worth at least $190,000. Instead of telling the seller the fair market value of the home, he agrees to the net listing and ends up making $40,000 off the sale. This is close to a 21% commission—a much bigger commission than most sellers would be willing to pay if they knew all the facts.

Listing price and terms

In paragraph 3 of the listing agreement, space is provided to enter the listing price of the property. As the listing agent, you will no doubt be asked for your opinion as to an appropriate listing price, but the decision is ultimately the sellers' decision. Any additional terms the seller requires—for instance, particular requirements concerning financing or closing—can be entered in the second blank.

Pre-printed listing forms

Multiple listing services require their agents to use pre-printed listing agreement forms. These are detailed contracts that include more than just the basic elements required for a valid listing agreement.

Exclusivity

Next, the seller must state whether she has previously entered into a listing agreement with another broker regarding the listed property. If the property is sold to someone the previous broker worked with, the seller will not owe the current broker a commission, nor does the current broker have to represent the seller in the transaction. The names of those people who dealt with the previous broker should be listed in paragraph two of this clause. The purpose of this section is to alert you that the property may be subject to a safety clause from a previous listing agreement. It also protects the seller from having to pay two commissions.

Defects not mentioned on form

Note that the disclosure form requirement doesn't limit the seller's duty to disclose material defects in the property. If the seller knows about a material defect, but that defect is not the subject of a specific question on the disclosure form, the seller still must disclose the defect to the buyer. Similarly, the disclosure form doesn't limit the seller's agent's duty to disclose material defects to the buyer. If you're aware of a defect, you're also obligated to disclose it to the buyer even if it isn't listed on the form.

Statement provisions

Now we'll take a look at the contents of the transfer disclosure statement. At the top of the form, you are asked to fill in the date of the disclosure statement, the city and county where the property is located, and its legal description. If the legal description does not fit in the line provided, you may attach a photocopy of the full legal description. Under Section I, the seller can satisfy some disclosure obligations by attaching copies of inspection reports that were completed as part of the sales transaction. However, the seller still needs to complete the disclosure statement for other subjects not covered by these reports. For instance, many home inspection reports focus only on structural and mechanical problems, and don't cover encroachments, easements, or zoning violations, which must also be disclosed.

Termination before expiration date

Of course, a listing agreement may terminate even before its expiration date. The closing of a sale of the property will terminate the listing agreement. If your broker dies, goes out of business, or has her license suspended or revoked, her listings will usually be terminated. Also, the seller and your broker may mutually agree to terminate the listing. For example, suppose the seller's spouse becomes very ill and the seller no longer wants to sell the house right now. Your broker may agree to terminate the listing. Note that only the broker can agree to a mutual termination. You cannot release the seller on your own. When a listing agreement is terminated by any of these circumstances, the release should be in writing. A listing agreement may also be terminated by the unilateral decision of the seller or your broker. Either of them may have a change of heart and want to end the agreement. Remember that a listing agreement is essentially an agency agreement, and an agency relationship must be consensual. Thus, neither party can be forced to carry out the terms of a listing agreement if he or she is unwilling to do so. For instance, if your broker decides she doesn't want to try to sell the client's property, no one can force her to do so. Your broker can renounce the listing agreement. However, the renunciation would constitute a breach of the listing agreement and the broker could be liable to your seller for damages. Likewise, if your seller decides to revoke the listing agreement because he doesn't want you working for him any longer, he could be liable for breaching the listing agreement. The damages for this kind of breach would usually equal the commission amount.

Give copy to seller

Once the listing agreement has been properly signed, you must be sure to give a copy of the signed agreement to the seller. According to California's real estate license law, you must give the seller her copy at the time of signature. In other words, give the seller a copy of the listing agreement right after it is signed. Don't just tell the seller you'll mail a copy later or promise to give her a copy the next time you meet.

