Listings Employment by Public - Part 3 - Chapters 11-14

Question 1

Protect your broker’s right to collect a fee if a seller removes the listed property from the market or cancels the listing

Answer 1

An owner of real estate enters into an exclusive right to sell listing agreement, employing a broker to market the property for sale and locate a buyer to purchase the property. Compensation for the broker and their agents due diligence services is called for in a FEE PROVISION in the listing agreement. The fee provision also contains both:

• a Withdrawal from Sale clause and
• a Termination of Agency clause

Question 2

Understand what events trigger the withdrawal-from-sale and termination-of-agency clauses in an exclusive listing fee provision and cause a fee to be earned

Answer 2

The WITHDRAW FROM SALE CLAUSE entitles the broker to be paid a full listing fee when during the listing period, the owners conduct causes the property to be:

• withdrawn from the market
• transferred to others
• further leased without the brokers consent
• made unmarketable.

Separately, the TERMINATION OF AGENCY CLAUSE entitles the broker to collect a full listing fee when the owner cancels the brokers employment during the listing period.

The seller becomes obligated to pay the broker the fee agreed to in the listing as earned when:

• the broker, through their agent, exercised diligence in the marketing of the property, and
• the seller voluntarily removes the property from the marketplace during the listing period.

On withdrawal, the fee due the broker compensates them for their lost opportunity and for the time, effort and money invested into marketing the property before the seller removed it from the market.

Question 3

Negotiate a monetary settlement for the time and effort expended in due diligence efforts when a client terminates a listing agreement.

Answer 3

On a breach by the seller of a listing which does NOT contain a Termination of Agency clause, the terminated broker is only entitled to:

• the out-of-pocket costs expended to service the listing
• the value of the time and effort expended under the listing, called Quantum Meruit recovery

When a seller, clearly indicates they no longer desire to sell the property, the agent needs to prepare a Release and Cancellation of Employment Agreement Form for the seller to review and sign. The agreement often calls for immediate payment of the full broker fee agreed to in the listing in exchange for mutually agreeing to cancel the listing agreement.

A cancellation agreement may also call for a client to pay a broker cash compensation for their and their agents time, effort and expenses, or negotiate an appropriate hourly rate at the time of settlement.

Question 4

quantum meruit

Answer 4

QUANTUM MERUIT is compensation paid to a broker on termination of a listing agreement set as the value of time, effort and money the broker expended acting on the employment, not based on the Lost opportunity of the employment.

Question 5

Release and Cancellation of Employment Agreement

Answer 5

A RELEASE AND CANCELLATION OF EMPLOYMENT AGREEMENT is a form used by a broker when employed by a client under an existing listing agreement that is terminated by mutual agreement, to document the agreed to termination of the employment, cancel the listing agreement and liquidate any claims that may have arisen due to the employment.

Question 6

termination-of-agency clause

Answer 6

The TERMINATION-OF-AGENCY CLAUSE is a provision in an exclusive listing agreement which calls for a broker fee to be earned and payable when the client cancels the employment without cause.

Question 7

withdrawal-from-sale clause

Answer 7

A WITHDRAWAL-FROM-SALE CLAUSE is a provision in an exclusive listing agreement which entitles the broker to be paid a full listing fee when, during the listing period, the seller:

• withdrawals the property from sale,
• makes the property unmarketable,
• transfers ownership or,
• without the Brokers consent, further leases the property

Question 8

Implement a safety clause provision in listing agreements to earn a fee for your marketing efforts when the client sells or buys after your employment expires

Answer 8

A safety clause in a listing agreement entitles the broker to the agreed fee as earned when:

• an individual has direct contact with the broker or their agent regarding the property during the listing period, called SOLICITATIONS
• the broker treats the individual as a prospective buyer due to their inquiries or conduct by handing them a package of information about the property, called NEGOTIATIONS
• negotiations with the individual terminate without resulting in there entering into an agreement to purchase the property
• the listing period expires and the broker timely registers the individual by name with the seller as a prospective buyer, and
• the individual and the seller, with or without the brokers further involvement, later commence negotiations within an agreed to period following the expiration of the listing, called the safety period, and eventually complete a sale of the property.

A safety clause in the fee provision of a listing agreement provides an additional period after the listing period expires for a broker to earn a fee.

