LEARNING OBJECTIVES    
When you've finished reading this Chapter, you should be able to:
► identify the different types of listing and buyer representation agreements and their terms.

► describe the ways in which a listing may be terminated.

► explain the listing process and the parts of the listing agreement.

► distinguish among the characteristics of the various types of listing and buyer representation agreements.

► define the following key terms: competitive market, exclusive-right-to-sell, net listing, analysis (CMA), listing, open listing, exclusive-agency listing, market value, option listing, multiple-listing service (MLS)

REAL ESTATE PRACTICE & PRINCIPLES KEY WORD MATCH QUIZ --- CLICK HERE ---

I would encourage you to take this “Match quiz” now as a pre-chapter challenge to see how many of these key words or phrases you are familiar with. At the end of each chapter I recommend that you take the quiz again to reinforce these important keywords. Each page contains four words or phrases and you need to drag and drop the correct definition into the puzzle key. Each page is considered as a question, but there is no scoring and you can return to each chapter quiz as many times as needed to reinforce your memory. 

 

A listing agreement is an employment contract that creates a special agency relationship between the property owner and the broker. The various types of listing agreements establish the basic relationship between the parties and provide different levels of rights and responsibilities for the listing broker. Perhaps most importantly, listings determine important questions such as how a property is marketed and how the agent will be compensated. A buyer agency agreement is an employment contract too. It establishes the rights and responsibilities of the broker as agent for the buyer. Various kinds of buyer agency agreements establish different levels of relationships between the agent and the buyer/principal.

In short, listing and buyer representation agreements are the fundamental, bedrock documents of the real estate profession. To understand who you are as a real estate professional, you must understand how these documents work, what they say, and what they mean to you.

► LISTING AGREEMENTS

A listing agreement is an employment contract rather than a real estate con-tract. It is a contract for the personal professional services of the broker, not for the transfer of real estate. A listing agreement may be either written or oral. Most states, however, either by their statutes of frauds or by specific rule from their real estate licensing authorities, require that the listing be in writing to be enforceable in court.

As agent, the broker is authorized to represent the principal (and the principal's real estate) to third parties. That authorization includes obtaining and submitting offers for the property. The real estate salesperson's authority to provide brokerage services originates with his or her broker. Even though the real estate salesperson may perform most, if not all, of the listing services, the listing remains with the broker.

Under both the law of agency and most state license laws, only a broker can act as agent to list, sell, rent, or purchase another person's real estate and provide other services to a principal. A salesperson who performs these acts does so only in the name and under the supervision of the broker (a salesperson is a general agent of the broker). Throughout this Chapter, unless otherwise stated, the terms broker, agent, and firm are intended to include both the broker and a sales-person working for the broker. However, the parties to a listing contract are the seller and the broker.

 

Exclusive-right-to-sell listing. In an exclusive-right-to-sell listing, one broker is appointed as the seller's sole agent. The broker is given the exclusive right, or authorization, to market the seller's property. If the property is sold while the listing is in effect, the seller must pay the broker a commission regardless of who sells the property. In other words, if the seller finds a buyer without the broker's assistance, the seller still must pay the broker a commission. Sellers benefit from this form of agreement because the broker feels freer to spend time and money actively marketing the property, making a timely and profitable sale more likely. From the broker's perspective, an exclusive-right-to-sell listing offers the greatest opportunity to receive a commission.

Exclusive-agency listing. In an exclusive-agency listing, one broker is authorized to act as the exclusive agent of the principal. However, the seller retains the right to sell the property without obligation to the broker. The seller is obligated to pay a commission to the broker only if the broker (or an agent of the broker, including a buyer's agent) has been the procuring cause of a sale.

Open listing. In an open listing (also known in some areas as a nonexclusive listing or a general listing), the seller retains the right to employ any number of brokers as agents. The brokers can act simultaneously, and the seller is obligated to pay a commission to only that broker who successfully produces a ready, willing, and able buyer. If the seller personally sells the property without the aid of any of the brokers, the seller is not obligated to pay a commission. A listing contract that does not specifically provide for an exclusive-right-to-sell listing or an exclusive-agency listing ordinarily creates an open listing. An advertisement of property "for sale by owner" may indicate "brokers protected" or in some other way invite offers brought by brokers. Such an invitation does not by itself, how-ever, create a listing agreement.

