It is in the licensee’s best interest to fully explain the contents of a listing agreement to the seller before it is signed. Licensees should pay careful attention to detail by reviewing every portion of the agreement to ensure sellers fully comprehend their rights and obligations. Saying, “This is a standard agreement so just sign here,” may spoil the listing presentation, because most sellers will have questions about the “legalese” language that is inherent in most listing agreements.
New sales associates can practice the presentation of listing agreements through “role-playing.” If a licensee practices with a non-licensed consumer, it may be easier to identify areas that will require further explanation. Licensees who are able to provide easy-to-understand explanations of an agreement’s details appear more professional and instill more confidence in sellers. Listing agreements generally include the following components:
- Authority to Sell Property — Tell the seller that a defined start and end date is essential in any Exclusive-Right-to-Sell agreement, in which a seller agrees to give a broker authority to find a buyer. In this section of the agreement, the seller’s signature indicates he/she is the rightful owner and has the authority to sell a property.
- Description of Property — Brokers should explain that the listing agreement’s description of a property includes the street address as well as the property’s legal description, whether it was taken from public records or measured by metes-and-bounds. Licensees should be prepared to explain how the legal description was determined. Ask the sellers if there is any personal property, like appliances or furniture, which will be included in the sale. If the property is currently leased to a tenant, the licensee should ask the seller when the lease expires and that date should be stated in the property description.
- Price and Financing Terms — In addition to listing the seller’s asking price for the property in the agreement, licensees should make sure the seller understands the designated financing terms. If the seller agrees to finance the transaction or if the seller has a mortgage that can be assumed by a buyer, these terms should be included in the listing agreement. The licensee should explain the seller’s liability if a loan is assumed without lender approval.
- Broker Obligations and Authority — The broker should describe to the seller the types of services that will be performed to attract buyers. These would include advertising, registering the property with a multiple listing service, and compiling a comparative market analysis (CMA). The CMA helps sellers determine how much to ask for the property and it helps buyers understand how the value of a property compares to other homes that sold recently in the area. In this section of the agreement, brokers should also include information on the current mortgage. In some cases, sellers will agree to let the licensee act as a transaction broker, facilitating a sale without maintaining a fiduciary relationship with either the buyer or seller.
- Seller Obligations – Before the listing agreement is signed, the seller should understand that he/she must cooperate with the broker by referring all inquiries about the sale to the licensee. The broker should ask the seller for keys so that the property is available to be shown to buyers at reasonable times. The seller is also required to notify the broker before leasing or placing new mortgages on the property. In cases where a seller is negligent or makes fraudulent statements about a property, the listing agreement should hold the broker harmless from expenses, such as attorneys’ fees and court costs, which stem from misrepresentations made by the sellers. In addition, sellers are required to tell their brokers about any facts that affect a property’s value, especially if they are not easily observable or known by the buyer. Sometimes sellers will want to consult with their attorneys to ensure compliance with legal, tax, property condition and other reporting requirements.
- Compensation — Licensees should carefully review with sellers the terms of the brokers’ compensation. Sometimes commissions are set dollar amounts, but more often brokers received commissions based on a specified percentage of the sale price. The broker’s commission is due upon sale or in a case where they find a buyer who is willing to meet all of the stipulated conditions of the sale, even if the sellers change their minds and decide to terminate the listing agreement. When a buyer defaults on a transaction, the broker should explain what percentage is due to the licensee if the seller retains any deposits for liquidated damages.
- Cooperation and Compensation with Other Brokers — It’s important for the sellers’ brokers to cooperate with potential buyers’ brokers and specify in the listing agreements the percentage of commissions that will be split between the buyers’ and sellers’ brokers since both parties have earned the compensation.
- Brokerage Relationship — Brokers should be prepared to tell sellers about the different types of brokerage relationships that exist under Florida law. While single-agent brokers have fiduciary relationships and owe their allegiance to either a buyer or seller, transaction brokers provide only limited representation and may not share confidential statements made by either principal.
- Conditional Termination — Be sure to tell sellers their listing agreements may be terminated, but also explain the consequences. Listing agreements may be terminated by either the seller or the broker. The broker may end the agreement if the seller transfers the property to someone else. When a seller ends a listing agreement, the contract requires the seller to pay a specified fee.
- Dispute Resolution — Licensees should explain to sellers that a dispute resolution provision is included in the listing agreement. The first step in resolving disputes between sellers and brokers is mediation. If that fails, litigation is often the next step and the expenses of party who prevails in court must be paid by the other party. There is also a third option available to parties in a dispute. They may agree beforehand to accept the decision of a third-party arbitrator. In this case, each party pays his/her own legal expenses. Arbitrators’ fees and their administrative expenses are split between the licensee and the seller.
- Information and Signature Provisions — After carefully reviewing all of the necessary elements of a listing agreement, the broker should work with the seller to determine if any additional terms might be necessary. Space to list such terms is provided near the end of the agreement. If a seller wishes to review the terms of the listing agreement with an attorney or CPA, licensees should encourage them to do so to avoid questions and disputes in the future. Once the listing agreement has been completed and signed by both parties, the broker is free to begin showing the property to potential buyers.
“Listing agreements may seem complex to sellers,” said The Real Estate School President Edward O’Donnell. “To avoid misunderstandings and disputes, I recommend going over every clause of the listing agreement with the seller until you’re sure they understand it. Remember, licensees often use trade terms that are not easy to translate to buyers. All parties benefit when the seller understands his or her rights under the agreement.”