Question 9

Document and register prospective buyers or properties located during the employment to perfect your right to earn a fee on related transactions after the employment expires

Answer 9

Several crucial activities need to be performed by the seller’s agent to perfect the brokers right to a fee under the SAFETY CLAUSE, including:

• providing information about the listed property to any prospective buyers the broker or the buyer’s brokers have contact with
• documenting dealings with prospective buyers by maintaining a File Activity Sheet in a listing file
• 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 for example within 21 days.

When registering prospective buyers with the seller, the broker whose listing contains a Broker Cooperation Provision needs to include any buyers with whom buyer’s brokers dealt. If a sale covered by the safety clause occurs, both brokers are protected and will share the fee.

The degree of involvement a broker or their agents needs to have with a buyer during the listing period in order to qualify the buyer as a prospective buyer is set by the terms of the safety clause.

At the very least, a seller’s broker or their agent is required to provide a buyer with information regarding the property to qualify as having commenced negotiations. The agent does not need to produce a written offer from a buyer for the buyer to be a prospective purchaser.

• ***The safety clause period commences on termination of the listing period. Thus, the termination of a listing commences the running of both the safety clause period and the period for putting a seller on notice of prospective buyers. A listing is terminated when:
• the seller WITHDRAWS the property from the market during the listing period
• The seller TERMINATES the agency before expiration of the listing period or
• the listing AGREEMENT EXPIRES at the end of the listing period

Whether or not the listing contains a termination of agency Claus, premature termination is to be treated as an act which commences the safety clause period.

Question 10

Avoid conflicts for prospective clients with their former broker when taking a listing during a safety period under their prior listing

Answer 10

When a seller relists a property for sale with another broker on the expiration of a listing, a properly worded and perfected safety clause remains enforceable. Thus, a broker or their agent entering into a property listing needs to first inquire into the existence of any unexpired safety clause in a prior listing the seller had on the property with another broker.

What the new listing agent wants to avoid is exposing the seller to Multiple Fees when the property is sold under the new listing to a prospective buyer registered with the seller under the safety clause in an expired listing.

First, the new seller’s agent needs to obtain a copy of the expired listing and any list of prospective buyers registered with the seller. If a safety clause exists and remains in effect when the property is relisted, the agent needs to make some business decisions.

Negotiations conducted by the new agent with these buyers put the seller at risk of liability under the prior brokers safety clause. Prior to contacting any of these registered buyers, the new agent needs to negotiate a fee sharing agreement with the prior broker, and then document that arrangement as part of the listing process.

Or…. On expiration of a listing the seller is able to avoid the dual liability situation altogether by relisting with the same broker, rather than listing with another broker, a Relisting Advantage held by the original broker.

A broker is not entitled to a fee for merely registering the names of firms which the agent knew bought mortgages. The fee provision required the broker or their agent to be the procuring cause of a sale, not just naming, soliciting or negotiating with prospective buyers. Payment of a fee is contingent on the Brokers initiation of a transaction which is successfully completed.

A fee agreement calling for a broker to be paid only if they are procuring cause of the sale automatically voids any safety clause contained in the fee provision of a listing agreement. Thus, a SAFETY CLAUSE and a PROCURING CAUSE CLAUSE are inconsistent provisions - one or the other for recovery of a fee, but not both in the same document.

Question 11

broker cooperation provision

Answer 11

A BROKER COOPERATION PROVISION is a clause in employment agreements entered into by brokers and their clients enabling brokers, when acting on behalf of their clients in a transaction, to share fees between themselves at the brokers discretion.

Question 12

fee-sharing agreement

Answer 12

A FEE SHARING AGREEMENT is an agreement written or oral, between different brokerage operations to share fees earned on a transaction which are typically paid by the property owner.

Question 13

procuring cause

Answer 13

A PROCURING CAUSE is a continuing series of negotiating activity performed by a broker or their agents during their employment by a client that, without break in continuity, results in a completed sale or purchase of the property by the client.

Sellers often confuse the workings of the safety Clause with the open listing or full listing offer theories of procuring cause. A broker is the procuring cause of a buyer and entitled to a fee when the broker holds an OPEN LISTING and they or their agent is either:

• the direct cause of a sale to a buyer
• the cause of a series of events which result in a sale to the buyer.

