1. Washington Real Estate Fundamentals Lesson 8: Listing Agreements © 2011 Rockwell Publishing

2. Listing Agreements Listing agreement: Contract in which property owner hires real estate firm to help sell the property. Creates agency relationship. Parties: seller and real estate firm. Licensee working for firm fills out form, but is not party to contract. © 2011 Rockwell Publishing

3. Listing Agreements Earning a commission Real estate firms compensation: commission, also called brokerage fee. Usually percentage of propertys selling price. Percentage specified in listing agreement. © 2011 Rockwell Publishing

4. Earning a Commission Right to sue seller If seller doesnt pay commission, firm can sue if three requirements met: 1. Written agreement with seller. 2. Properly licensed before services offered or promise of compensation procured. 3. Terms of listing agreement fulfilled. © 2011 Rockwell Publishing

5. Earning a Commission Ready, willing, and able buyer Under most listing agreements, seller must pay commission only if a ready, willing, and able buyer is found during listing period. Buyer considered ready and willing if: offer meets price and terms set by seller in listing agreement, or seller accepts offer even though listing price and terms not met. © 2011 Rockwell Publishing

6. Ready, Willing, and Able Buyer Financially able In addition to being ready and willing, buyer must also be able: Has capacity to enter into binding contract. Has financial resources to complete the purchase. Sufficient cash, or can qualify for loan. © 2011 Rockwell Publishing

7. Ready, Willing, and Able Buyer Commission without closing Once ready, willing, and able buyer found, commission earned. Firm generally entitled to payment even though sale never closes, if sellers fault: doesnt have marketable title cant deliver possession of property changes mind about selling mutually agrees with buyer to end contract © 2011 Rockwell Publishing

8. Earning a Commission Types of listing agreements When real estate firm entitled to payment also depends on type of listing agreement used. Three basic types: open listings exclusive agency listings exclusive right to sell listings © 2011 Rockwell Publishing

9. Types of Listing Agreements Open listings Open listing: Seller promises to pay firm a commission only if firms affiliated licensee was procuring cause of sale. Procuring cause: Person primarily responsible for bringing about agreement between seller and buyer. © 2011 Rockwell Publishing

10. Open Listings Procuring cause Open listing also called nonexclusive listing, because it may be given to several firms. Firms do not promise to make effort to find buyer. Agents may put less effort into these listings because of risk they wont get paid. © 2011 Rockwell Publishing

11. Open Listings Not favored by brokers Open listings generally used only at seller's insistence. No advantage for real estate firm. Competing firms may end up in a dispute over who was the procuring cause. Many MLSs dont allow agents to submit open listings. © 2011 Rockwell Publishing

12. Types of Listing Agreements Exclusive agency listings Exclusive agency listing: Entitles firm to commission if anyone other than seller finds buyer during listing period. Seller gives listing to only one firm. If seller finds buyer on his own, no commission owed. If anyone other than seller finds the buyer, listing firm entitled to commission. © 2011 Rockwell Publishing

13. Types of Listing Agreements Exclusive right to sell listings Exclusive right to sell listing: Entitles firm to commission if property sells during listing period, no matter who finds buyer. Seller gives listing to only one firm. Commission owed even if seller finds buyer without help. Most frequently used type of listing. © 2011 Rockwell Publishing

14. Types of Listing Agreements Diligent effort While open listing is unilateral contract, exclusive listing is bilateral contract. With exclusive listing, firm gives express or implied promise to market the property and make diligent effort to secure a buyer. © 2011 Rockwell Publishing

15. Summary Earning a Commission Listing agreement Commission Ready, willing, and able buyer Open listing Procuring cause Exclusive listing Exclusive agency listing Exclusive right to sell listing © 2011 Rockwell Publishing

16. Elements of a Listing Agreement Basic requirements Four basic requirements for enforceable listing agreement in Washington: Identifies property. Includes promise to compensate firm. Fixes what the compensation will be. In writing and signed by seller. © 2011 Rockwell Publishing

17. Elements of a Listing Agreement Typical provisions Although an enforceable contract can be a very simple document, lack of detail can cause misunderstandings. Generally, real estate firms use preprinted listing forms, which spell out the terms of the agreement in detail. © 2011 Rockwell Publishing

18. Typical Listing Provisions Agency authority Listing agreement form usually begins with: identification of brokerage firm description of agency authority granted to firm Provisions of contract also apply to listing licensee as subagent. © 2011 Rockwell Publishing

19. Agency Authority Limitations Despite the term exclusive right to sell, firm is not given authority to actually sell the property, only to solicit offers. Seller who wanted to give brokerage firm authority to sign purchase and sale agreement would have to execute and record a power of attorney. © 2011 Rockwell Publishing

20. Agency Authority Earnest money deposits Agreement usually authorizes firm to receive earnest money deposits from buyers. That means firm acts for seller when accepting deposit from a buyer. If firms agent stole a deposit, it would be the sellers loss, not the buyers. © 2011 Rockwell Publishing

21. Typical Listing Provisions Listing period Agreement should always specify date on which firm's agency authority will end. But termination date not required for valid listing in Washington. If not specified, agreement ends after a reasonable time. Agreement usually extends listing period through closing date if seller signs a purchase and sale agreement. © 2011 Rockwell Publishing

22. Typical Listing Provisions MLS provision Agreement authorizes firm to submit listing to a multiple listing service. Allows information about the property to reach more potential buyers. MLS agents are cooperating agents. Commission split will follow MLS rules. © 2011 Rockwell Publishing

23. Typical Listing Provisions Agency disclosure Most listing agreement forms include an agency disclosure provision. Seller authorizes firm to appoint listing licensee to act as subagent of seller. Other licensees working for firm do not automatically represent the seller, and may represent the buyer. © 2011 Rockwell Publishing