 

The terms of even an open listing must be negotiated, however. These negotiated terms should be in writing to protect the agent's ability to collect an agreed-on fee from the seller. Written terms may be in the form of a listing agreement (if the agent represents the seller) or a fee agreement (if the agent represents the buyer or the seller does not wish to be represented).

Multiple listing. A multiple-listing clause may be included in an exclusive listing. It is used by brokers who are members of a multiple-listing service (MLS). As discussed earlier, an MLS is a marketing organization whose broker members make their own exclusive listings available through other brokers and gain access to other brokers' listed properties as well.

An MLS offers advantages to both brokers and sellers. Brokers develop a sizable inventory of properties to be sold and are assured a portion of the commission if they list property or participate in the sale of another broker's listing. Sellers gain because the property is exposed to a larger market.

The contractual obligations among the member brokers of an MLS vary widely. Most MLSs require that a broker turn over new listings to the service within a specific, fairly short period of time after the broker obtains the listing. The length of time during which the listing broker can offer a property exclusively without notifying the other member brokers varies. Some MLSs, however, permit a broker up to five days before he or she must submit the listing to the service.

Under the provisions of most MLSs, a participating broker makes a unilateral offer of cooperation and compensation to other member brokers. The broker must have the written consent of the seller to include the property in an MLS. If a broker chooses to be an agent for the buyer of a property in the MLS, that broker must notify the listing broker before any communication with the seller takes place. All brokers must determine the appropriate way to proceed to protect their clients.

Technology has enhanced the benefits of MLS membership. In addition to providing instant access to information about the status of listed properties, MLSs often offer a broad range of other useful information about mortgage loans, real estate taxes and assessments, and municipalities and school districts. They are equally helpful to the licensee who needs to make a competitive market analysis to determine the value of a particular property before suggesting an appropriate range of listing prices. Computer-assisted searches also help buyers select properties that best meet their needs.

Net listing. A net listing provision specifies that the seller will receive a net amount of money from any sale, with the excess going to the listing broker as commission. The broker is free to offer the property at any price greater than that net amount. Because a net listing can create a conflict of interest between the broker's fiduciary responsibility to the seller and the broker's profit motive, it is illegal in Tennessee as well as many states and is discouraged in others.

► FOR EXAMPLE    A seller explained her situation to her broker: "I want to sell my house, but I don't want to be bothered with percentages and bargaining and offers and counteroffers. I just need to walk out of this deal with $150,000 in my pocket. You sell the place for any price you want and keep anything over $150,000." The broker knows that comparable homes in the area are selling for more than $200,000. What should the broker do about this offer of a net listing?

Option listing. An option listing provision gives the broker the right to purchase the listed property. Use of an option listing may open the broker to charges of fraud unless the broker is scrupulous in fulfilling all obligations to the property owner. In some states, a broker who chooses to exercise such an option must first inform the property owner of the broker's profit in the transaction and secure in writing the owner's agreement to it. An option listing differs from an option contract, which will be discussed in Chapter 11.

A listing agreement is a personal service contract between a broker and a seller. Its success depends on the broker's personal, professional efforts. Because the broker's services are unique, he or she cannot turn over the listing to another broker without the principal's written consent. The property owner cannot force the broker to perform, but the broker's failure to work diligently toward fulfilling the contract's terms constitutes abandonment of the listing. In the event the listing is abandoned or revoked by the broker, the owner is entitled to sue the broker for damages.

Of course, the property owner might also fail to fulfill the terms of the agreement. A property owner who refuses to cooperate with the broker's reasonable requests, such as allowing the broker to show the property to prospective buyers, or who refuses to proceed with a complete sales contract could be liable for dam-ages to the broker. If either party cancels the contract, he or she may be liable for damages to the other.

A listing agreement may be canceled for the following reasons:

► When the agreement's purpose is fulfilled, such as when a buyer or tenant is produced

► When the agreement's term expires without a successful transfer

► If the property is destroyed or its use is changed by some force outside the

owner's control, such as a zoning change or condemnation by eminent

domain (see Chapter 7)

► If title to the property is transferred by operation of law, as in the case of the owner's bankruptcy

► If the broker and seller mutually agree to end the listing or if one party ends it unilaterally (in which case he or she may be liable to the other party for damages)

► If either party dies or becomes incapacitated

► If either the broker or seller breaches the contract, the agreement is terminated and the breaching or canceling party may be liable to the other for damages

All listings should specify a definite period of time during which the broker is to be employed. In most states, failing to specify a definite termination date in a listing is grounds for the suspension or revocation of a real estate license.

