"On the hook" with a listing agreement - part 1
If you sold or leased real estate with an agent or broker, you probably signed a listing agreement, or what is formally called an “exclusive authorization and right to sell,” or “exclusive right to represent owner for sale or lease of real property,” depending on the form used.
Just as the title implies, the property owner is giving the real estate broker the exclusive right to represent them and their property in marketing and eventual transaction. There are also less exclusive representations called an “agency authorization” and an “open listing.”
A broker representing a seller has a fiduciary duty of care, integrity, honesty, and loyalty to their client. Did you know the seller has specific responsibilities as well in their representation to the broker?
What is so exclusive?
As a real estate broker, when I take a new engagement with an owner to sell their property a significant level of research and preparation is executed before any marketing collateral is created. Hours are spent researching all facets of the property, speaking with the property owner, contacting different jurisdictions and determining the target market.
Once the background legwork is complete, and I have all the information available I can execute my marketing plan. This is where I start to focus a lot of my time and start spending money for marketing collateral such as a website, brochures, offering memorandum, online services, photos, aerials, drone footage, signage and more.
I like to know that I have a commitment from a seller for a specified period of time during my representing them and their property before I start expending my time and money. Therefore, the exclusive authorization agreement ensures me that I can be fully engaged, pouring all my efforts into marketing and selling my client’s property and when it does sell, get paid a commission.
The other listing agreements
Real estate sales and leasing is a tough business. For one reason or another, a property may not sell. My job is to mitigate all possible roadblocks preventing a potential sale, but often there are reasons outside of my control.
When the property does sell, I hope it is partly because of my efforts and my advisement to the seller. Ultimately, I want a happy client and second, to be paid. An agency authorization listing agreement does not protect me as well as the exclusive authorization because the agency agreement allows a seller to also sell the property on their own. This can be a tricky proposition because with all the marketing I am executing if a buyer went directly to a seller I could be bypassed and so could my commission.
An open listing even further degrades my ability to be secure in my commitment from the seller because by being “open” this allows for the seller to concurrently list with another broker as well as also sell the property on their own.
Is a commission guaranteed?
In an exclusive authorization agreement, a broker has the certainty that if a sale is consummated during their listing period, they will receive the agreed commission.
So what if a potential buyer and seller talk and agree that when the broker’s contract expires they can consummate a transaction thereafter and avoid paying a commission?
In part two we will answer that question as well as discuss the responsibilities of the seller in a listing agreement.
Burt M. Polson, CCIM, is an active commercial real estate broker. Reach him at 707-254-8000, or firstname.lastname@example.org. Sign up for his email newsletter at BurtPolson.com.