Exclusive employment agreements

Two types of exclusive employment agreements for buying and selling real estate exist:

  • an exclusive agency agreement for a seller or buyer; and
  • an exclusive right-to-sell or right-to-buy listing agreement.

Both types of exclusive listings establish the broker and their agents as the sole licensed real estate representatives of the client (whether the seller or the buyer). However, the listing varieties are distinguished by whether or not the broker has any right to a fee when the property is sold or located solely by the efforts of the client.

Under an exclusive agency agreement’s fee provision, the broker does not earn a fee when the client, acting independently of any other broker and the client’s broker, accomplishes the objective of the employment, i.e., selling the listed property or locating and buying the property sought.

Conversely, under an exclusive right-to-sell/buy agreement’s fee provision, the broker earns a fee no matter who during the listing period produces the buyer or locates the property sought under the listing – be it the client, another broker or other representatives of the client, or the client’s broker.

What are exclusive right-to-sell listings?  

An exclusive right-to-sell listing affords a real estate broker the greatest fee protection. It is also the most commonly used type of employment. This listing employs the broker as the sole agent to act on behalf to 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.

Under an exclusive right-to-sell agreement, the owner relinquishes their right to list the property with other brokers or defeat entitlement of the seller’s broker to compensation by selling the property themselves or removing it from the market.

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 agreement 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 listings give a broker and their agents the greatest incentive to work toward attaining the client’s goal of locating a buyer. The seller’s broker does not compete with the client to sell the property – they work together to achieve the sale.

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 a three-month period. The listing includes a fee provision which contains a termination-of-agency clause entitling the broker to a full fee if the seller terminates the broker’s employment, without good cause, prior to explanation of the listing period. [See RPI Form 102 §3.1(c)]

The broker’s listing agent promptly commences a diligent marketing effort to properly present the property for sale and locate a buyer who is willing to acquire the property. However, during the listing period and before a buyer is located, the seller terminates the agency by cancelling 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 brokerage fee, but only to money losses based on an accounting for their time, effort and costs incurred to market the property since a seller may legally 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 legal right to terminate the agency?

Yes! While a seller may terminate the broker’s agency at any time, the seller cannot both terminate the agency during the listing period and avoid payment of a fee if a termination-of-agency clause exists. 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, 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 may call for immediate payment of the full brokerage fee agreed to in the listing in exchange for mutually agreeing to cancel the listing agreement.

Alternatively, it may 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 agreement. A compromise might be the payment of a partial fee with the balance due if the property is sold during the cancellation period.

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 economic opportunity acquired under the listing to earn a contingency fee.

Exclusive right-to-buy listings 

For brokers and their agents, an exclusive right-to-buy listing creates a positive collaborative activity which is analogous to seller’s agents who list and market property for sale. A buyer’s listing agreement employs the broker and their agents to locate qualified properties to be purchased by the buyer represented under an exclusive right-to-buy listing. [See RPI Form 103]

As with an exclusive right-to-sell listing, the right-to-buy variation has provisions for a brokerage fee to be paid by the buyer, if not the seller, when the buyer acquires property during the listing period of the type described in the buyer’s listing.

Also, the exclusive right-to-buy listing provides greater incentive for brokers and their agents and imposes a duty to work diligently and continuously to meet their buyer client’s objectives.

Thus, the buyer benefits under an exclusive right-to-buy listing due to the greater likelihood the broker will find the particular type of property sought. Brokers have continuous access to all available properties and will investigate and qualify properties as suitable before they are presented to the buyer and will advise the buyer on the pros and cons of each property presented.

A buyer’s broker locating properties listed by other brokers does not become a dual agent or lose their status as the buyer’s exclusive agent by merely working with the brokers of sellers. The fee received by a buyer’s broker is typically paid by the seller, directly or through the seller’s broker, and does not create a dual agency.

A broker who seeks out and locates properties at the buyer’s request negotiates the purchase terms as the buyer’s agent regardless of who pays the fee (which is frequently paid by the seller from the proceeds of the sales price paid by the buyer).