Courts have discouraged the use of automatic extension clauses in exclusive listings, such as a clause providing for a base period of 90 days that "continues thereafter until terminated by either party hereto by 30 days' notice in writing." Extension clauses are illegal in some states, and many listing contract forms specifically provide that there can be no automatic extensions of the agreement. Some courts have held that an extension clause actually creates an open listing rather than an exclusive-agency agreement.

Some listing contracts contain a broker protection clause. This clause provides that the property owner will pay the listing broker a commission if, within a specified number of days after the listing expires, the owner transfers the property to someone the broker originally introduced to the owner. This clause protects a broker who was the procuring cause from losing a commission because the transaction was completed after the listing expired. The time for such a clause usually parallels the terms of the listing agreement. A six-month listing may carry a broker protection clause of six months after the listing's expiration, for example. To protect the owner and prevent any liability of the owner for two separate commissions, most of these clauses stipulate that they cannot be enforced if the property is relisted under a new contract either with the original listing broker or with another broker.

Before signing a contract, the broker and seller must discuss a variety of issues. The seller's most critical concerns typically are the selling price of the property and the net amount the seller can expect to receive from the sale. The broker has several professional tools to provide information about a property's value and to calculate the proceeds from a sale.

Most sellers ask other questions as well: "How quickly will the property sell?" "What services will the broker provide during the listing period?" This is the broker's opportunity to explain the various types of listing agreements, the ramifications of different agency relationships, and the marketing services the broker provides. At the end of this process the seller should feel comfortable with his or her decision to list with the broker.

Similarly, before the listing agreement is finalized, the broker should be prepared to fulfill the fiduciary obligations the agreement imposes. The seller should have provided comprehensive information about both the property and his or her personal concerns. Based on this information, the broker can accept the listing with confidence that the seller's goals can be met in a profitable manner for both par-ties.

While it is the responsibility of the broker or salesperson to advise and assist, it is the seller who must determine the listing price for the property. Because the average seller does not have the resources needed to make an informed decision about a reasonable listing price, real estate agents must be prepared to offer their knowledge, information, and expertise.

A salesperson can help the seller determine a listing price for the property by using a competitive market analysis (CMA). This is a comparison of the prices of properties recently sold, properties currently on the market, and properties that did not sell. The comparisons must be made with properties similar in location, size, age, style, and amenities to the seller's property. Although a CMA is not a formal appraisal, the salesperson uses many of the same methods and techniques an appraiser uses in arriving at a reasonable value range. (See Chapter 18.) If no adequate comparisons can be made, or if the property is unique in some way, the seller may prefer that a professional appraiser conduct a detailed, formal estimate of the property's value.

Whether a CMA or a formal appraisal is used, the figure sought is the property's market value. Market value, discussed in Chapter 18, is the most probable price property would bring in an arm's-length transaction under normal conditions on the open market. A CMA estimates market value as likely to fall within a range of values (for instance, $135,000 to $140,000). A CMA, however, should not be confused with a formal appraisal, which will indicate a specific value rather than a range.

While it is the property owner's privilege to set whatever listing price he or she chooses, a broker should consider rejecting any listing in which the price is substantially exaggerated or severely out of line with the indications of the CMA or appraisal. These tools provide the best indications of what a buyer will likely pay for the property. An unrealistic listing price will make it difficult for the broker to properly market the seller's property within the agreed-upon listing period. Furthermore, a seller who is unreasonable about the property's value may prove uncooperative on other issues later on.

Seller's Return The broker can easily calculate roughly how much the seller will net from a given sales price or what sales price will produce a desired net amount. The Math Concept on page 84 illustrates how the formulas are applied.

IN PRACTICE  When helping a seller determine an appropriate listing price, the broker must give an estimate of value that is reasonable, conservative, and as accurate as possible. Overpriced listings cost the broker time and money in wasted marketing and advertising and give sellers false hopes of riches to come. Ultimately, failing to move over-priced listings will cost the broker future business opportunities as well.

Once the real estate licensee and the owner agree on a listing price, the licensee must obtain specific, detailed information about the property. Obtaining as many facts as possible ensures that most contingencies can be anticipated. This is particularly important when the listing will be shared with other brokers through an MLS and the other licensees must rely on the information taken by the lister.

