Form-of-the-week: Identification of Prospective Buyers – On Expiration of Listing – Form 122

Consider a broker employed by a seller under a listing agreement. The listing, whether open or exclusive, contains a safety clause entitling the broker to the agreed fee, if:

  • a person has contact with the broker (or their agent) regarding the property during the listing period, called solicitations;
  • the broker treats the person as a prospective buyer by providing the person with information about the property, legally called negotiations;
  • negotiations with the prospective buyer terminate without resulting in a sale;
  • on expiration of the listing period, the broker registers the prospective buyer by name with the seller as a prospective buyer [See first tuesday Form 122]; and
  • the registered prospective buyer and the seller, with or without involving the broker, later commence negotiations with­in a specified time period following the expiration of the listing, called the safety period, and ultimately complete a sale of the property.

During the listing period, a seller’s agent has contact with numerous prospective buyers. A diligent agent documents their communications with each individual buyer, noting the property information given to them, as well as to any buyer’s agent, on a File Activity Sheet in their listing file. [See first tuesday Form 520]

Also, each prospective buyer’s name, address or phone number are added to the list of prospective buyers for the property on an Identification of Prospective Buyers form also maintained in the listing file. [See first tuesday Form 122]

If the listing expires and the property remains unsold, the agent sends the seller the list of prospective buyers on the Identification of Prospective Buyers form he has maintained, and closes his client file. The list includes all those buyers who, during the listing period, were in contact with, and received information about the property from the broker, their agents or through a buyer’s broker. [See first tuesday Form 122]

A safety clause is located in the fee provision of a listing agreement. It provides an additional period after the listing expires for a broker to earn a fee for the time and money the broker and their agent invest during the listing period in their effort to market the listed property and locate a buyer. The clause preserves the seller’s agent’s expectations of earnings for reviewing the property with prospective buyers during the listing period when the prospective buyers become disinterested, break off negotiations, and then later reappear after the listing expires to buy the property.

Thus, the broker is assured a fee under the safety clause if:

  • property information is provided to prospective buyers during the listing period by the seller’s agent;
  • the seller is notified of the identification of the prospective buyers as soon as possible after termi­nation of the listing [See first tuesday Form 122]; and
  • the property is acquired by a prospective buyer named on the list as one the seller’s agent provided information to during the safety period.

To collect a fee under the safety clause, the broker has the burden of showing how they perfected their right to the fee.

Several crucial activities must be performed by the seller’s agent to perfect the right to collect a fee under the safety clause, including:

  • providing information about the listed property to any prospective buyers or the buyer’s brokers the seller’s agent have contact with;
  • documenting dealings with prospective buyers by maintaining a File Activity  Sheet in a list­ing file [See first tuesday Form 520]; and
  • registering the prospective buyers with the seller on termination of the listing by providing the seller with a List of Prospective Buyers in a timely manner (e.g., within 21 days). [See first tuesday Form 122]