Agency relationships

Paragraph 10 discusses the agency relationships created by the listing agreement. The seller agrees that the broker will act as the seller's listing agent. This paragraph also discusses the possibility of a dual agency relationship. It describes an in-house transaction, where the buyer and seller are represented by different licensees working for one broker. The seller consents in advance to this type of dual agency, and the broker agrees to disclose such a situation to the seller as soon as possible. The broker also agrees that she won't disclose the negotiating position of either party, although she is bound to report other material facts concerning the transaction to both parties. In addition, the seller agrees that the broker may represent buyers and sellers with respect to other properties, even if they're similar to the seller's property. The broker also agrees to provide an agency disclosure statement when the seller signs the listing agreement, as well as an agency confirmation statement when a purchase agreement is signed.

Keysafe/lockbox

Paragraph 13 authorizes you to install a keybox on the property, so you and other agents can have access to the property at all reasonable times. The keybox is opened by a combination that all the members of your MLS have. You may also give the combination to an authorized third party, such as an inspector or an appraiser. The seller may want to know about any dangers associated with the use of a keybox, such as whether any robberies have occurred in your area because of keyboxes. He may also want to know your office procedures and precautions for protecting the confidentiality of the combination. Always explain both the risks and the benefits of a keybox. The seller may decide against having one installed. If so, the seller should check the box in this paragraph. If your seller chooses not to use a keybox, you should make sure he understands that agents will have a much more difficult time showing the property.

Management approval

Paragraph 18 discusses the possibility that even if a salesperson enters into a listing, the salesperson's broker might not approve of the listing terms. Remember that the listing ultimately belongs to the broker, not the salesperson, and the broker may turn down the listing. If this is the case, the broker may terminate the listing in writing within FIVE days.

Entire agreement clause

Paragraph 19 of the listing agreement states that the agreement will take precedence over any other agreements or discussions between the seller and broker. It also states that if any portion of the agreement is found invalid, the remaining portions of the contract are still valid.

Successors and assigns

Paragraph 19 states that the listing agreement is a contract that is binding on the seller and anyone who receives an interest in the property from the seller. This protects the broker from a situation in which the seller transfers the property outside of the terms of the listing agreement.

Items excluded and included

Paragraph 2 of the listing agreement allows the seller to describe which fixtures will be excluded from the sale, and which items of personal property will be included in the sale. This can help avoid any confusion about whether items that may or may not be fixtures, such as kitchen appliances or window treatments, are included in the sale. This clause explicitly states, though, that the purchase agreement supersedes the listing agreement. The final decision as to whether an item stays or goes is made in the sales contract between the buyer and the seller.

Offer of cooperation

Paragraph 4 also contains an offer of cooperation clause. This clause authorizes you to cooperate with other agents, and allows your broker to compensate cooperating brokers through a commission split. The clause allows the cooperating brokers' compensation to be stated as a percentage or as a flat amount.

Multiple listing service

Paragraph 6 establishes that, unless the seller instructs you not to, you will submit the listing to your broker's MLS. The seller authorizes you to comply with all applicable MLS rules concerning the listing information, including what information must be provided and how it may be used The agreement states that information given to the MLS will be made available on the Internet, unless the seller tells the broker (using a separate opt-out form) to instruct the MLS not to do so. It also states that opting out will make it more difficult for the property to show up in other people's searches. Note that the MLS is not a party to the listing agreement. The only function of the MLS is to furnish descriptive information about the property to other MLS members. The MLS isn't responsible for verifying any information provided by the seller, and doesn't assume any responsibility for that information.

Seller's representations

Paragraph 7 sets forth the seller's warranties and representations. Seller represents there are no: -Notices of default -Delinquent loans -Bankruptcies -Pending lawsuits -Special assessments The seller states that, to the best of his knowledge, there are no notices of default, delinquent loans, bankruptcies, lawsuits or other pending actions. There are also no special assessments that might affect the property or the seller's ability to transfer it. The seller also states that he will notify you if any of these issues arise during the listing period.

