Washington Real Estate Practices Lesson 2: Listing Agreements © 2013 Rockwell Publishing

Listing Agreements Listing agreement is contract between brokerage and seller. Three types: open listings exclusive agency listings exclusive right to sell listings © 2013 Rockwell Publishing

Open Listings Open listing: seller pays commission only if brokerage sells property. To be paid, brokerage must be procuring cause of sale. © 2013 Rockwell Publishing

Open Listings Procuring cause Procuring cause: person primarily responsible for bringing about purchase agreement between parties. If buyer sells property on his own or through another agent, brokerage will not receive commission under open listing. © 2013 Rockwell Publishing

Open Listings Rarely used Open listings rarely used in residential transactions. Agents dislike them because disputes may arise over who was procuring cause of sale. Many multiple listing associations won’t accept open listings. © 2013 Rockwell Publishing

Exclusive Agency Listings Exclusive agency listing: brokerage entitled to commission if anyone but seller finds buyer. © 2013 Rockwell Publishing

Exclusive Agency Listings When commission owed If different brokerage sells home, firm that originally took listing receives commission. If seller sells property without assistance from any brokerage, no commission is owed. Doesn’t solve problem of potential disputes over who procured buyer. © 2013 Rockwell Publishing

Exclusive Right to Sell Listings Exclusive right to sell listing: brokerage receives commission regardless of who sells property. If another brokerage or seller sells property, listing brokerage still receives commission. Gives brokerages greatest amount of protection. Most common type of residential listing. © 2013 Rockwell Publishing

Summary Types of Listings Open listing Procuring cause Exclusive agency listing Exclusive right to sell listing © 2013 Rockwell Publishing

Listing Agreement Elements Basic contract elements Listing agreement must contain all basic contract elements: competent parties offer and acceptance consideration legal purpose © 2013 Rockwell Publishing

Listing Agreement Elements Other required elements Required elements specific to listing agreement: property description promise of compensation (conditions) amount of compensation agreement in writing and signed by seller © 2013 Rockwell Publishing

Listing Agreement Elements Property description Property must be clearly identified, usually through legal description. Street address is never sufficient since it does not refer to property’s boundaries. © 2013 Rockwell Publishing

Listing Agreement Elements Property description Legal description may be obtained from: title insurance company, county tax records, or seller’s deed. © 2013 Rockwell Publishing

Listing Agreement Elements Promise of compensation Listing should include promise to compensate brokerage for services. Compensation is conditioned on finding ready, willing, and able buyer. © 2013 Rockwell Publishing

Promise of Compensation Ready, willing, and able buyer Ready and willing buyer: makes offer that meets terms of listing agreement or is otherwise acceptable to seller. Able buyer: has financial ability to complete transaction. © 2013 Rockwell Publishing

Promise of Compensation Fixed amount Compensation is usually fixed figure, such as: percentage of sales price (most common), or set dollar amount. © 2013 Rockwell Publishing

Promise of Compensation Net listings Net listing: provides seller gets certain amount of cash from sale and brokerage receives anything over net amount. Net listings are illegal in Washington because they allow unscrupulous agents to take advantage of clients. © 2013 Rockwell Publishing

Listing Agreement Elements In writing Under statute of frauds, all listing agreements must be in writing. If agent works under oral listing and seller refuses to pay commission, agent will be unable to sue to collect commission. © 2013 Rockwell Publishing

In Writing No specific format required Any written agreement will meet writing requirement as long as it contains all necessary elements. Most brokerages use pre-printed listing forms. © 2013 Rockwell Publishing

In Writing Signature Agreement must also be signed by party contract is being enforced against. Seller cannot be sued for commission unless seller signed listing agreement. © 2013 Rockwell Publishing

Summary Listing Agreement Elements Promise of compensation Net listing Writing requirement © 2013 Rockwell Publishing

Listing Agreement Provisions Brokerage’s authority Listing agreement should state extent of brokerage’s authority, such as authority to: list property with MLS place advertisements for property receive offers and good faith deposits on seller’s behalf © 2013 Rockwell Publishing

Brokerage Authority Agency relationships In listing agreement, seller agrees that only the firm and named agent are his agents. There is no seller agency with any of the other affiliated agents of the brokerage. (So the firm’s other agents can seek buyers for the property and act as buyer’s agent.) © 2013 Rockwell Publishing

Listing Agreement Provisions Listing period Listing agreement form asks for beginning and ending dates of listing. Ninety days is common, but longer periods may be needed: for properties that are more expensive than average, or if local real estate market is slow. © 2013 Rockwell Publishing

