Why this episode matters: Some real estate brokers simply don’t measure up. Watch what happens when a seller broker’s efforts to market a property and locate buyers lack sufficient due diligence activities.

The prior episode in this series covers when a fee has been earned by a seller broker under an exclusive representation agreement.

The seller broker’s (very) limited marketing efforts and services

Consider a broker who enters into an exclusive seller representation agreement with a seller to market a property available for sale. The seller anticipates the broker and their agent will engage in all services necessary to market the property as customarily provided by brokers in the community. [See RPI Form 102]

However, the marketing efforts of the seller broker and agent are limited only to placing a “For Sale” sign on the property and publishing the availability of the property for sale on the multiple listing service (MLS).

The broker does not prepare disclosures or provide a marketing package containing information on the:

  • physical condition of improvements in a Transfer Disclosure Statement (TDS) [See RPI Form 304];
  • property hazards in a Natural Hazard Disclosure (NHD) Statement [See RPI Form 314];
  • unique Factors or Conditions affecting the property [See RPI Form 308];
  • operating costs and any income in an Annual Property Operating Data Sheet (APOD) [See RPI Form 352]; and
  • other material facts about the property.

The broker also does not gather:

  • property title profiles;
  • home inspection reports;
  • pest control reports;
  • area crime data; or
  • data on prior property insurance claims.

Basically, the broker and their agent do nothing – beyond posting the property for sale.

All the property items and data available to the seller broker are left to a buyer agent to obtain to close the transaction when the seller enters into a purchase agreement.

Any review of the property is through a lock-box arrangement available only to MLS members. The broker refuses to assist buyers or their agents due to the current strong market conditions for sellers.

Further, the seller broker uses a transaction coordinator (TC) to prepare documents and obtain the seller’s signature prior to close of escrow. In addition to a seller broker fee, the broker charges the seller for the TC’s services used by the broker to administratively manage the client’s file.

None of these limitations on the seller broker’s marketing efforts or services are disclosed to the seller, except for the cost of the TC to close a sale.

Editor’s note — A marketing package of property disclosures for delivery to buyers before the seller accepts a purchase offer is essential due diligence conduct for a seller broker under an exclusive representation, with or without a due diligence clause. [See RPI Form 107]

Further, a broker must bear any cost of hiring a “transaction coordinator” to administer client files since these services are an integral part of their due diligence duties, not additional services.

Collectively, conditions adversely affecting the value of a property marketed for sale are delivered to buyers seeking additional property information at the earliest possible opportunity (ASAP).

No potential buyers located before agency cancelled

Continuing the previous example, the seller unilaterally cancels the representation agreement with the broker.

The seller employs another broker to market the property for sale. The property is sold by the new broker before the expiration of the cancelled prior representation agreement.

The seller’s prior broker makes a demand on the seller to pay a fee, claiming the property was sold during the original representation period. The seller claims the broker is barred from collecting a fee since the seller, prior to finding a buyer, cancelled the broker’s representation agreement due to the broker’s lack of due diligence efforts to market the property and locate buyers.

Did the seller’s prior broker earn a fee under the cancelled but unexpired representation agreement?

No! The seller broker’s efforts to market the property and locate buyers lacked sufficient due diligence activities, which justifies cancelling the representation. A sale after a representation agreement is cancelled, even a sale prior to expiration of the original representation period, does not earn a fee for the non-diligent broker.

When a seller broker or their agent solicits employment by a seller under an exclusive seller representation agreement, the broker and their agents obligate themselves to:

  • inform the seller about the brokerage services which are and are not expected to be rendered; and
  • diligently perform the agreed-to services in pursuit of buyers who are ready, willing and able to purchase the property.

Also, brokers are expected to locate and engage with prospective buyers who are not represented by a broker and not to improperly first demand the buyer employ the broker to receive property information. To meet this expectation, seller representation agreements authorize the seller broker to prepare purchase agreement offers and accept deposits from buyers. [See RPI Form 102 §4.4]

Editor’s note – The next episode in this series fully delves into proper due diligence as an art form.