In one EXAMPLE a seller might claim the broker is not entitled to a fee since the buyer acquired the property through negotiations commenced by the seller after the listing expired. However a broker in this case is entitled to a fee since they were the PROCURING CAUSE of the sale. The brokers contact with the buyer set into motion and uninterrupted chain or series of events, separated only by time, which eventually resulted in a sale.

Question 14

safety clause

Answer 14

A SAFETY CLAUSE is a provision in an exclusive listing agreement earning the broker a fee during an agreed safety period after expiration of the employment for marketing efforts with identified buyers, tenants or property, if the client sells the listed property to an identified buyer or purchases or leases an identified property during the safety period.

Note - By including safety clauses in listing agreements and registering prospective buyers, this type of dispute is avoided.

Question 15

safety period

Answer 15

A SAFETY PERIOD is an agreed period commencing on expiration of a broker’s employment during which a broker earns a fee under safety clause conditions.

Question 16

Induce an owner to increase the marketability of their listing by authorizing the ordering of third-party reports on the property’s condition

Answer 16

An advanced cost sheet is used by an owner’s agent to estimate the cost of third-party investigative reports frequently demanded by prospective buyers and their agents who seek out additional information on the property – a request that marks the commencement of negotiations by a prospective buyer. The reports helped put a face on the property so it can be better evaluated by prospective buyers and more quickly sold.

Property disclosures made through third-party reports also reduce:

• the owners exposure to liability under their duty to fully disclose their knowledge of the properties conditions and
• the owners agents exposure to liability under their duty to personally inspect, observe and report their findings to buyers about a property condition.

An owner’s reaction to their agents request for the owner to participate in an advantageous marketing plan by incurring the cost of property reports upfront offers the agent insight into the owners motivation for selling the property. A negative response to making property disclosures at the earliest opportunity is an indicator of the level of future cooperation in marketing, contracting to sell and closing and escrow the agent may expect to encounter from the owner.

Question 17

Attract potential buyers to a listing by employing a greater transparency about the property’s condition in the marketing process

Answer 17

The primary marketing advantage for the owner whose agent provides prospective buyers with third-party reports is that the sale of the property is transparent at its inception – on entry into a purchase agreement. The price agreed to in the purchase agreement is based on properties conditions as disclosed by the reports.

As an economic inducement, the broker, through their agent, may offer to offset the fee earned on a sale by the amount of the cost of the report. The broker is not to agree to pay the cost of any corrective work undertaken on the owner’s property, unless to settle a dispute over disclosures which expose the broker to liability.

Question 18

Increase your annual sales volume by using efficient, up-front marketing plans, which make finding buyers and closing sales easier while taking less time

Answer 18

Business cycles in real estate sales also influence a brokers desire to request authorization to obtain property reports. During periods of rising prices, disclosures occur less frequently as owners are impatient and driven to sell, while buyers are more anxious and permissive. Both owners and buyers drop their guard in a deliberate effort to meet their objectives. Agents, however, may not be caught off guard.

Conversely, during periods of decreased sales volume with buyer’s more selective and buyers agents more protective of their clients, the owner is more likely to step forward to fund the cost of reports to sell the property. The owner’s agent with property reports in hand has a better back up package with more comprehensive property disclosures than competing, under disclosed properties - an advantage that makes the selling process easier.

Question 19

advance cost sheet

Answer 19

An ADVANCED COST SHEET is an itemization of the cost incurred to properly market a property for sale which are to be paid by the owner. On the Advance Cost Sheet the agent estimates the cost of third-party investigative reports frequently demanded by prospective buyers and their agents who seek out additional information on the property – a request that marks the commencement of negotiations by a prospective buyer. This report helps put a face on the property so it can be better evaluated by prospective buyers and sold more quickly.

Question 20

marketing package

Answer 20

A MARKETING PACKAGE is a property information package handed to prospective buyers containing all the disclosures compiled by the seller’s agent on the listed property.

Question 21

trust funds

Answer 21

If a check is handed to the owner’s agent made out directly to a vendor – for delivery to a vendor – the check constitutes TRUST FUNDS. Trust Funds are items which have or evidence monetary value held by a broker for a client or others when acting in a real estate transaction. As Trust Funds, an entry is made in the trust fund ledger maintained by the agents broker.