Listing Agreement Provisions Termination of agreement Listing may be terminated by: closing of sale of property, seller dying or losing competence brokerage going out of business or losing its license, mutual agreement, or unilateral decision by seller or brokerage. © 2013 Rockwell Publishing

Listing Agreement Provisions Property description Listing agreement requires legal description. If description is too lengthy, it may be photocopied and attached. © 2013 Rockwell Publishing

Listing Agreement Provisions Listing price Listing agreement should include listing price, as well as any particular requirements concerning financing or closing. © 2013 Rockwell Publishing

Listing Agreement Provisions Commission Listing agreement form has blank for amount of commission: percentage of sales price, or fixed dollar amount. Listing form cannot fix rate of compensation; rate must be fully negotiable. © 2013 Rockwell Publishing

Listing Agreement Provisions Commission Agreement should state under what conditions brokerage earns commission. Typically, commission earned if ready, willing, and able buyer is found. © 2013 Rockwell Publishing

Commission Extender clause Extender clause (or protection or safety clause): clause that protects brokerage’s right to commission. Offers protection from parties who decide to wait to sign purchase agreement until after listing period to avoid paying commission. © 2013 Rockwell Publishing

Commission Extender clause If seller sells property: within certain number of days after expiration of listing, to someone who learned about property through brokerage, then brokerage is entitled to commission. © 2013 Rockwell Publishing

Commission Extender clause Many extension clauses state that no commission will be due if property listed with another firm during extension period. This way, seller won’t be liable for two commissions. © 2013 Rockwell Publishing

Listing Agreement Provisions Keybox Listing agreement authorizes brokerage to install keybox on property. Form often includes a disclaimer of liability for misuse of keybox. © 2013 Rockwell Publishing

Listing Agreement Provisions Marketing property Listing agreement states: brokerage promises to use reasonable care and due diligence in performing its duties seller promises to consider all offers and act in good faith to sell property © 2013 Rockwell Publishing

Listing Agreement Provisions Indemnity Listing agreement includes “hold harmless” clause, in which seller takes responsibility for all information given to brokerage. If brokerage is sued because of misinformation provided by seller, seller will reimburse brokerage. © 2013 Rockwell Publishing

Listing Agreement Provisions Multiple listing service Listing agreement states that: data will be submitted to MLS, and brokerage will cooperate with other MLS agents to sell property. MLS is not party to listing agreement—only function is to provide property information to other MLS members. © 2013 Rockwell Publishing

Listing Agreement Provisions Deposit Listing agreement often states that if buyer breaches purchase and sale agreement, and seller keeps good faith deposit, then: seller will reimburse firm for costs from deposit, and split remainder of deposit with firm to cover firm’s commission. © 2013 Rockwell Publishing

Listing Agreement Provisions Attorneys’ fees If dispute about listing agreement goes to trial, party that prevails will be entitled to award of attorneys’ fees and expenses. Amount will be fixed by court. © 2013 Rockwell Publishing

Listing Agreement Provisions Listing information Seller with agent’s help fills out listing input sheet used by MLS to create listing. Sheet is considered part of listing. Should be completed before seller signs agreement. © 2013 Rockwell Publishing

Listing Information Input sheet Listing input sheet asks for: property location square footage number of rooms energy sources and energy-efficient features features such as views or waterfront access neighborhood amenities such as nearby schools and parks © 2013 Rockwell Publishing

Listing Agreement Provisions Signatures All sellers should sign names in full and note relationship (example: “a married couple”). If one member of married couple is selling separate property, include something like “a married person, selling her separate property” with signature. © 2013 Rockwell Publishing

Signatures Business entities If corporation is selling property, officer of corporation may sign listing agreement. The officer must be expressly authorized to do so by resolution of corporation’s board of directors. © 2013 Rockwell Publishing

Signatures Business entities If property is owned by partnership, any general partner can sign listing agreement. It’s best to have all partners sign. If property is owned by trust, trustee must sign listing agreement. © 2013 Rockwell Publishing

Listing Input Sheet Most listings are accompanied by listing input sheet. Used to provide MLS with information about property. Information provided will be available to public, so it must be absolutely correct. © 2013 Rockwell Publishing

Listing Agreement Provisions Receipt of copy Agents are required by law to provide parties with copy of any document at the time of signing. Listing agreements include seller’s acknowledgement of receipt of copy. © 2013 Rockwell Publishing

Modifying the Listing Agreement Requires written consent Listing agreement can be modified only with written consent of both parties. Any change must be initialed and dated by both parties. © 2013 Rockwell Publishing

Modifying the Listing Agreement Addendum form If change is simple, it can be made on original listing form by crossing out original language. For more complex changes, use addendum form. © 2013 Rockwell Publishing