 

► the names and relationship, if any, of the owners;

► the street address and legal description of the property;

► the size, type, age, and construction of improvements;

► the number of rooms and their sizes;

► the dimensions of the lot;

► existing loans, including such information as the name and address of each lender, the type of loan, the loan number, the loan balance, the interest rate, the monthly payment and what it includes (principal, interest, real estate tax impounds, hazard insurance impounds, mortgage insurance premiums), whether the loan may be assumed by the buyer and under what circumstances, and whether the loan may be prepaid without penalty;

► the possibility of seller financing;

► the amount of any outstanding special assessments and whether they will be paid by the seller or assumed by the buyer;

► the zoning classification of the property;

► the current (or most recent year's) property taxes;

► neighborhood amenities (for instance, schools, parks and recreational areas, churches, and public transportation);

► any real property to be removed from the premises by the seller and any personal property to be included in the sale for the buyer (both the listing contract and the subsequent purchase contract should be explicit on these points);

► any additional information that would make the property more appealing and marketable; and

► any required disclosures concerning agency representation and property conditions.

Disclosures of agency relationships and property conditions have become the focus of consumer safeguards in the 1990s. As discussed in Chapter 4, most states have enacted laws requiring that agents disclose whose interests they legally represent. This may be a particularly confusing issue when subagents are involved in a transaction. It is important that the seller be informed of the company's policies regarding single agency, dual agency, and buyer agency. In addition, the seller should be informed about potential cooperation with subagents and buyer's agents.

Chapter 4 also mentioned that seller disclosure of property conditions is required by law in many states. These disclosures normally cover a wide range of structural, mechanical, and other conditions that a prospective purchaser should know about to make an informed decision. Frequently, the laws require that the seller complete a standardized form. It is the licensee's responsibility to see that the seller complies with these disclosures. Agents should caution sellers to make truthful disclosures to avoid litigation arising from fraudulent or careless misrepresentations.

► THE LISTING CONTRACT FORM

A wide variety of listing contract forms are available. Some brokers draft their own contracts, some use forms prepared by their multiple-listing services, and some use forms produced by their state real estate licensing authorities. Some brokers use a separate information sheet (also known as a profile or data sheet) for recording property features. That sheet is wed to a second form containing the contractual obligations between the seller and the broker: listing price, duration of the agreement, signatures of the parties, and so forth. Other brokers use a single form. A sample listing agreement – TAR Form F88 –Exclusive Right to Sell Listing Agreement (Seller Agency) is presented in the chapter.

Regardless of which standard form of listing agreement is used, the same considerations arise in most real estate transactions. This means that all listing contracts tend to require similar information. However, licensees should review the specific forms used in their areas and refer to their states' laws for any specific requirements. Some of the considerations covered in a typical contract are discussed in the following paragraphs.

The type of listing agreement. The contract may be an exclusive-right-to-sell listing (the most common type), an exclusive-agency listing, or an open listing. The type of listing agreement determines the extent of a broker's authority to act on the principal's behalf. Most MLSs do not permit open listings to be posted in the MLS system.

The broker's authority and responsibilities. The contract should specify whether the broker may place a sign on the property and advertise and market the property. Another major consideration is whether the broker is permitted to authorize subagents or buyer's brokers through an MLS. Will the contract allow the broker to show the property at reasonable times and on reasonable notice to the seller? May the broker accept earnest money deposits on behalf of the seller, and what are the broker's responsibilities in holding the funds? Without the writ-ten consent of the seller, the broker cannot undertake any of these or other important activities.

The names of all parties to the contract. Anyone who has an ownership interest in the property must be identified and should sign the listing to validate it. If the property is owned under one of the forms of co-ownership discussed in Chapter 8, that fact should be clearly established. If one or more of the owners is married, it is wise to obtain the spouse's consent and signature on the contract to release any marital rights. If the property is in the possession of a tenant, that should be disclosed (along with the terms of the tenancy), and instructions should be included on how the property is to be shown to a prospective buyer.

The brokerage firm. The brokerage company name, the employing broker, and, if appropriate, the salesperson taking the listing must all be identified.

The listing price. This is the proposed gross sales price. The seller's proceeds will be reduced by unpaid real estate taxes, special assessments, mortgage and trust deed debts, and any other outstanding obligations.

Real property and personal property. Any personal property that will be left with the real estate when it is sold must be explicitly identified. Similarly, any items of real property that the seller expects to remove at the time of the sale must be specified as well. Some of these items may later become points of negotiation when a ready, willing, and able buyer is found for the property.