24. Typical Listing Provisions Agency disclosure If buyer found by another licensee affiliated with listing firm, firm will be acting as dual agent. By signing listing agreement, seller consents to this dual agency. © 2011 Rockwell Publishing

25. Typical Listing Provisions Property not distressed Agreement may also have provision in which seller warrants property is not distressed. Distressed property: Home in foreclosure or imminent danger of foreclosure. © 2011 Rockwell Publishing

26. Typical Listing Provisions Access and keybox provision Seller agrees to allow agents access to property at reasonable times. Keybox: Secure device holding copy of house key, which seller locks to porch railing or other place outside house when leaving. MLS listing forms authorize installation of keybox so agents can show property when seller is absent. © 2011 Rockwell Publishing

27. Summary Elements of a Listing Agreement Basic requirements Brokerages agency authority Termination date MLS provision Agency disclosure Property not distressed warranty Access and keybox provision © 2011 Rockwell Publishing

28. Typical Listing Provisions Commission provisions Listing forms have a space for filling in commission amount or percentage. To comply with antitrust laws, commission: cannot be preprinted on form must be negotiable between firm and seller for each transaction © 2011 Rockwell Publishing

29. Commission Provisions Net listings Net listing: Agreement specifies net amount that seller wants from sale; brokerage firm will keep any proceeds over that amount as commission. Net listings prohibited in Washington. © 2011 Rockwell Publishing

30. Commission Provisions Earning the commission Under exclusive right to sell listing form, seller must pay commission if: ready, willing, and able buyer is found during listing period; property sells during listing period; or extender clause applies and buyer is found within extension period. © 2011 Rockwell Publishing

31. Commission Provisions Extender clause Extender clause: Provides that if property is sold during specified period after listing expires, seller may still owe commission. Also called safety clause or carryover clause. © 2011 Rockwell Publishing

32. Extender Clause Terms of clause Extender clause may apply: only if firms agent negotiated with eventual buyer, or if buyer merely learned about property through firms agent. Firm may be required to give seller list of names of buyers that firms agents had contact with during listing period. © 2011 Rockwell Publishing

33. Extender Clause Safeguards for seller Seller may relist property with different firm during first listings extension period. To protect seller from liability for two commissions, extender clause may provide that seller doesnt have to pay first brokerage if seller owes another brokerage a commission under a subsequent listing agreement. © 2011 Rockwell Publishing

34. Typical Listing Provisions Rental or option provision Many listing forms prohibit seller from leasing or granting an option on the property during listing term. Seller who violates this provision liable for entire commission. Brokerage firm not required to pass on offers other than offers to purchase. © 2011 Rockwell Publishing

35. Typical Listing Provisions Property description As mentioned earlier, listing agreement must include description of the property. Best to use complete legal description, which will be needed later anyway. Can copy description from sellers deed. If description wont fit in space provided, attach separate sheet. © 2011 Rockwell Publishing

36. Typical Listing Provisions Closing costs provision Seller customarily pays certain closing costs, such as: premium for buyer's title insurance state excise tax half of escrow fee Most listing agreement forms have provision specifying closing costs seller agrees to pay. © 2011 Rockwell Publishing

37. Typical Listing Provisions Sellers warranties For brokerage firms protection, seller warrants that: seller has right to sell property as offered property information provided in listing is correct Agreement may also include warranties concerning other matters such as encroachments and zoning compliance. © 2011 Rockwell Publishing

38. Typical Listing Provisions Sellers warranties In sellers warranties section or elsewhere, listing agreement usually includes a hold harmless agreement. Hold harmless agreement: Clause in which seller agrees to indemnify brokerage firm for any losses that result from mistakes or omissions in information provided by seller. © 2011 Rockwell Publishing

39. Typical Listing Provisions Seller disclosure statement Agreement may require seller to give agent disclosure statement as soon as possible. Seller eventually has to provide it to buyer. Allows agent to learn about potential problems right away. © 2011 Rockwell Publishing

40. Typical Listing Provisions Seller disclosure statement Listing agreements also typically provide that seller takes full responsibility for information in the disclosure statement. This protects the listing agent from liability if a buyer sues because of a problem with the information in the disclosure statement. © 2011 Rockwell Publishing

41. Typical Listing Provisions Attorneys fees provision Listing agreement usually provides that if either party has to sue to enforce contract, losing party will pay winning partys attorneys fees. © 2011 Rockwell Publishing

42. Listing Agreements Signatures Agreement signed by listing agent on behalf of firm and by seller(s). Agent fills in firm's name on 'Brokerage' line, signs own name on 'By' line All co-owners of the property, and their spouses, should sign as sellers. © 2011 Rockwell Publishing

43. Listing Agreements Listing information Listing input sheet: Form with detailed information for submission to MLS and distribution to MLS members. Property address and location Architectural style and age of home Listing price and commission Listing agent and expiration date Number of bedrooms and bathrooms County tax ID number © 2011 Rockwell Publishing

44. Listing Agreements Sellers acknowledgment of receipt Agreement may also have provision in which seller acknowledges that listing agent provided: copy of signed listing agreement copy of pamphlet about real estate agency © 2011 Rockwell Publishing

45. Listing Agreements Distressed property listings Washingtons Distressed Property Law helps protect homeowners against foreclosure rescue scams. Special rules apply to certain transactions involving distressed homes. Licensees who meet laws definition of distressed home consultant must comply. Licensees providing routine brokerage services are exempt. © 2011 Rockwell Publishing

46. Summary Listing Agreement Provisions Commission rate Net listing Extender clause Rental or option provision Closing costs provision Sellers warranties Hold harmless agreement Seller disclosure statement Attorneys fees provision © 2011 Rockwell Publishing