Deposit

Paragraph 9 simply states that the broker may receive and hold the buyer's good faith deposit on the seller's behalf. Some listing agreement forms don't specifically authorize the broker to hold the buyer's deposit. The broker may still do so, but will be considered the buyer's agent in regard to the deposit. This muddies the agency relationships in a transaction, so it's best to use a listing agreement form that specifically authorizes the listing broker to hold the buyer's deposit.

Terms of sale

Possible terms of sale: -Listing price -Assumption of loan -Seller financing A listing agreement should state what the seller expects in terms of an offer. At a minimum, the listing should include the cash price that the seller expects (in other words, the listing price). The listing agreement might also include other matters that would affect a buyer's offer, such as whether or not the buyer can assume the seller's existing loan and whether the seller is willing to offer secondary financing. The listing agreement should also make clear what property is being offered with the sale. In other words, the seller should state which items of personal property are included in the sale and which fixtures will be removed before the buyer takes possession. It is important for the seller to make all terms completely clear. The seller could be liable for a commission if a buyer makes an offer that meets all of the terms stated in the listing agreement, even if the seller decides the offer is unacceptable for some reason that wasn't reflected in the stated terms of sale.

Must be negotiable

Remember, there can be no "mandatory" or "standard" rate of compensation. Commission rates must be negotiable. When you are preparing a listing agreement, never say or imply to the seller that you are filling in the standard commission rate. As we mentioned earlier, California law requires residential listing agreements to contain a notice in boldface type explaining that commission rates are negotiable. In the CAR form, this notice appears right at the beginning of paragraph 4.

Photographs and Internet advertising

Section 12 addresses photographs and Internet advertising. Unless the seller checks a box to forbid it, the listing agreement gives the broker permission to take pictures of the seller's property and to use them on the MLS, the broker's website, and in other Internet marketing. The seller also acknowledges that once pictures of the property are on the Internet, the broker has no control over who can view them, how they will be used, or how long they will remain on the Internet. In this section, the seller acknowledges that buyers may take pictures or video of the property, and that the broker has no control over this. The seller can check a box instructing the broker to put a note on MLS that picture-taking is limited to appraisals and inspections.

Broker's authority

Since the listing agreement is essentially an employment contract between a principal and an agent, the agreement should establish the extent of the listing broker's authority. A broker is typically empowered to list the property with a multiple listing service, place advertisements for the property, cooperate with buyers' agents, and receive offers and good faith deposits on the seller's behalf.

When a sale is prevented

Sometimes a sale collapses because of the actions of someone other than the seller. For example, a buyer might sign a purchase agreement, then change his mind and decide to breach the contract. When a buyer breaches, the seller is usually entitled to keep the good faith deposit as liquidated damages. Less commonly, a sale might be derailed by the actions or omissions of a third party (an escrow agent, for example). In that case, the seller might try to recover damages from that other party through a lawsuit and settlement negotiations. In situations like these, the listing agreement provides that the broker will be compensated only if the seller succeeds in recovering money from the other person (the buyer or third party). Then the seller and the broker will each get one-half of the money, less any expenses incurred by the seller. However, the most the broker can receive is the amount of the commission that she would have earned if the sale had gone through.

Commission rate or amount

State law requires residential listing agreements to state in BOLDFACE TYPE that the amount or rate of the commission is not set by law, and is negotiable between broker and seller. This statement must appear in the portion of the listing agreement that sets the broker's compensation. Most listing agreement forms allow the agent to state the commission either as a percentage or as a set amount. Ex. The agent has expressed the commission as a percentage of the sales price, the most common practice.

