This is the eighth episode in our video series covering a licensee’s authority to act on a client’s behalf under a written listing agreement. The seventh episode introduces the use of an open listing agreement.
Best-effort obligation under an open listing
The broker employed under an open listing is not obligated to use diligence in their efforts to locate a buyer. The broker only has a best-effort obligation since the broker does not “accept” the employment until they produce a buyer for the property.
Thus, an open listing is legally classified as a unilateral contract. However, the agency duties of a fiduciary exist at all times under an open listing, Further, on locating a buyer the broker is to perform their due diligence efforts to make disclosures and close the transaction.
The first broker to submit an offer during this open listing period from a ready, willing and able buyer to purchase property on the listed terms, or on other terms accepted by the owner, has earned the agreed fee. No other broker holding open listings from the owner are entitled to a fee.
A broker may also represent a buyer to locate property under an open listing agreement. A broker assisting a buyer to locate a suitable property among multiple listing service (MLS) listings held by other brokers at least considers asking the buyer to sign an open listing if the broker chooses not to solicit an exclusive representation with its imposition of due diligence duties.
Further, an open listing does not need to contain an expiration date, unlike an exclusive agency or exclusive right-to-sell/buy listing which require inclusion of an expiration date.
Cancellation of an open listing
The owner revoking an open listing that contains an expiration date owes a fee to the broker if:
- the owner later closes a sale with a prospective buyer located by the broker before the listing is revoked; or
- the owner revokes the listing in an attempt to escape payment of the agreed fee. [Heffernan Merrill Estate Co. (1946) 77 CA2d 106]
Conversely, an open listing without an expiration date may be terminated by the owner at any time without becoming obligated to pay a fee. Also, no fee is due under an open listing on:
- the good-faith withdrawal of the property from the market; or
- the premature termination of the employment before the broker has submitted a full listing offer. [Tetrick Sloan (1959) 170 CA2d 540]
Fees for other services
An open listing may contain a provision calling for the owner to pay the seller’s broker a set amount, at an agreed time, for services other than procuring a buyer. These services may include the preparation of disclosure documents needed by the owner to sell the property, such as:
- property disclosures (the Transfer Disclosure Statement (TDS), natural hazard disclosures (NHD), the Annual Property Operating Data sheet (APOD), etc.) [See RPI Forms 304, 314 and 352];
- carryback financing disclosures [See RPI Form 300];
- multiple listing service publications;
- property profiles [See RPI Form 306];
- termite/well/septic clearances; and
- occupancy certificates. [Calif. Civil Code §1089]
Although the broker does not have a due diligence duty under an open listing, the seller’s broker owes a duty to prospective buyers they have contact with to make a full disclosure of the property’s condition, as known to the broker. The TDS disclosure, based on the broker’s visual inspection of the property, is to be made prior to the buyer and seller entering into a purchase agreement.
