Form-of-the-week: Seller’s Listing Agreement – Exclusive Right to Sell, Exchange or Option – Form 102
Authority to act on the client’s behalf
A listing agreement is a written employment arrangement between a client and a licensed real estate broker regarding real estate services. On entering into a listing agreement, the broker and their agents are retained and authorized to diligently perform real estate related services on behalf of the client in exchange for payment of a fee. [Calif. Civil Code §1086(f); see first tuesday Form 102-104 and 110-112]
The client retaining a broker may hold an ownership interest in real estate, which the client seeks to:
- sell [See first tuesday Form 102 and 102-1];
- lease [See first tuesday Form 110]; or
- encumber as collateral for mortgage financing [See first tuesday Form 104].
Further, the client retaining the services of a broker may be seeking to acquire an interest in real estate as a:
The person employed by a client to provide real estate services in expectation of a fee is a licensed real estate broker. Likewise, if a dispute arises with a client over the client’s failure to pay an agreed-to fee, the broker needs to be employed under a written listing signed by the client to pursue collection.
A real estate agent employed by the broker may obtain a listing, but the agent does so while acting on behalf of the broker. The agent has no independent right to enter into or enforce the listing agreement in their name.
The agent’s right to share in a fee
The agent of a broker has a right to a fee on transactions based on the agent’s written employment agreement with their broker, not under the separate listing agreement the broker has with the client. Through the broker-agent employment agreement, the agent is entitled to share in the fees actually received by the broker on transactions in which the agent participates. [See first tuesday Form 505 and 506]
A licensed agent representing a broker acts as an agent of the broker. As the broker’s agent, the agent performs on behalf of the broker (as well as the client) all the activities the broker has been retained by the client to provide. Further, an agent providing real estate related services on behalf of a client may not do so independently of their broker. Thus, an agent employed by a broker is referred to as “the agent of the (client’s) agent.” Thus, the agent is acting as an agent of the agent (their employing broker). [CC §2079.13(b)]
The promise of diligence in exchange for a fee
The listing agreement sets the scope of services the broker is authorized to perform while representing the client. The listing also authorizes the broker to serve as the client’s representative in the negotiation of a real estate transaction with others.
Further, the listing contains the client’s promise to pay a fee to the broker. This promise is given in exchange for the broker’s promise to use diligence in the broker’s efforts to meet the client’s objectives, known as fiduciary duties.
Editor’s note — The use of diligence is distinguished from a “best efforts” standard for broker performance under an open listing.
Though a written listing agreement is required to enforce collection of a fee, an oral agreement to perform brokerage services on behalf of a client imposes an agency law obligation on the broker and their agents to act as fiduciaries — no differently than had a writing existed.
An agreement employing a broker to purchase or sell real estate, lease a property for over one year or arrange mortgage financing is controlled by contract law. For a broker to enforce a promise from a client to pay a fee, the fee agreement needs to be:
- in writing; and
- signed by the client. [CC §1624(a)(4)]
Types of listing agreements
A variety of listing agreements exist, each employing and authorizing a broker to perform real estate related services under different conditions. The variations usually relate to:
- the extent of the broker’s representation;
- the type of services to be performed by the broker and their agents; and
- the events which trigger payment of a fee. [See first tuesday Form 102-104 and 110-112]
Despite the application of various agreements to the type of property described in the listing, all listings fall into one of two general categories:
- exclusive; or
Under an exclusive listing, a broker receives the sole right to represent:
- an owner by marketing a property for sale or lease and locating a qualified buyer or tenant for the property [See first tuesday Form 102 and 102-1];
- a buyer or tenant by locating suitable property [See first tuesday Form 103 and 103-1]; or
- an owner or lender to mortgage a property.
An exclusive listing has a specified period of employment set by a mandated expiration date of the employment, such as 90 or 180 days after its commencement. If the broker fails to include an expiration date in an exclusive listing, they face disciplinary action by the California Bureau of Real Estate (CalBRE) on a complaint. [Calif. Business and Professions Code §10176(f)]
Two types of exclusive employment agreements for buying and selling real estate exist:
- an exclusive agency listing for a seller or buyer; and
- an exclusive right-to-sell or right-to-buy listing agreement [See first tuesday Form 102-104].
Both types of exclusive listings establish the broker and their agents as the sole licensed real estate representatives of the client. However, these variations are distinguished by whether or not the broker is entitled to a fee when the property is sold or located solely by the efforts of the client.
Under an exclusive agency listing, the broker does not earn a fee when the client, acting alone and independent of any other broker or the listing broker, accomplishes the objective of the employment, i.e., selling the listed property or locating and buying the property sought.
Conversely, under the fee provision in an exclusive right-to-sell/buy agreement, the broker earns a fee no matter who produces the buyer or locates the property sought under the listing during the listing period. This is the case whether it is the client, the seller’s broker or another broker or representative of the client who produces a buyer or locates a property. [CC §1086(f)(1)]
Analyzing the exclusive employment
first tuesday’s exclusive right-to-sell listing agreement is used by brokers and their agents when soliciting employment by a prospective seller of real estate. It is prepared and submitted to the seller as the broker’s offer to act as the seller’s exclusive real estate agent to:
- market the seller’s property;
- locate a ready, willing and able buyer; and
- negotiate a sale. [See first tuesday Form 102]
Each Section in the exclusive right-to-sell listing agreement has a separate purpose and need for enforcement. The sections include:
- Brokerage services: The employment period for rendering brokerage services, the broker’s due diligence obligations and any advance deposits by the seller (Sections 1 and 2).
- Brokerage fee: The seller’s obligation to pay a brokerage fee, the amount of the fee and when the fee is due (Section 3).
- Conditions: Authority for the broker to receive a buyer’s purchase offer, accept a good-faith deposit, enter into fee-splitting arrangements with brokers representing buyers and enforce the listing agreement (Section 4).
- Property description and disclosures: Identification of the listed real estate and any personal property that is also being sold, the terms of existing financing and the conditions of the property (Sections 5, 6 and 7).
- Sales terms: The price and terms sought by the seller for the sale, exchange or option of the property (Sections 8, 9, 10 and 11). Signatures and identification of the parties: On completion of entries on the listing form and any attached addenda, the seller and broker or their agent sign the document consenting to the employment. [See first tuesday Form 102]
first tuesday’s exclusive right-to-sell listing agreement affords a real estate broker the greatest fee protection for their efforts.
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.
Exclusive right-to-sell listings 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.
Buyer’s brokers know that sellers who enter into exclusive right-to-sell listings 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.