Question 22

advanced costs

Answer 22

Alternatively to trust funds, the owner may deposit the estimated cost of the reports with the broker by making the check payable directly to the broker, called ADVANCED COSTS. Advanced costs are funds deposited with a broker to cover out-of-pocket costs incurred on behalf of the depositor while performing brokerage service. The broker then pays the charges from the deposit when billed by the reporting service.

Funds advanced by a client payable directly to a broker belong to the client. The broker needs to place all advanced deposits received in the broker’s name in a trust account, whether they are advances for future costs or fees. The advanced cost sheet authorizes the broker to disperse the client’s funds from the trust account only as costs are incurred. When the listing terminates, the broker is to return all remaining trust funds to the client. The broker is prohibited from using trust funds to offset any fees the client may owe them.

The broker needs to keep all accounting records/advance cost records/statement of account/trust fund recording for at least THREE YEARS.

Question 23

Properly display a ‘For Sale’ sign on a property on behalf of the seller to advertise the property for sale.

Answer 23

Owners of real estate and their Brokers have the right to display for sale signs of reasonable dimension and design on their property or on property owned by others if they have their consent.

For sale signs may contain:

• advertising stating the property is for sale, lease or exchange
• directions to the property
• the owners or agents name
• the owners or agents address and telephone number.

However, the sign or location of a for sale sign may not adversely affect Public Safety or impede the safe flow of vehicular traffic.

Any attempts by local governmental ordinance to bar or unreasonably restrict the placement of a real estate for sale sign on the property for sale, or private property owned by others who have consented to the placement of a directional for sale sign on their property, are unenforceable.

Question 24

Understand when permission is needed to advertise a property with a ‘For Sale’ sign in a common interest development (CID)

Answer 24

An owner of a separate interest in a Common Interest Development (CID) is entitled to display a for sale sign on the interior side of the window of their condominium unit. However, if the owner seeks to display the sign on the ground area surrounding their unit, the owner needs to obtain the permission of the homeowners association (HOA).

Government agencies may determine the location, shape and dimensions of for sale signs to ensure the signs do not affect Public Safety, including Traffic Safety. Cities and counties restrict the display of for sale signs on private property through ordinances, nuisance laws or building requirements.

When a property owner or real estate agent places a for sale or a directional sign on public or private property without permission, the placement is a “misdemeanor public nuisance”.

Question 25

Abide by the regulations concerning the placement of a ‘For Sale’ sign on a private or public right-of-way or on a mobilehome

Answer 25

A mobile home owner may place a for sale sign:

• in the window of their mobile home
• outside the mobile home facing the street.

Signs posted outside of the mobile home can be of an H-Frame or A-Frame design and need to face the street. However, they cannot extend into the street.

Signs in mobile home parks may:

• be up to 24 in wide and 36 inches high
• contain the name address and telephone number of the mobile home owner or the owner’s agent.

Question 26

convenants, conditions and restrictions (CC&Rs)

Answer 26

CCnRs – covenants, conditions and restrictions – are written rules limitations and restrictions on use agreed to by all property owners in a subdivision or common interest development.

Question 27

restraint on alienation

Answer 27

A RESTRAINT ON ALIENATION is a limit placed on a property owner’s ability to sell, lease for a period exceeding 3 years or further encumber a property, as permitted by Federal Mortgage policy.

Example, consider a city which prohibits the display of all for sale signs. It is enacted with a purpose to stop perceived white-flight from a racially integrated city. A seller and their agent claim the ban is an unconstitutional interference with the sale and transfer of real estate, called a restraint on alienation, and violates the owners freedom of speech.

The city claims the sign prohibition is constitutional since it does not prohibit other ways in which to advertise property for sale, only those advertisements located on the property.

QUESTION- is is the city ordinance a reasonable restriction on the display of “For Sale” signs? The answer is NO! Prohibiting the display a for sale sign is a violation of the First Amendment freedom of speech right. Other methods of advertising real estate for sale are less effective and the ordinance prohibits the free flow of truthful commercial information.

While cities and counties may not prohibit the placement of for sale signs on private property, government agencies may determine the location shape and dimensions of the for sale signs to ensure the signs do not affect Public Safety, including traffic safety.