"On the hook" with a listing agreement - part 2
In part one we discussed the three basic types of listing agreements.
I left you with the following question regarding the broker getting paid a commission for their efforts: “What if a potential buyer and seller talk and agree that when the broker’s listing agreement period expires they come together, execute a purchase agreement and consummate a transaction effectively cutting the broker out of the transaction and a commission.”
The listing agreement protects the broker for a set period of time against this provided a broker registers all the potential buyers who toured the property or made an offer that failed. If the seller and buyer consummate a sale during the period of time after the expiration of the listing the broker will still receive a commission.
How does a cooperating broker receive a commission?
A cooperating broker is a broker who brings in a buyer or a tenant. The listing agreement specifies how the commission is to be shared with a cooperating broker.
The listing agreement specifies the total commission the seller will be compensating the broker. Also in the agreement is the amount of commission the broker will give to the cooperating broker.
As you can see, the amount of commission a cooperating broker receives can be uncertain at times. However, many residential brokers are members of a local multiple listing service (MLS). The MLS is a formal organization where a broker must apply for membership and pay a fee. As part of the by-laws the commission split, which is the amount of the commission a broker will share from their total commission, is listed in the MLS report for every property for sale. This eliminates any confusion and uncertainty as the MLS rules state the commission in the report must be paid to the cooperating broker.
Unfortunately, commercial brokers are not all members of a local MLS. When this occurs, it is essential for the brokers to have an outside agreement regarding the commission split to be shared.
Exactly how is the seller “on the hook?”
I hope a property owner comes to me because they have a problem they would like for me to solve, which is to secure a buyer for a property they desire to sell or find a tenant for a property they desire to lease.
I thoroughly go through the merits of hiring me for such a transaction and have a presentation that highlights all I will do in performing my side of the agreement.
But, did you know the property owner has their own requirements as part of the listing agreement? This is called seller representations.
The seller representations
There are those apparent representations such as making sure the person signing the agreement is the owner of the property. This is less obvious when dealing with an entity as documentation will need to be provided showing the signer is authorized to sell the real estate.
Some less obvious things a property owner needs to disclose are any pending or anticipated notices of default for a loan, delinquent or late loan payments, pending bankruptcy or divorce, any litigation or pending tax investigations. The seller should also inform the broker if any of these issues arise during the listing period.
Tenant issues such as pending bankruptcy or insolvency, title issues, zoning changes, special assessments from the city or county, notices received from the city or county regarding applications for use permits from neighbors should also be shared with your broker.
Lastly, issues of title need to be brought out in the open such as lot line discrepancies or neighbors who may have been using your land with your knowledge.
Burt M. Polson, CCIM, is an active commercial real estate broker. Reach him at 707-254-8000, or email@example.com. Sign up for his email newsletter at BurtPolson.com.