Summary Listing Agreement Provisions Termination Commission rate Extender clause Hold harmless clause Signatures Listing input sheet Modifying a listing agreement © 2013 Rockwell Publishing

Seller Disclosure Statement Washington law requires certain disclosures to prospective buyers. Required disclosure statement form must be given to buyer when purchase and sale agreement is signed. Seller, not agent, is responsible for filling out form. © 2013 Rockwell Publishing

Seller Disclosure Statement When required Seller disclosure statement required in sale of: single-family homes multi-family dwellings up to four units mobile homes sold with real property “for sale by owner” homes new construction (Disclosures for condos may be handled by public offering statement instead.) © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure requirements Disclosure form contains instructions to seller, and notice of buyer’s legal rights. Questions about property are broken down into ten major sections. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 1. Title Includes questions about encumbrances, easements, encroachments, and other restrictions that affect use of property. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 2. Water Seller must disclose source and condition of water supply and any water rights. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 3. Sewer/On-site sewage system Information about sewer or septic system, and type of sewage disposal system used. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 4. Structural components Includes information about structural components of property (roof, foundation, etc.). Seller must disclose any additions, remodeling, pest problems, settling, and inspections. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 5. Systems and fixtures Section lists types of systems, fixtures, or appliances, such as the: electrical system plumbing system hot water tank security system heating and cooling system © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 6. Homeowners association/common interest Seller discloses information about homeowners association, assessments, and commonly owned areas. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 7. Environmental Section discloses soil and water problems, fill materials, damage caused by hazards such as flooding and earthquakes, the presence of shorelines or other critical areas, utility equipment, and radio towers. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 8. Lead-based paint Required disclosure of possible presence of lead-based paint if house was built before 1978. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 9. Manufactured and mobile homes If property includes a manufactured or mobile home, seller must disclose any alterations made. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure sections 10. Full disclosure Seller must disclose any other material defects affecting the property or value that buyer should be aware of. Material defects that aren’t specifically addressed on form must still be disclosed. © 2013 Rockwell Publishing

Seller Disclosure Statement Disclosure requirements Seller must sign the verification provision and acknowledge receipt of a copy of the form. Buyer signs the acknowledgement section. © 2013 Rockwell Publishing

Seller Disclosure Statement Timing of disclosure Seller must give disclosure form to buyer within 5 days after the purchase and sale agreement is signed. Parties may agree in writing to different deadline. © 2013 Rockwell Publishing

Seller Disclosure Statement Waiver Buyer may waive right to receive completed statement. If any answer to a question in form’s Environmental section was “yes,” buyer can’t waive receipt of that portion of statement. © 2013 Rockwell Publishing

Seller Disclosure Statement Right of rescission Buyer has right to rescind purchase agreement within 3 business days of receiving the disclosure statement. Notice of rescission must be in writing. Buyer is entitled to a full refund of deposit upon rescission. © 2013 Rockwell Publishing

Seller Disclosure Statement Right of rescission If seller fails to give buyer a disclosure statement, buyer can rescind the agreement at any time until closing. © 2013 Rockwell Publishing

Seller Disclosure Statement Right of rescission Decision to rescind or not is entirely up to buyer. Buyer does not need to reveal specific concerns about disclosure statement. © 2013 Rockwell Publishing

Seller Disclosure Statement Updated disclosure If new information arises or circumstances change after seller disclosure statement has been given, seller should give new disclosure statement. This reactivates 3-day period. © 2013 Rockwell Publishing

Seller Disclosure Statement Limitations on liability Information in the disclosure statement is based on the seller’s actual knowledge of the property. Seller and real estate agent aren’t liable for inaccuracies in the statement, unless they knew of the inaccuracies. © 2013 Rockwell Publishing

Seller Disclosure Statement Limitations on liability If seller fails to disclose a latent defect that agent knows about, agent must disclose. Otherwise, agent can be held liable. © 2013 Rockwell Publishing

Listing Vacant Land A listing input sheet for vacant land is quite different from a residential listing input sheet. Seller must fill out a property condition report for vacant land, instead of a seller disclosure form. © 2013 Rockwell Publishing

Listing Vacant Land Vacant land has special considerations, such as: available utilities zoning restrictions dimensions of property © 2013 Rockwell Publishing

Listing Vacant Land Seller is prohibited from offering a portion of a larger property for sale, unless it has been platted and plat is properly recorded. © 2013 Rockwell Publishing

Summary Required Disclosures Seller disclosure statement Right of rescission Disclosure of defects Lead-based paint disclosure Vacant land © 2013 Rockwell Publishing