Why this matters: Learn how to manage licensed activities as a seller agent from soliciting a seller-client and organizing the marketing of their property through closing a transaction.

Follow along with an audio reading of this article adapted as a chapter from our upcoming Real Estate Practice course update.

Interview for representation and marketing

Due to an agent’s marketing efforts to solicit clients, a property owner contacts the agent expressing an interest in selling their property. The owner wants a meeting to determine whether the agent is who they want to represent them to market their property for sale, provide advice, and locate a buyer to acquire the property.

Likewise, before entering into a representation agreement, the agent and their broker determine whether it is feasible to undertake employment with this owner. Do they want to market this owner’s property for sale and locate a buyer to earn a fee contingent on closing?

To decide, the broker needs to know whether the owner will cooperate to provide necessary property information and reports for inclusion in the marketing package the agent will deliver to interested buyers.

When the owner responds favorably to providing necessary property disclosures upfront, the agent and broker can anticipate the owner is sufficiently dedicated to a marketing effort to attract a buyer and earn a fee to justify their representation of the owner.

Related article:

Career Coach: marketing and soliciting offers

Prepare to meet with a prospective seller-client

The agent sets an appointment with the owner to meet at their residence. To prepare for the meeting, the agent prepares a seller representation agreement together with numerous addendum forms for review with the owner. The preparation is in expectation of employment as the owner’s exclusive seller agent. [See RPI Form 102]

Before reviewing the seller representation agreement provisions with the seller, the agent needs to determine the extent to which the owner supports the agent’s marketing plan. To achieve this objective, the agent also prepares the forms to be attached to the representation agreement for review with the owner.

The owner is asked to have their title insurance policy available at the meeting for the agent to review title conditions with them to confirm the agent’s profile on the property.

The first addendum the agent will hand to the seller is the Agency Law Disclosure form which the agent will review with the seller as mandated. [See RPI Form 305]

On completion of the agency law review, the agent next hands the seller a blank Transfer Disclosure Statement (TDS) form and asks them to fill it out as soon as practicable (ASAP). The seller is advised the agent needs the TDS filled out by the seller as mandated and returned before the agent can proceed with their mandatory inspection of the property. [See RPI Form 304]

The other addenda prepared and reviewed with the seller, as needed for the property, include the:

The agent further prepares for their meeting by pulling all readily available information on the seller’s property, including:

  • a property profile from a title company for vesting information, mortgages, covenants, conditions and restrictions (CC&Rs), property tax information and status, parcel map, etc.;
  • online sales history for the property; and
  • local planning department information on the property’s zoning, permits, year built and natural hazard information.

The initial purpose of the agent’s research into information publicly available on the property is to enable the agent to demonstrate they are already immersed in extensive amounts of information about the owner’s property. A well-informed agent indicates they are best suited to market the property as the seller’s representative.

The agent’s goal is to know more about the property and its ownership than the seller does. During the appointment with the property owner, the agent reviews all documents and discusses the data gathered on the property.

At this critical stage with the seller as a prospective client, the agent’s goal is to determine whether the seller is an appropriate client, one worth working with. For the agent, the seller needs to understand and appreciate the agent’s need to properly market the property and be willing to enter into a seller representation agreement authorizing the agent to start work — as disclosed.

Related video:

Read more about third-party property reports.

Sellers must participate in disclosures and reports

Before reviewing provisions in the representation agreement, the seller agent first reviews the property disclosures prepared for the meeting, including:

