Listing Ageement & Buyer Representation Agreemnets Flashcards
Like I said, there’s no standard form for listing agreements, but generally, they will contain:
The price of the property
The amount of commission (usually a percentage of the sales price but sometimes a flat fee)
How the cooperating broker will be paid (if applicable)
Date of inception and date of expiration (that is, when the agreement begins and when it ends)
Name and address of the listing broker and the seller
Legal description of the property
Fair housing statement
Financial information (i.e. the terms the seller is offering)
Approval for the broker to place signs on the property, install a lockbox, post the listing on the MLS, etc.
Broker protection clause (more on that later)
Validity of Listing Agreement
A listing agreement needs to contain the elements of an employment agreement. In addition, a listing needs to be valid, and the broker needs to have a license.
What’s NOT in a Listing Agreement?
A valid listing agreement should not have a clause for automatic renewal. In other words, the listing agreement can’t state that once the agreement expires, it automatically renews for, say, another two months.
Let’s pause for a moment on listing expiration. If a listing agreement expires and the seller decides not to extend it, the seller can list the property with a different agent. That is not a breach of agreement, since the listing expired.
Get the Info
To fill out a listing agreement, the seller will need to have some detailed information about the property. This will allow the broker to provide correct information to potential buyers, as well as to other brokers through the MLS (if applicable).
Obtaining this information upfront will also help prepare the sales agent to answer most typical questions asked by buyers without having to contact the seller with questions every time. By familiarizing yourself with the property, you will be able to gain the confidence of both the seller and buyer.
What’s In a Listing Agreement?
What Is It, Again?
Listing agreements are employment agreements made between a seller and a broker. The seller is hiring an agent to sell their home.
There’s No Standard Form
In Arizona, listing agreements are not promulgated — in other words, there isn’t a standard form for everyone in Arizona to use.
However, most Arizona agents use the preprinted forms provided by the Arizona Association of REALTORS® (AAR) for listing agreements.
Employment Agreements
Although there is no standard form, all listing agreements must follow the requirements of an employment agreement. Remember those? Under Arizona license law, all real estate employment agreements must:
Be written in clear and unambiguous language
Fully set forth all material terms, including the terms of broker compensation
Have a definite duration or expiration date, showing dates of inception and termination
Be signed by all parties to the agreement
Protect Your Commission
In Arizona, a listing agreement must be in writing in order for you to protect your commission. If it’s a verbal agreement, and the seller decides they don’t want to pay you commission, you are out of luck. Get it in writing!
Article XXVI
Some brokerages will not use AAR forms, but instead, use their own listing agreements. Recall that Article XXVI of the Arizona Constitution states that a license holder may draft or fill out any instrument relating to real estate, including contract forms. Make sure to fill in every blank, using “N/A” for fields that are not applicable.
Remember that you won’t be allowed to charge a fee for preparing contracts, which could be considered practicing law.
Broker Liability
Because the contract is ultimately between your broker and the client (you act as the broker’s representative), your broker will be responsible for any errors or incompleteness of contracts.
Recap Listing Agreements: An Introduction
Let’s begin our walkthrough of the contract. This opening section answers who and what.
Parties
Who’s the owner of the property? What’s the name of the brokerage that will be representing the owner? Who is the agent working with the client? This section explicitly spells out who the parties to the contract are.
Property
Every good listing agreement needs to identify what is actually being listed for sale.
As you learned earlier in the course, a street address is not precise enough for most legal documents. Having space in a listing agreement for a legal description ensures that you:
Market the right property
Ensure the deed has a legal description when it’s conveyed
Remember, a legal description is a description of a property that is distinct and precise enough to distinguish it from all other properties.
Parties and Property
This part of the contract sets up some important parameters around money and time.
Agreement
The seller or lessor is granting the exclusive right and privilege to show and offer the property to the listing agent — no one else.
But if the owner does sign an exclusive right-to-sell/rent listing agreement with more than one broker, that owner could be liable for additional commissions.
Listing Price
The listing price clause sets the listing price of the property. The listing agent will use this price when marketing the property to prospective buyers.
It’s important for the listing agent to note two things:
Listing Prices Are Set by Sellers
Listing agents can (and should) give their sellers advice on what is the best listing price to set for a property. At the end of the day, however, the listing agent is acting on behalf of the seller — the seller is the one who sets the listing price.
Listing Price = Initial Asking Price
A property’s listing price is merely the initial asking price, and not necessarily the price for which the property will end up selling. It’s important to temper expectations and caution sellers that writing a listing price in the listing agreement isn’t a guarantee that the property will sell for at least that amount.
The listing price is the price listed in the MLS.
