Why this matters: Real estate law terminology needs to reflect best broker practices. The title “Listing Agreement” is archaic compared to “Representation Agreement,” which best indicates employment with fiduciary duties owed the client rather than a title characterizing the posting of property in an MLS. The title “seller representation agreement” to mirror the parallel buyer representation agreement now encased in code needs to be used in lieu of “listing agreement” in California’s Agency Law Disclosure.
The Agency Law Disclosure needs an update
Real estate terminology defined in civil codes is intended to impart understanding of licensee behavior to consumers of their services. The rules of representation — duties owed — are delivered to every person who engages a licensed broker to assist them to dispose of or acquire an interest in real estate — the gatekeeper’s conduct for entrance and exit to the market.
Currently, the California Civil Code refers to “listing agreements” in its Agency Law Disclosure. [Calif. Civil Code §§2079.13(e), 2079.14(a)(1); See RPI Form 305]
However, this term in no way reflects that the agreement is an employment, which is its sole purpose. On the buyer or tenant side, the employment is more professionally called a “representation agreement.” As intersected in brokered transactions, the buyer representation on one side and a listing agreement on the other are incongruous. One adept, the other on a dark backstreet of year’s long past.
Some background on how we got here: Listing agreement terminology did not happen by accident. It is a stealthy part of a longstanding price-fixing regime, built up around the multiple listing service (MLS) as the keystone to enforce 6% fee levels set for transactions and split among participating brokers. Of course, this scheme was a concerted violation of antitrust price-fixing rules. Now, this routine is torn apart by mandated separate negotiations by buyer brokers with their buyer-client to set their fee amount paid by the seller on a transaction.
Related article:
Buyer Representation Agreements: The end of the “gold standard”
The time has come for the California legislature to adopt the term “seller representation agreement” for documents evidencing a seller’s employment of a seller broker. The public policy served is a respectful one: improve clarity, better inform all consumers who own property for sale, and reflect the evolution of real estate practice, as an industry, to full compliance with antitrust laws addressing the conscious parallelism of the MLS-member fee-fixing environment. [CC §1670.50]
Updating for clarity of roles
The term “listing agreement” emerged from historical practices focused primarily on property listings. It was a secret society of the local MLS members with weekly printed listings in books delivered to MLS members only, no other licensees, and never released to clients for their perusal and property information.
Historically, and incorrectly, the broker and their agent who represented a buyer were — but no longer are by code — referred to as subagents. We are aware of subagency only by study in academic material. No subagency exists in any aspect of today’s brokerage practices.
The subagency misnomer was an intentionally legal-sounding product of the pre-1980s MLS environment controlled by a trade union through local Association of Realtors (AOR) ownership and enforced by arbitration committees. Their concept was that all brokers and their agents, being members of the trade union’s MLS system, were automatically agents of the seller, by appointment of the seller broker member.
Buyers in those days had no agent. However, they were assisted by an MLS cooperating broker who, during MLS events, was a subagent of the seller. All cooperating brokers in this context were dual agents.
In turn, another total fabrication was the referencing of the buyer’s agent as the “selling agent.” Of course, selling agents sell nothing. They are “buying” as the buyer’s representative in a transaction. And like the seller broker, today the buyer broker must enter into a representation agreement with their buyer when the broker expects to receive a fee for “assisting” the buyer.
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Now in the 21st century, real estate transactions emphasize fiduciary relationships. Representation is employment, an employment is agency, and agency is fiduciary — achieved in an agreement entered into between a client and broker. Brokers are expected to work on their client’s behalf, to do a lot more than just “list” the property for sale as some listing agents would like you to believe. However, critically, a broker “represents” the client as a fiduciary, interacting symmetrically with others regarding a property on behalf of and for the benefit of their client.
“Representation agreement” accurately conveys the comprehensive nature of client-agent relationships, which universally involves buyers, sellers, landlords or tenants — even owners who are borrowers need representation.
For buyer-clients, the agreement entered into is by code referred to as a “buyer representation agreement,” otherwise known as a BRA. [See RPI Form 103.1 and 103.2]
For seller-clients, firsttuesday has adopted the term “seller representation agreement” to refer to employment entered into between a broker and their seller-client, again in the name of best broker practices and consumer protection.
A call for action
Updating California’s Civil Code to replace “listing agreement” with “seller representation agreement” is a necessary step toward modernizing and improving real estate law.
Rephrasing the terminology used in real estate transactions with more precise terms:
- reflects currently evolving industry practices;
- enhances consumer understanding and appreciation of agents; and
- improves awareness regarding the duties real estate licensees owe their clients.
firsttuesday has preemptively adopted the term “seller representation agreement.” We do this before it is deemed relevant by what will eventually be addended legislation and blaze that trail so everyone who peruses the agency law disclosure addendum in the future discovers it is accurate and reliable.
Related form:
