Listing Agreements Explained
A listing agreement is a legal contract between a property seller and their real estate agent that defines the privileges and obligations of both parties in the sale of a residential property. Once the seller and their agent have drafted and agreed on the terms of the listing agreement, the document is legally binding. At its core, the listing agreement serves as a formalized relationship between a seller and their agent, detailing the agent’s limited right to represent the seller and the seller’s commitment to working with the agent to sell their home.
For sellers, the listing agreement is identical to a commercial agency agreement in scope: it binds the seller in an agreement to work with the agent representing them (in this case to sell their home) while providing the agent the authority to perform acts on behalf of the seller that the agent deems necessary in working to fulfill the purpose of the agreement. Agents are bound by the fiduciary duties within the listing agreement , and similarly must fulfil any commitments found therein.
In addition to spelling out the services the agent will provide to the seller, the agreement also specifies the length of the relationship, the compensation the agent will receive for fulfilling its role, whether or not a sign will be put up, how much marketing will be done and to what level, and several other key details.
In some provinces, there are two types of listing agreements: exclusive agreements in which the seller stipulates the one agent who will represent them during the sale of their home and a multiple representation agreement that allows a cooperating broker to also represent the seller and the buyer (the seller may go ahead and sign a multiple representation agreement with both the broker and the cooperating broker concurrent with signing an exclusive agreement with the agent). The agreement will last for a specified time period (usually 3 to 6 months) and the seller may terminate the agreement at any given time, though there may be penalties for terminating before the specified end date.
Why Amend a Listing Agreement
The most common reasons for amending a listing agreement are:
- (1) Reduction of the sales price to solicit renewed interest in the property;
- (2) Extension of the listing period, for example if the listing is expiring in a week and the property has not yet sold;
- (3) Revision of the marketing plan, for example if the seller wants to list on the Multiple Listing Service or Zillow, both of which they were adamantly opposed to at the time the listing agreement was originally signed;
- (4) Revision of the term of the listing agreement (i.e., changing it from an exclusive right to sell to a non-exclusive right to sell).
It is always advisable to have the client initial above any revisions to a listing agreement so that there can be no doubt as to who made the revisions to the original listing agreement.
How to Legally Amend a Listing Agreement
Amendments to a listing agreement, while not usually subject to strict rules throughout the country, must generally be in writing to be valid. The States’ Statute of Frauds require that contracts for the sale of real property be in writing. Generally, contract amendments and supplements must also be in writing if the original contract was in writing and met the Statute of Frauds requirements. The memorandum of an oral contract will satisfy the Statute of Frauds if the memorandum contains all the essential terms of the agreement. For exceptions or state specific laws, members are encouraged to consult their state law.
Most real estate professionals are familiar with the process of completing a listing form and adding additional provisions to the contract by use of rider forms. But how does a listing agent amend a listing agreement after it has been signed by the seller? Contract law requires mutual consent of the parties to modify a contract. The amendment process is relatively easy and generally consists of the agent preparing an addendum to the contract delineating the changes. If the amendatory language is clear, it should be simple to get the agreement signed by all parties. The gathering of the parties’ signatures can be done at the time of the listing appointment (if the amendment is to a newly drafted listing agreement) or via email, fax or in-person as needed.
Although oral amendments are not permitted by the Statute of Frauds, if an oral amendment was actually made that both parties understood and agreed to a specific change, and one party has relied on that agreement to its detriment, the court may consider enforcing the oral agreement to avoid an inequitable result. In a court case in Texas, the judge ruled that a company was liable for paying a commission to Century 21 for re-negotiating an option lease despite the expiration of the original listing agreement. This was because the parties had orally agreed to extend the listing agreement and the prospective lessor/re-negotiator had relied on the oral amendment to its detriment. Even though the oral agreement didn’t extend the listing agreement per se, it did extend the broker’s authority to act on behalf of the prospective purchaser/tenant. The broker made valuable efforts on behalf of the prospective purchaser/tenant, which included finding financing.