Term
This section clarifies when the employment relationship officially starts and ends. This is known as the listing period.
Equal Housing Opportunity
Fair housing laws apply whether or not they are specifically mentioned in a listing agreement, but this disclosure should be present in the contract.
Listing Price and Terms
This is an extremely important part of the contract, naturally! It’s here to make very clear who gets paid, and how.
Retainer Fee
If you see a retainer fee clause, it’s referring to a non-refundable form of compensation for a broker. If, alas, the property never sells or rents, the broker will at least walk away with this amount of money.
Commissions
Here’s where that precious commission percentage is listed. This is the percentage of the sale that the listing broker will receive as compensation.
Remember, all forms of compensation are always negotiable between the client and the broker.
Cooperating Brokers
Are there cooperating brokers involved in the transaction? This clause spells out how buyer’s agents get paid. Usually, this is a percentage of the sales price (that is, a commission). It can also be a flat fee.
EXAMPLE
Brianna is a listing broker. She works with Cammy, the cooperating broker and buyer’s agent, during a transaction. Brianna’s listing agreement with her seller client specifies that the buyer’s agent (Cammy) will receive a certain percentage of the sales price as commission.
Buyer Responsible for What’s Left
Though rare, it is possible that a listing agreement either does not allocate compensation for a buyer’s agent (leaving this area blank) or does not allocate the same amount of compensation for the buyer’s agent to which the buyer’s agent agreed.
In those situations, the buyer would be responsible for compensating their agent for any remaining amount to which they agreed to in their buyer representation agreement.
EXAMPLE
Billie is a listing broker. She works with Carla, the cooperating broker and buyer’s agent, during a transaction. Billie’s listing agreement with her seller client does not allocate any commission for the buyer’s agent. In other words, the seller isn’t paying Carla via commission, so the buyer will have to pay Carla’s compensation.
Compensation
The percentage-of-commission model I just described is the traditional way compensation is provided in real estate transactions.
However, there are other ways that licensees can be compensated. If one of these methods is used, the listing agreement will say so. Let’s go over a few of these methods.
Salary-Based Model
Some brokerages will pay licensees a salary or a flat fee per transaction, rather than a commission. Others may offer a base salary plus commission for each transaction.
Limited Service Model
With a limited service option, a client can select which brokerage services they want for a flat fee. After all, different clients have different needs!
Let’s say that Investor Irene has bought and sold several commercial properties. She is pretty savvy about commercial transactions, and only wants help with putting a property up on the MLS and filling out paperwork. Irene only needs a little assistance from the brokerage.
Now consider Sharon. She’s never sold a piece of property before, but is getting ready to do just that. Sharon will need the “full treatment” from the firm as a first-time seller.
With a limited service option, Irene can pick one array of services, and Sharon can pick another. Compensation depends on the services provided.
When it comes to listings, you could say this:
Full-service listing: Sharon, who needs the whole kit ‘n kaboodle, will sign a full-service listing agreement with her broker.
Limited-service listing: Irene, who is paying a flat fee for a handful of services, will sign a limited-service listing agreement with her broker.
Other Models of Compensation
Did you notice that the contract has a section about what happens to commission rights after the listing agreement’s expiration? This section refers to a protection period.
A protection period is a limited time frame after an employment agreement ends during which an agent can be owed compensation under certain circumstances.
If This Occurs, the Agent Is Protected
An agent might be owed commission during the protection period if:
A prospective buyer who previously attended an open house during the listing period returns during the protection period to purchase the home.
A buyer purchases a property that their buyer’s agent showed them during their employment agreement, which has recently ended.
Protection periods are a standard feature of most employment agreements. They protect license holders from situations where clients wait to complete the transaction until after the agreement ends in order to save money on the compensation. Agents don’t want to be used for their marketing or house-hunting efforts and then cheated out of a commission.
EXAMPLE
You have a three-month listing period with the seller of 7565 Palace Drive. During the last week of the term, you show the house to a prospective buyer who asks a lot of questions about the property, so you assume they are very interested. Unfortunately, Buyer Bob chooses not to buy the home.
Two weeks later, you find out that 7565 Palace Drive was sold to Bob. There was no agent involved, so you realize that the buyer and seller probably made an arrangement to make the sale without you so they both could save a little money.
If you had a protection period in your listing agreement, you’d have legal retribution.
More on Protection Periods
In the protection period clause, the listing agent and seller agree to the specified number of days that the protection period will last after the listing agreement period.
Pertaining to Which Buyers?
This section defines protected buyers as those to whom the broker showed properties or negotiated with who have made a sale, rental, exchange, or option, now that the listing period is over.