  • a TDS form the seller fills out to inform prospective buyers of what the seller knows about the property conditions, which is returned to the agent ASAP so the agent can conduct their mandatory visual inspection of the property and add any additional conditions to the statement for its inclusion in the agent’s marketing package of property information;
  • unique property information the seller and the seller agent provide to the buyer, such as the:
    • HOA addendum (when the property is located in an HOA);
    • lead-based paint disclosure (for properties constructed prior to 1978); and
    • residential earthquake hazards report (for properties constructed prior to 1960);
  • the Marketing Package Cost Sheet — a Due Diligence Checklist — which informs the seller what to expect, and approve, as their out-of-pocket costs for third-party property reports needed for a proper presentation of property information and reduce the risk of claims before and after closing [See RPI Form 107];
  • the seller’s authority for the agent to order out a Home Inspection Report (HIR). Here, the agent advises the seller that the HIR shifts liability for unknown property defects to the home inspector when the TDS is prepared in reliance of the HIR content as an attachment;
  • the NHD Statement ordered by the agent and authorized by the seller for inclusion in the marketing package, disclosing natural hazards affecting the property for delivery upfront, containing material facts about natural conditions due to the property’s location which avoids future claims from buyers for lack of disclosure before entering into a binding purchase agreement;
  • Seller’s Net Sheet, a checklist setting out the asking price, transaction costs incurred and net proceeds of a sale at the asking price (which needs to be the fair market value (FMV) at the time of the initial interview) [See RPI Form 310];
  • a Comparative Market Analysis (CMA) to assist in setting the asking price for the property based on the agent’s Broker Price Opinion (BPO) — normally worked up after retained as the seller’s representative [See RPI Form 318]; and
  • the Agency Law Disclosure attached to the seller representation agreement and signed by the seller and agent to advise the seller-client about the agency relationships involved in representations. [See RPI Form 305]

On completion of the review of all the activities known or expected in the employment, the seller-client now understands these transaction-related documents. The agent and seller then review provisions in the seller representation agreement and agree to them by signing it.

Now employed by the seller, the agent and their broker are authorized to act on behalf of the seller as their exclusive agent — as disclosed in addenda. [See RPI Form 102]

Related video:

Read more about assessing a seller’s participation.

The agent’s advice on the property’s market price

On receipt of the seller-prepared TDS from the seller-client, the agent conducts their visual inspection of the property. The agent notes any adverse conditions or visible defects and any items noted in the HIR not listed by the seller on the TDS.

The agent also recommends any minor repairs or cosmetic improvements on the property the seller might take into consideration to increase marketability and possibly value. The agent takes notes on features and upgrades existing on the property for use in marketing the property.

The agent, now versed on the property’s conditions by the seller-prepared TDS, an HIR and agent inspection, prepares a Comparative Market Analysis (CMA) to develop an opinion about the likely market price a well-informed buyer will pay for the property — the BPO, Broker Price Opinion.

To work up an opinion of the property’s market value, the agent uses a CMA form to compare attributes and amenities of the seller’s property to similar properties in the area which recently sold, called comps. [See RPI Form 318]

For locating comparable sales information, the agent prints out a report on recent sales in the surrounding area from a title company or property listing service website.

This information supplies the agent with knowledge to develop the best asking price for the property and sales strategies based on market conditions, such as pricing at or under market value to encourage multiple offers.

The agent reviews the information gathered in the CMA with their seller-client. An initial asking price for marketing the property is agreed on. The typical asking price is slightly above the BPO evaluation as the likely price paid by a ready and able buyer based on recent sales of similar properties.

Related article:

Ethics in rendering broker price opinion (BPO) services

Staging the property and solicitation of offers

Next, the agent helps the seller-client arrange:

  • professional cleaning;
  • decluttering guidance;
  • landscaping;
  • staging;
  • professional photography;
  • videography;
  • floor plans; and
  • 3D tours.

The agent explains why a good visual presentation stimulates buyer interest and tends to pull top price.

The agent gathers property condition reports to include in the marketing package, which is shared with potential buyers and their agents for review and disclosure. The marketing package includes the TDS, HIR, NHD Statement, APOD, parcel map, floor plan and any other document with meaningful property information.

With the staging, photos and disclosure package complete, the seller agent is ready to offer the property as available for sale, primarily using online property listing services and the broker’s website. The agent enters all property details, photos, videos, showing instructions and disclosures in the online publications, submitted for exposure to the consuming public.

Related FARM letter:

FARM: Do’s and don’ts for staging your home

Marketing the property

The agent, or their broker, prepares printed and digital marketing materials for the property, including:

  • the “For Sale” sign posted on the property, directional signs to the property and “Open House” signs;
  • property flyers for handouts;
  • postcards;
  • newspaper and magazine advertisements;
  • door hangers for the neighborhood;
  • social media posts;
  • emails; and
  • the marketing package of disclosures delivered ASAP (on initial inquiry for property information) by prospective buyers or buyer agents.

Open house activities are scheduled to attract interested buyers (and neighbors) to the property. Possibly agent tours are organized to generate interest among buyer agents.

Related video:

Read more about real estate advertising.

Obtaining an offer as a seller agent

The seller agent routinely informs the seller-client about the progress of buyer and buyer agent activity. When an offer is received, the seller agent’s focus narrows instantly to processing the offer.

