What is an option listing?

 An option listing is a variation of the exclusive right-to-sell listing. [See RPI Form 102]

The unique feature of an option listing is the additional element of a grant to the broker of an option to buy the property at a predetermined price if the property does not sell during the listing period.

Here, the broker wears two hats when holding an option listing: one as an agent for the seller, the other as a principal acting for the broker’s own account.

The temptation for a claim of misrepresentation is quite apparent. The concurrent status of agent and principal is a conflict of interest for the broker which is fully disclosed. As a result of the conflict, the seller’s broker might fail to market the property as aggressively as they might otherwise do, with a view toward buying the listing property themselves and reselling it at a profit.

 

Related article:

Brokerage Reminder: Disclosing a conflict of interest – the counterpoint mitigating a bias

Likewise, the broker might neglect to inform the seller about all inquiries into the listed property by potential buyers, again with the same strategy of purchasing the property themselves after the listing period.

As always, brokers are required to disclose any outstanding offers or other factors affecting the seller’s decision to sell when the broker exercises the option. [Rattray v. Scudder (1946) 28 C2d 214]

The broker’s exercise of a purchase option contained in a listing agreement requires the broker to disclose to the seller the full amount of the broker’s earnings (profit) and obtain the seller’s written consent to the earnings before or on the broker’s exercise of the option. [Calif. Business and Professions Code §10176(h)]

 

History behind the word

 The word option was first used in 1600 with a definition of “act of choosing.”  Option comes from the Old French word opcion and from the Latin word optionem. The current meaning of the word, which is “thing that may be chosen,” appeared in 1885.

The word listing means “the placing of property with an agent to be catalogued for sale.” This standard definition was in use by 1906.