This is the fifth episode in our video series covering a licensee’s authority to act on a client’s behalf under a written listing agreement. The fourth episode covers types of listing agreements.

Greatest fee protection under an exclusive listing

An exclusive right-to-sell listing agreement affords a real estate broker the greatest fee protection for their efforts. It is also the most commonly used type of listing. [See RPI Form 102]

This listing employs the broker as the sole agent to act on behalf of the owner to market the property and negotiate any sale with all potential buyers and their agents. The broker is entitled to a fee regardless of who procures the buyer. [See RPI Form 102]

Under an exclusive right-to-sell agreement, the owner relinquishes their right to list the property with other brokers or defeat the seller’s broker’s entitlement to compensation by selling the property themselves, as occurs under an exclusive agency listing or open listing.

An owner of real estate, on entering into an exclusive right-to-sell listing agreement, grants a broker the right to locate a buyer for the property prior to the expiration of the period of employment specified in the listing agreement.

The broker is entitled to the fee agreed to in the listing if, during the listing period:

  • the property is sold on any terms, no matter who produces the buyer; or
  • the broker or their agent presents the seller with a bona-fide offer from a ready, willing and able buyer on terms sought by the seller under the listing, or on other terms accepted by the seller. [Calif. Civil Code §1086(f)(1)]

Exclusive right-to-sell listing agreements give a broker and their agents the greatest incentive to fulfill their fiduciary duty and work toward attaining the client’s goal of locating a buyer who acquires the property. Here, the seller’s broker does not compete with the client to sell the property — they work together to achieve the sale. [See RPI Form 102]

Buyer’s brokers know that sellers who enter into exclusive right-to-sell listing agreements are fully committed to working with brokers. Also, sellers who retain competent agents are counseled on prices of comparable properties and current market conditions. Thus, the seller of a listed property is more likely to accept a reasonable offer.

In turn, buyer’s brokers are comfortable exposing their clients to properties listed exclusively by other brokers.

Termination of agency by the seller

Consider a seller of real estate who enters into an exclusive listing agreement with a broker to sell a property within, say, a three-month period. The fee provision in the listing contains a termination-of-agency clause addressing seller interference with the employment.  It entitles the broker to a full fee if the seller terminates the broker’s employment, without good cause, prior to expiration of the listing period. [See RPI Form 102 §3.1(c)]

The broker’s agent, as agreed in the listing, promptly commences a diligent marketing effort:

  • to properly present the property for sale; and
  • to locate a buyer who is willing to acquire the property.

However, during the listing period before a buyer is located, the seller terminates the agency by acting to cancel the listing.

The broker makes a demand on the seller for a full listing fee, claiming the termination-of-agency clause in the fee provision of the listing calls for payment of a fee as earned when the seller prematurely terminates the agency. The seller claims the broker is not entitled to a full broker fee, but only to money losses based on an accounting for their time, effort and costs incurred to market the property, called quantum meruit – the amount deserved for work completed – since a seller has the right to terminate a broker’s agency at any time.

Is the broker entitled to collect a full fee from the seller upon the seller’s exercise of their right to terminate the agency at any time?

Yes! It is correct that a seller may terminate the broker’s agency at any time. However, the seller cannot both terminate the agency during the listing period and avoid payment of a fee when a termination-of-agency clause exists in the listing agreement the seller entered. The termination-of-agency clause in the listing agreement couples the permissible cancelling of the listing with the obligation to pay a fee.

Documenting the cancellation

When a seller, by word or by conduct, clearly indicates they no longer desire to sell the property or use the services of the broker/agent, the agent prepares a Release and Cancellation of Employment Agreement form for the seller to review and sign. [See RPI Form 121]

The release and cancellation agreement as prepared will initially call for immediate payment of the full broker fee agreed to in the listing in exchange for agreeing to a mutual cancellation of the listing agreement.

To garner agreement, it might be altered to call for payment at a later date when the property is sold, placed again on the market, exchanged, optioned, refinanced (if the broker was retained to arrange new financing) or leased to anyone within a specified time period (for example, one year) after the date of the release agreement. A compromise might be the payment of a partial fee with the balance due if the property is sold within a stated time period after cancellation.

This release and cancellation agreement is also used when a buyer wants to cancel an exclusive right-to-buy listing. On cancellation, the broker is deprived of the opportunity they acquired under the listing and relied on to diligently earn a contingency fee.