Property description

The first requirement is that the property be clearly identified. Real property is usually identified by its legal description. Note that a street address generally isn't enough. If you're ever tempted to use only a street address, remember that street addresses are assigned by the post office merely to simplify mail delivery. They don't give any indication of property boundaries. If you have only the street address when you're filling out a listing agreement, you can attach the property's legal description later. But you must be sure to actually follow through. If a listing agreement doesn't include the legal description or some other unambiguous property description, a court could rule that the agreement isn't valid or binding. If you don't have the legal description when you're taking the listing, you should write "Legal description to be provided by broker at a later date" in the blank for the legal description. Then obtain the legal description and attach it to the agreement as soon as possible. You can get a copy of the property's legal description from a title insurance company, from the county tax records, or from the seller's deed. Many agents find the title company to be the most convenient source of information.

Exclusive Right to Sell: Property description

The last lines of the first section of the form are for describing the property. The form asks for the city and county where the property is located. Don't rely on the property's address to determine whether or not it is within city limits. Mailing addresses use the name and zip code of the nearest town or city even if the property is outside its limits. Ask the seller or look at a map. If the property is outside the city limits, fill in "none" where the form asks for the city's name. As we said earlier, you can get the legal description from the seller's deed to the property or from a title insurance company. As we said earlier, you can get the legal description from the seller's deed to the property or from a title insurance company. The listing form has room for a short legal description, such as a lot and block description or a brief government survey description. If the property's legal description is too lengthy to fit in the blank provided, you should photocopy the description, label the photocopy as an exhibit, and attach it to the listing agreement. Be sure to write "See attached" or "See Exhibit A" in the blank left for the legal description. (You could also use an addendum form for the legal description.)

Agent's disclosures

The last part of the statement is filled out by the real estate agents. In Section 3, the listing agent states that he has performed a visual inspection of the property, and lists any problems that require disclosure. In Section 4, the agent who obtained the offer must also perform a visual inspection and note any problems. If the listing agent and the selling agent are the same person, the agent only needs to fill out Section 3. Alternatively, the agent may opt to disclose the findings from his visual inspection on a separate form specially created for that purpose. This allows the agent to report observations in a more detailed manner. This form is also useful in transactions where no Transfer Disclosure Statement is required, such as a court-ordered sale, but where fiduciary duties still require disclosure of latent defects. Section 5 of the transfer disclosure statement form reminds the buyers that, regardless of what is disclosed in the statement, it is advisable to have a professional inspection performed. Below that, the sellers, buyers, and the agents for both parties sign and date the statement.

Listing period

The next blanks are for the listing term, the beginning and ending dates of the listing. Your seller may be adament about a particular term--90 days is probably the most common--or she may want your advice about it. Generally, for properties in or below the median price range, 90-day listing are perfectly fine. Ninety days ordinarily give you enough time to market the property, find a buyer, negotiate the sale, and close the transaction. However, properties that are priced higher than the median-priced home may take longer than 90 days to sell. And a property priced significantly higher may take significantly longer to sell. You should do some market research to determine how long it typically takes in your area to sell an average property in this property's price range. Present this information to the seller, and then suggest a listing date that is within that time frame. Of course, how long it takes to sell a property also depends on current market conditions. If the market is slow, it will take longer than normal to sell a property, even if it's median-priced. On the other hand, even expensive property can sell very quickly in a hot market.

When due

The seller must complete the disclosure form and give it to the buyer as soon as practicable, and before the transfer of title. If there are two agents in a transaction, the agent who obtained the offer is responsible for delivering the disclosure statement to the buyer. The buyer can't waive delivery of the transfer disclosure statement, even if the property is being sold subject to an 'as is' clause.

Environmental hazards booklet

The seller's agent should also give the buyer a copy of a pamphlet prepared by the Department of Real Estate entitled "Environmental Hazards: A Guide for Homeowners, Buyers, Landlords, and Tenants." If this pamphlet is given to the buyer, neither the seller nor the agent needs to provide additional information about environmental hazards. Remember, though, that even if the pamphlet is provided, the seller still must disclose any known environmental hazards in the transfer disclosure statement.

