This is the ninth episode in our video series covering a licensee’s authority to act on a client’s behalf under a written listing agreement. The eighth episode covers the use of an open listing as a unilateral contract.

Anything in excess of the seller’s net sales price

A net listing

is used only with sellers, not buyers. It is structured as either an open or an exclusive type of listing. The net listing is distinguishable from all other listing arrangements due to the way a broker’s compensation is calculated.

In a net listing, the broker’s fee is not based on a percentage of the selling price.

Instead, the seller’s net sales price (excluding broker fees and closing costs) to be received by the seller on closing is stated in the listing agreement. The broker’s fee equals whatever amount the buyer pays in excess of the seller’s net figure and closing costs.

However, the broker discloses to the seller the full sales price paid by the buyer and the amount of the broker’s residual fee before the seller accepts an offer on a net listing.

Failure to disclose to the client the benefits the broker receives on any transaction leads to loss of the entire fee. [Calif. Business and Professions Code §10176(g)]

For example, if the seller enters into a net listing agreement with a real estate broker for a net sales price of $500,000, the broker will not receive a fee if the seller accepts an offer selling the property for $500,000 or less.

On the other hand, if the property sells for $575,000, the broker’s fee is $75,000, minus the seller’s other transaction costs.

Net listings tend to be unpopular with the Department of Real Estate (DRE) and consumer protection organizations, and have been outlawed in some states, but not California.

Net listings are particularly prone to claims from buyers and sellers that the broker has been involved in misrepresentations and unfair dealings. These claims are generally based on an improper valuation of the property at the time of the listing or a failure to disclose the fee received by the broker when the property sells.

If the seller thinks the broker’s fee is excessive, the seller is likely to complain they were improperly advised about the property’s fair market value (FMV) when employing the broker.

Thus, net listings are used sparingly, if at all. If a net listing is used, sale documentation is to include complete disclosures stating:

  • the property’s value;
  • the price paid by a buyer; and
  • the resulting fee amount.