On receipt from a buyer or buyer agent of a purchase agreement offer, the seller agent initially confirms their receipt of the offer with the buyer agent. The seller agent next reviews and analyzes the offer, then presents and reviews it with the seller-client, advising on a response.

The seller agent’s analysis considers the:

  • price compared to market value;
  • funding of the price (cash or financing as conventional or government insured);
  • strength of mortgage loan originator (MLO) preapproval for financing;
  • contingencies (due diligence investigation, property evaluation, mortgage origination, sale of other property);
  • timelines (contingency periods, close of escrow);
  • requested cashback credits or repairs;
  • earnest money deposit, if any;
  • buyer’s financial strength (income and assets); and
  • risk of failure to close.

Further, the agent prepares another form, called a Seller’s Net Sales Proceeds, to estimate the amount of net proceeds based on the price and terms offered. The net proceeds workup discloses the financial consequence of the seller accepting the offer agreeing to sell, the culmination and primary purpose for the agent’s representation of the seller. [See RPI Form 310]

On presenting an offer to the seller, the seller agent explains the terms affecting the seller beyond the price, such as contingencies, financing qualifications of the buyer and timelines. The agent also sets expectations for potential multiple-offer conditions and counteroffer strategies.

When fully prepared, the agent presents the offer and the net sheet to the seller, and as an advisor explains:

  • the offer’s pros and cons;
  • the implications of financing the price;
  • potential risks to closing;
  • how the offer competes under current market conditions; and
  • whether other offers are likely or might be pursued.

Related article:

Form-of-the-Week: Seller’s Net Sheet, and Buyer’s Cost Sheet — Forms 310 and 311

Accepting an offer

At this stage, the agent explains the seller may accept, counter or reject the offer.

When the seller receives multiple offers for review, the agent helps the seller evaluate the competing offers, comparing the price, terms and conditions of each offer and the amount of net sales proceeds on closing.

The agent presents all written and oral offers to the seller, unless the seller gives prior written instructions limiting which offers to present. [Simone v. McKee (1956) 142 CA2d 307]

When the seller decides to counter an offer, the agent prepares a counteroffer form, entering the changes in provisions sought by the seller, such as:

  • the price;
  • disclosures of material facts mandated before accepting an offer, such as an attached TDS and NHD for symmetric knowledge of conditions for use and enjoyment of the property;
  • contingency provisions and waiver periods;
  • credits or repairs for defects;
  • the closing date; or
  • other terms the seller decides to alter.

The agent discusses any negotiating strategy and likely buyer reaction with the seller-client. Also, whether a communication with the buyer agent for clarification is needed before the seller accepts.

When the seller is fully agreeable with the price and terms of an offer, the offer is accepted by signing the purchase agreement the buyer submitted, directly or through the buyer agent.

Related video:

Read more about the counteroffer environment.

Going to escrow and closing

When the purchase agreement or counteroffer is signed by both the buyer and the seller, the buyer agent opens escrow. The escrow officer takes instructions for processing and closing the transaction agreed to in the purchase agreement. The agent provides escrow with a copy of the signed purchase agreement for their perusal.

On receipt of escrow instructions, the transaction agents review them for any corrections, then review them with their clients who sign the instructions, which the agents return to escrow.

Critically, the mutual instructions signed by the seller and the buyer include provisions instructing escrow to disburse fees to the brokers from funds accruing to the seller. Escrow will separately pay each the seller broker and the buyer broker the fee amount earned as agreed in their respective representation agreements with their clients.

With escrow instructions signed and returned to escrow, the buyer agent coordinates showings for the buyer’s final inspection and negotiates any buyer request concerning the need for undisclosed repairs. The agents monitor deadlines for eliminating contingencies and ensures escrow orders out a preliminary title report for review by everyone involved.

When the buyer needs mortgage financing to pay the purchase price, the seller agent coordinates access to the property by the MLO-ordered appraiser. Meanwhile, the buyer agent ensures processing the mortgage origination is on track.

Finally, the buyer agent arranges the buyer’s final walk-through and ensures any agreed repairs are completed before closing.

The seller agent helps with closing by confirming:

  • all fees charged the seller are accurate by asking escrow for and reviewing an estimated closing statement;
  • the seller has signed all documents needed to close; and
  • the move-out and delivery of keys is achieved as anticipated.