Note: It’s much easier to prove in court that you previously procured a buyer during the listing period by having written proof. So, it’s very smart to document all interactions with prospective buyers.
Agent Pro Tip: Keep attendance sheets at an open house so you get a record of every buyer who attends AND you can also follow up afterward to try and get that sale!
No Tricks
The protection period clause defines which buyers fall under this protected category. It tries to protect listing agents from potential bad faith situations where buyers use family or business associates to purchase instead of themselves in order to avoid the protection period.
Upon termination of the listing agreement, the seller may still work with other brokers who will be owed compensation if none of the protection period scenarios occur.
Mutual Termination
Protection periods can still exist when an employment agreement is cut short, whether by the expiration of the agreement or early mutual termination. In both situations, the protection period starts as soon as the agency relationship ends.
Protection Periods
This section spells out that the broker represents the seller. It may also state that the broker may act through one of their licensees (i.e. a salesperson or associate broker) affiliated with the brokerage.
Conduct of Brokers
This section might highlight some of the fiduciary duties a broker owes to a client or a customer.
Limited Representation
This section states that dual agency (in other words, limited representation) may occur with the knowledge and informed consent of both parties.
Here are some things to remember about dual agency:
Different interests: A seller and a prospective buyer may have different interests. For example, a seller most likely wants to sell their property for the maximum profit, while a buyer most likely wants to buy it for the least amount of money.
Disclosure rules: Just like for all other real estate transactions, a listing broker acting in dual agency will need to comply with dual disclosure rules.
Consent needed: Either party has the option to not consent to dual agency.
Confidentiality: A seller can still expect their listing agent to comply with the fiduciary duty of confidentiality. As long as the information is not a material fact to the buyer, the listing agent should not disclose any information to the buyer that may harm the seller’s ability to negotiate.
Disclosure
You might also see a section in the contract that spells out the disclosures that listing agents are required to make to their seller clients. These could include:
All offers made on the property
A buyer’s willingness to pay more
Whether the broker has a conflict of interest (also represents the buyer)
Any updates on offers and counteroffers
Listing agents must also disclose any known material facts to both sellers and buyers.
This section may also explain what cannot be disclosed under limited representation.
Agency Relationships
You may see a section that spells out the obligations of the broker to the seller. This also gets into what the broker is not responsible for.
Conditions of the Premise
This states that the broker is not responsible for the conditions of the premise: its management, upkeep, repair, etc.
Permissions
You’re likely to see several things that the broker needs the client’s permission for, such as:
Putting up “for sale” or “for rent” signs
Placing photos and videos of the premise on the internet and/or other media for advertising purposes
Accessing a lockbox
Property Access
A listing agent will need to have access to the listed property, including during times when the owner isn’t home. This allows the agent to show the home to prospective buyers and arrange access for necessary third parties (e.g. home inspectors, contractors).
In a lockbox clause, the seller can consent to the use of a lockbox and is advised to remove or secure valuable items in the home.
Agent Pro Tip: DO NOT access a seller’s property without written consent from them. Otherwise, you’re exposing yourself to potential liability if something goes wrong (i.e., a prospective buyer breaks an antique mirror).
Broker Authority
You may see a paragraph about subsequent offers, subsequent purchase offers, or backup offers. This paragraph will concern how the broker and agent should act if an attractive offer comes in after another offer has been accepted.
Essentially, the owner has the right to accept one of these later offers until the close of escrow. However, this offer can only be a backup offer — that is, it’s only to be used if the first offer (now a contract) falls through for some reason.
Treatment of Offers
You may see that the listing agreement gets very specific about offers in general. There may be a section in which the agent and seller decide the answers to the following questions:
Will backup offers be accepted?
Will any verbal offers be communicated to the seller?
Will any subsequent offers be communicated to the seller?
Backup Offers
It’s not just the broker who has obligations. This part of the contract outlines the owner’s responsibilities, such as:
Providing access to the premises and making the property available for showings
Disclosing all known material facts
Completing the correct disclosures, including:
Residential Seller’s Property Disclosure Form (SPDS) for people selling their homes
Residential Lease Owner’s Property Disclosure Statement (RLOPDS) for people renting out residences
Affidavit of Disclosure for subdivided property of five or fewer parcels
The Disclosure of Lead-Based Paint and Lead-Based Paint Hazards if the premises was built prior to 1978
The Foreign Investment in Real Property Tax Act Certificate (FIRPTA) if the owner is a foreign person or a non-resident
A history of insurance claims
Recommendations
During the process of a real estate transaction, the seller may need to use the services of third parties to complete the deal (e.g., a landscaper). This clause may state that the seller is responsible for doing their own research on the referred service. It may also acknowledge that the listing agent will receive compensation from these third parties for referrals.