Supplemental statutory and contractual disclosure form

There are several other disclosures that are required, but which don't have their own disclosure form. The seller and the seller's agent can use a special supplemental disclosure form to inform a buyer of any of these issues. For instance, if the seller knows that an illegal controlled substance has been released on the property, the law requires the seller to disclose this. There is no special form for that purpose, but this form can be used to disclose that. The supplemental disclosure form can also be used to disclose: -the property is a condominium or located in a common interest subdivision, -insurance claims affecting the property in the last 5 years, -issues affecting title, -the property is located in an area zoned for commercial or industrial use, -the property is close to an airport and may be affected by noise or vibration, -he property has been contaminated by methamphetamine, -the property is near a former military training site that may have unexploded munitions on it, or -a death occurred on the property within the last three years.

Attorney fees

There may be situations in which your broker and a seller disagree about the provisions of the listing agreement or their legal effect. Your broker, the seller, or both of them may need to use the services of an attorney to enforce the agreement. Paragraph 16 provides that if one party is successful in enforcing the agreement, the other party is obligated to pay that party's attorneys' fees. If the dispute goes to trial, the successful party will be entitled to an award of attorneys' fees and expenses, the amount of which will be fixed by the court.

Listing Agreement

To be enforceable by the broker, a listing agreement must be in writing and signed by the seller. At a minimum, a listing agreement should contain a property description, state the required terms of sale, establish the scope of the broker's authority, and include a promise of compensation. An exclusive agency or exclusive right to sell listing must also have a termination date. Because listing agreements are so important to the business of selling real estate, you should know the necessary elements for a valid listing agreement. Naturally, a listing agreement must include all the basic ingredients of a contract: competent parties, offer and acceptance, consideration, and a legal purpose. There are also a few elements that are specific to listing agreements. -Property description -Terms of sale -Broker's authority -Promise of compensation -Termination date -In writing and signed by seller

Mediation

Uses a neutral facilitator who tries to help the disputing parties find a solution that is acceptable to both of them. A mediator never imposes a solution on the parties.

Listing Agreement

When we're finished, you'll not only know how to fill out a listing agreement form properly, you'll understand what the standard provisions mean for you and your client. The form we'll look at is an exclusive right to sell listing, because this is the type of listing most commonly used. This particular form is the one published by the California Association of Realtors and used by many multiple listing services throughout the state.

Seller's insurance

You should also advise the sellers to tell their insurance company that the property is listed for sale and to make sure that the insurance coverage is adequate. If the property will be vacant during the listing period, suggest that the sellers add a 'vacancy clause' to their insurance policy. You should emphasize the importance of having adequate insurance. If anything does happen to your clients' property, they will want the loss to be covered.

Open listings

-Seller pays agent a commission only if agent is procurring cause In an open listing agreement, the seller agrees to pay the agent a commission only if the agent is the person responsible for bringing about the purchase agreement between the buyer and the seller. The agent must be the procuring cause of the sale. Open listing agreements are rarely used. Under an open listing, a seller agrees to pay a commission only if you actually sell the property yourself. In other words, you must be the procuring cause of the sale. Narrator: Open listings are rarely used in residential real estate transactions. Brokers generally prefer not to use open listings, because a dispute may arise over who was the procuring cause of the sale. Furthermore, most agents don't work as hard on an open listing as they do on other types of listings, because actually earning the commission is a pretty uncertain proposition. Open listings are used when a seller is unwilling to execute an exclusive agency or exclusive right to sell listing. This is a clause from an open listing that explains the seller's obligation to pay a commission. Notice the language used. The seller agrees to pay your broker a commission if you procure "a buyer(s) whose offer to purchase the Property on any price and terms is accepted by Seller..." The seller doesn't give your broker the exclusive right to sell the property, and you don't promise to devote any particular amount of time or energy to marketing the property. Rather, the agreement merely states that the seller will pay the commission if you find someone willing to buy the property on terms acceptable to the seller. There's no language in an open listing that prevents the sellers from selling the property on their own or through another broker. In fact, there is a clause in the open listing agreement stating that if the sellers do so, they won't have to pay a commission to you or your broker under the open listing.