Related video:

Read more about the escrow process.

Dictating escrow instructions to include broker fee provisions

Escrow instructions are the final opportunity for each transaction broker and their agents to assure payment through escrow of their earned broker fee.

When dictating instructions for escrow’s disbursement of the broker fee, brokers and their agents have several options. Each type of provision for payment of fees by escrow provides various degrees of assurance the fees are paid on closing. Payment arrangements for broker fees, in reverse order of most protective, include:

  • instructions signed only by the seller, called unilateral fee instructions, which authorize escrow to pay the broker fee from proceeds due the seller on closing;
  • a collateral assignment and unilateral fee instructions signed by the seller authorizing escrow to pay the broker fee from the seller’s proceeds;
  • unilateral fee instructions signed by the seller accompany a provision imposing a lien on the seller’s proceeds to secure payment of the broker fee;
  • instructions signed by the seller and brokers, but not by the buyer, authorizing escrow to pay the broker fee from the seller’s proceeds; and
  • mutual instructions signed by the seller and buyer, whether or not approved by the brokers. This method authorizes escrow to pay the broker fees to each broker separately from funds accruing to the seller at the close of escrow.

When the broker dictating escrow instructions fails to specify the type of payment-of-fee provision escrow is to use, the typical fee provision used by institutional escrow services is a “default fee provision.” In it, the seller alone instructs escrow, by way of supplemental (and thus unilateral) escrow instructions, to pay the brokers from funds accruing to the account of the seller on close of escrow.

Related video:

Read more about escrow instructions.

Unilateral fee instructions to escrow

Of all the various fee arrangements available to brokers for payment of their fees, the unilateral fee instructions (signed only by the seller) leave the brokers with the least assurance of a paid fee on close of escrow.

Unilateral fee instructions give the seller the sole and absolute ability to cancel, revoke or alter the broker fee instructions and still close escrow. When the seller cancels unilateral instructions, no conflict arises to interfere with the escrow officer’s ability to close escrow under the buyer and seller’s mutual instructions.

For example, when a seller cancels their unilateral fee instructions, escrow needs to close and pay all net proceeds to the seller — including funds originally intended for payment of the broker fee. Thus, no funds remain in escrow as a source of recovery for the brokers. [Contemporary Investments, Inc. v. Safeco Title Insurance Co. (1983) 145 CA3d 999]

Adding the broker’s consent to or approval of the seller’s unilateral fee instructions adds no assurance the seller will not act to cancel, revoke or alter the fee instructions. When the seller cancels the fee instructions the broker signed, the escrow officer still closes escrow. However, escrow withholds funds in the amount of the fee, but they do not disburse them to either the seller or the broker until the dispute is resolved.

Brokers under separate fee instructions are not persons benefiting from mutual buyer and seller instructions. Thus, they have no legal ability to assure payment of the fee when escrow closes. More critically, their duty to the client is to close escrow, not interfere with the closing based on a fee dispute, a catch-22, and thus is avoided by foresight.

The seller’s unilateral fee instructions, whether joined by the brokers or not, occasionally call for either an assignment of an amount equal to the broker fee or a lien on the seller’s net proceeds in the amount of the fee. An assignment or lien only improves the claim for a fee. However, the seller may cancel the fee instructions and still close escrow without escrow disbursing the earned fees, which escrow holds.

Related article:

Brokerage Reminder: Disbursement of funds when a transaction fails

Mutual fee instructions as best fee protection

The best protection a broker has against cancellation, revocation or alteration of the broker fee instructions is to include the seller’s payment of the fees in the mutual instructions signed by both the buyer and seller. With mutual instructions for disbursing broker fees from the seller’s funds, any interference with payment of the broker fees without approval of both buyer and seller must be resolved before escrow may close.

For the seller to cancel payment of the broker fee payable under provisions in mutual instructions, the buyer needs to collaborate with the seller for escrow to close. When the buyer agrees, the buyer (as well as the seller) is responsible for payment of the earned fee wrongfully withheld. [See RPI Form 150 §8.1(a)]

Further, mutual instructions need to call for any change in fee provision as subject to the broker’s approval. Thus, the broker “locks in” the payment of their fee by triangulation when escrow closes. No buyer or seller, individually or together, may intervene with the fee payment and still close escrow, the entire point of mutual instructions.

Related video:

Read more about escrow disputes.