Indemnification
The agent is not responsible for damages due to the owner providing misleading or false information.
Owner Obligation
Remedies
This will go into dispute resolution processes.
Additional Terms
Is there anything else that the contract should specify? That goes here!
Governing Law
You can’t create a legal document that supersedes the foundational legal documents of a society. This clause serves as a reminder — this employment agreement and the transaction are bound by the laws of the state.
Time Is of the Essence
If a contract includes the phrase “time is of the essence,” it just means that any deadlines in the contract are strict and enforceable. Failure to act within the specified time required would equal a breach of the contract.
Counterparts and Electronic Copies
Copies (that is, “counterparts”) of the contract can be made. The listing contract is binding, even if signatures are collected on different counterparts. Electronic copies count as counterparts.
Signatures
The contract will end with dated signatures of the parties. ✍️
Miscellaneous Clauses
Buyer representation agreements are employment contracts made between a buyer and a broker. They create an agency relationship authorizing a license holder to represent the principal (the buyer or tenant) as they seek to find a property.
These types of agreements impose upon the broker and their sponsored salespersons fiduciary duties to the principal.
Buyer rep agreements are also called buyer/broker agreements.
Obligations in a Buyer Rep Agreement
The broker is agreeing to do things like:
Show properties to the buyer
Advise the buyer about the importance of getting a professional home inspection, as well as doing due diligence on the property
Make all required disclosures in a timely manner, and ensure that the buyer receives proper disclosures from the seller
Review transaction documents with the buyer (but don’t, of course, offer legal advice)
Negotiate contract terms with the seller or listing agent
The buyer is agreeing to compensate the broker in at least one of these ways:
By retainer fee
By contingency upon completion of a sale
Indirectly: Usually, the seller pays a commission to their broker, who then shares it with the buyer’s broker.
Directly: The buyer may be required to pay part or all of their broker’s commission if the seller is not offering a satisfactory commission.
Note: Commission is usually paid at closing (if the sale is successful) or upon default (if it’s not).
Keep in mind that a buyer rep agreement is not obligating the buyer to buy a home. If the buyer does end up buying a home, the buyer-broker will need to be compensated. But the buyer-rep does not have a line that says something like, “You must buy a home by this date.”
Employment Agreements
Like listing agreements, all buyer rep agreements must follow the requirements of an employment agreement. I’ll repeat: Under Arizona license law, all real estate employment agreements must:
Be written in clear and unambiguous language
Fully set forth all material terms, including the terms of broker compensation
Have a definite duration or expiration date, showing dates of inception and expiration
Be signed by all parties to the agreement
There’s No Standard Form
Again, in Arizona, contracts, are not promulgated, so there isn’t a standard form for everyone in Arizona to use.
However, most Arizona agents use the preprinted forms provided by the Arizona Association of Realtors® (AAR) for buyer rep agreements.
What Exactly Is a Buyer Rep Agreement?
Like listing agreements, buyer representation contracts can take different forms. You’ll notice that they’re pretty logical counterparts to the listing types you learned earlier. Buyers can choose from the following:
Exclusive right-to-represent agreement: The most common type of agreement, in which the buyer guarantees the named broker receives a commission if the buyer finds a property; forms exclusive buyer agency. This is also called an exclusive right to locate property agreement.
Exclusive agency buyer agency agreement: An agreement in which the buyer has an exclusive relationship with one broker but retains the right to pay no (or reduced) commission if they find the property on their own
Open buyer agency agreement: A nonexclusive agreement that gives multiple brokers (and buyers themselves) the right to find a property; terminates once a property is purchased
Types of Buyer Rep Agreements
Normally, the commission for the buyer’s agent is paid by the seller of a property through the commission allotted in the listing agreement for the property. In this common scenario, the commission allotment comes from the final total sales price and is not an added cost to the buyer.
First Choice
The buyer’s agent is going to first try and get paid from the commission allotted to the buyer’s agent in the listing agreement. If no commission is offered by the seller/listing broker, the buyer must compensate the buyer’s agent directly.
Since it may affect their final cost, the buyer’s agent should disclose to the buyer any time they are looking at a property that does not offer a commission to the buyer’s agent.
Situations Where Buyer Agrees to Pay Commission
If the property’s listing agreement does not specify payment for the commission of cooperating brokers (includes buyer’s agents), then the buyer agrees to pay the buyer’s agent their commission at closing. This cost is added to the final sales price.
As always, the compensation of the buyer’s agent is up for negotiation between the buyer and the agent. The two common options involve either identifying a flat fee or a percentage of the final sales price.
Commission