Elements of a Listing Agreement

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Listing Agreement Provisions

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Listing Agreements

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Non-Residential and Vacant Land Listing Agreement

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Required Disclosures

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Rescission rights

A buyer can rescind the purchase agreement if she doesn't receive a disclosure statement or if she doesn't like any of the information included in the disclosure statement. The right of rescission lasts for THREE or FIVE days, depending on how the disclosure statement was delivered. If the buyer rescinds, she is entitled to a full refund of the good faith deposit.

New information

After the rescission period has ended, circumstances may change or information may come to light that makes the information in the disclosure statement inaccurate. When this happens, the seller should give the buyer an amended disclosure statement—which reactivates the THREE- or FIVE-day rescission period.

Procuring cause

An agent is the procuring cause of a sale if the agent located the buyer and helped negotiate the sale. To be the procuring cause, you must be the person primarily responsible for bringing about the purchase agreement between the parties. In other words, you must find the buyer and help negotiate the sale. If the seller or another agent finds a buyer for the property, you are not the procuring cause and you will not get the commission.

Disclosure of defects

Even if a known defect is not the subject of any question in the transfer disclosure statement, the seller and agent still have the duty to disclose that defect to potential buyers. The listing and cooperating agents must visually inspect the property and disclose any material facts on the transfer disclosure form.

Promise of compensation

From the broker's standpoint, the most important element of a listing agreement is the promise of compensation. Compensation is typically conditioned on finding a ready, willing, and able buyer. In other words, if you find a ready, willing, and able buyer, you're usually entitled to compensation whether or not the transaction closes.

Additional terms

If it's necessary to insert additional terms into the agreement, there is blank space for that in Paragraph 17. Of course, whenever possible, you should use a pre-printed addendum form or standardized language provided by the MLS or your broker.

Sign

In Paragraph 14, the seller authorizes you to install a "For Sale" sign on the property, and a "Sold" sign once the property has sold. The seller may check a box to opt out of having these signs installed.

Security and insurance

Paragraph 11 states that the real estate agents involved in marketing the property won't be responsible for loss, theft, or damage of any kind to the property or to the personal items within the property. This means that if the property is damaged or a personal item is stolen during an open house or a showing, you won't be liable for the loss. This disclaimer of liability extends even to the misuse of a keybox. When you explain the terms of this clause, you should also explain some of the safety precautions that the seller should take once the house is listed. For example, the seller should put small valuable items such as jewelry, coins, or papers into a safe deposit box at a bank.

Commission

Paragraph 4 sets forth the seller's obligation to pay your commission. The seller agrees to pay the commission if you or anyone else, including the seller, finds a buyer who's ready, willing, and able to purchase the property on terms that are acceptable to the seller. This provision allows for two different ways to set the amount of your compensation. You can be paid a percentage of the sales price, as shown here. Alternatively, you can be paid a fixed dollar amount. Check the appropriate box and fill in the figure the seller has agreed to.

Broker's and seller's duties

Paragraph 8 outlines the responsibilities that the broker and seller owe to each other. The broker promises to use reasonable care and due diligence in performing her duties. The seller promises to consider all offers presented by the broker. This includes making the property available for showing, and referring all inquiries to the broker.

Commission rate

The commission rate must be fully negotiable. There can be no "mandatory" or "standard" rate of compensation. California law requires that the listing agreement contain a notice in boldface type that commission rates are negotiable.

Natural Hazard Disclosure Statement: Right of rescission

Upon receiving the natural hazard disclosure statement, the buyer has the same right of rescission as with the transfer disclosure statement. The buyer can rescind the purchase agreement within THREE days if the disclosure statement is personally delivered, or within FIVE days after mailing if the disclosure statement is mailed. Notice of the rescission MUST be in writing.