The Potential Consequences of an Amended Listing Agreement
The amendment or extension of a listing agreement can be in a sellers favor or the sellers disfavor, or possibly somewhere in between. Any time a listing is extended, (as opposed to an entirely new listing agreement being drafted), the clock on the listing agreement starts over for purposes of a broker obtaining a fee after the expiration of the listing agreement. That means, if the buyers are able to show that they were showing up to see the property prior to the expiration of the original listing agreement, but not within the extension period (for whatever reason), they may be able to escape liability for the broker’s fee. Keep in mind, however, that brokers have other options for obtaining a fee and those options will continue to run until a fee is paid.
While drafting the amendment it is worth considering if the listing agreement has expired and a contract of sale (sometimes called a binder) has been executed by a buyer and seller. Should the purchaser be required to sign the modification? If the listing agreement has expired, it is likely that such a requirement will be a negotiating point between the buyer and seller of the property.
Amendments can impact the contract of sale. The contract of sale may have a homestead credit or other such requirements that necessitate an extension of the closing date. The statute of frauds, codified in New Jersey under N.J.S. 25:1-5, is a rule of law requiring contracts to be in writing. A contract of sale of real property must be in writing, and contain a sufficient description of the property, the price, and the names of the parties to be enforceable. See N.J.S. 25:1-15.
The listing agents, the sellers, and the buyers are also impacted by the filing of an amendment or an extension to a listing agreement.
Mistakes to Avoid When Amending
When amending a listing agreement (or any other contract for that matter) it is important to pay attention to detail. Even one small mistake can cause great difficulty later on down the road. A few common mistakes and ways to avoid them are as follows.
Overlooked Expiration Date Oftentimes, the reason for entering into an amendment when a listing neo-brokerage agreement is nearing expiration date is because the period of exclusivity is over and an extension is needed. It is therefore extremely important that the amendment explicitly state the new expiration date , and not be ambiguous or silent regarding this important point.
Improper Signatures from all Parties All parties to the listing agreement and the amendment should sign the amendment even when it is only the current broker who is being kept on as the listing broker. Without the signatures of all parties, a dispute could arise at a later date regarding the status of the current broker.
Things to Consider Before Amending
Because there is no standard form for amendments, consider all material terms to determine whether an amendment is necessary, including: (1) the exclusive right-to-sell term, (2) the list price, (3) protection period or extension of compensation period, (4) salesperson and broker compensation terms, (5) seller/agency compensation obligations, (6) method of payment, (7) responsibilities for repairs, escrow deposits, cooperative broker commission obligations, and fees to the MLS and public records, and (8) the Brown Act.
For example, an amendment may be recommended if the parties have agreed to vary amounts or type of compensation by reinstating the original agreement after expiration of the protection period. An extension of the protection period may be advisable when the seller has been required by the initial agreement to pay a specified amount of compensation to a cooperating broker for a longer period of time, or where the protection period has been extended by the subsequent agreement.
It is not unusual for the amount and/or distribution of compensation to be modified in amendments to listing agreements. For example, an unused protection period may provide the seller with the option of a fee or a percentage of the net obtained for actual sale of the property. Another example is the shared or competing brokerages’ agreement to split the listing cost.
Negotiating Amendments
The first step toward successfully negotiating an amendment to a listing agreement is for both broker and seller to recognize that the contract is a bilateral contract that has equal weight for both parties. Simply put, neither party holds all the cards. Each has a stake in the outcome, and so, unless it is to both parties’ benefit, neither will achieve its goal in the transaction with no buy in from the other. Keeping this in mind is critical during negotiations.
Another key to successful negotiations is to be flexible. The solutions that you or your client might envision as the way to end up with the desired outcome may not be the only solution. For this reason, it is important to have an open dialogue with the other party to understand what is important to them, what their goals are in the transaction, and how they might envision a way to reach those goals . Finding out what the other party’s view of the desired outcome is at the beginning of the negotiation process can help avoid unnecessary back-and-forth that can bog down negotiations and frustrate all involved.
Finally, make sure you clarify any and all agreed upon changes to the listing agreement, as well as any other terms that were discussed-but-not-agreed-to as of the time of your negotiation. In most respects, money is the easy part to negotiate. But an agreement to extend the term of a listing agreement for two weeks after the listing price has been reduced is equally part of the agreement. As a result, make sure that everything that you think you negotiated is captured in writing in a form that all parties will need to ultimately sign (e.g., in a new listing agreement an addendum to the listing agreement).