 

Typical items to consider include major appliances, swimming pool and spa equipment, fireplace accessories, storage sheds, window treatments, stacked fire-wood, and stored heating oil.

Leased equipment. Will any leased equipment—security systems, cable television boxes, water softeners, special antennas—be left with the property? If so, the seller is responsible for notifying the equipment's lessor of the change of property ownership.

The description of the premises. In addition to the street address, the legal description, lot size, and tax parcel number may be required for future insertion into a purchase offer.

The proposed dates for the closing and the buyer's possession. These dates should be based on an anticipated sale date. The listing agreement should allow adequate time for the paperwork involved (including the buyer's qualification for any financing) and the physical moves to be arranged by the seller and the buyer.

The closing. Details of the closing—such as a closing attorney, title company, or escrow company—should be considered even at this early stage. Which designated party will complete the settlement statements, disburse the funds, and file the proper forms, such as documents to be recorded, documents to be sent to the Internal Revenue Service, and documents to be submitted for registering foreign owners? In some states, because the buyer designates the settlement agent, the seller must identify any special needs at the beginning of the process.

The evidence of ownership. The most commonly used proofs of title are a warranty deed and either a title insurance policy or an abstract and legal opinion.

Encumbrances. Which liens will be paid in full at the closing by the seller and which liens will be assumed by the buyer?

Home warranty program. In some situations, it may be advisable for a buyer or seller to purchase a home warranty with the property. Typically, a home warranty program covers such things as plumbing, electrical, and heating systems, hot water heaters, duct work, and major appliances. Some brokers offer this with every home they sell as a way of encouraging people to buy. In many states, a home warranty program can be provided in a listing contract or an offer to purchase. Coverages, deductibles, limitations, and exclusions in the contract should be read carefully.

The commission. The circumstances under which a commission will be paid must be specifically stated. Is payment earned only on the sale of the property or on any transfer of interest created by the broker? Will it be a percentage or a flat fee? When will it be paid? Will it be paid directly by the seller or by the party handling the closing?

 

The termination of the contract. A contract should provide some way for the parties to end it. Under what circumstances will the contract terminate? Can the seller arbitrarily refuse to sell or cooperate with the listing broker?

The broker protection clause. As previously discussed, brokers may be well advised to protect their interests against possible fraud or a reluctant buyer's change of heart. Under what circumstances will the broker be entitled to a commission after the agreement terminates? How long will the clause remain in effect?

Warranties by the owner. The owner is responsible for certain assurances and disclosures that are vital to the agent's ability to market the property successfully. Is the property suitable for its intended purpose? Does it comply with the appropriate zoning and building codes? Will it be transferred to the buyer in essentially the same condition as it was originally presented, considering repairs or alterations to be made as provided for in a purchase contract? Are there any known defects?

Indemnification (hold harmless) wording. The seller and the broker may agree to hold each other harmless (that is, not to sue one another) for any incorrect information supplied by one to the other. Indemnification may be offered regardless of whether the inaccuracies are intentional or unintentional.

Nondiscrimination (equal opportunity) wording. The seller must under stand that the property will be shown and offered without regard to the race, color, creed or religious preference, national origin, family status, sex, sexual orientation, age, or handicap of the prospective buyer. Refer to federal, state, and local fair housing laws for protected classes. (See Chapter 20.)

Antitrust wording. The contract should indicate that all commissions have been negotiated between the seller and the broker. It is illegal for commissions to be set by any regulatory agency, trade association, or other industry organization.

The signatures of the parties. All parties identified in the contract must sign it, including all individuals who have a legal interest in the property.

The date the contract is signed. This date may differ from the date the con-tract actually becomes effective, particularly if a salesperson takes the listing, then must have his or her broker sign the contract to accept employment under its terms.

IN PRACTICE   Anyone who takes a listing should use only the appropriate documents provided by the broker. Most brokers are conscientious enough to use only documents that have been carefully drafted or reviewed by an attorney so that their construction and legal language comply with the appropriate federal, state, and local laws. Such contracts should also give consideration to local customs, such as closing dates and the pro-ration of income and expenses, with which most real estate attorneys are familiar.

 

► BUYER AGENCY AGREEMENTS

Like a listing agreement, a buyer agency agreement is an employment contract. In this case, however, the broker is employed as the buyer's agent. The buyer, rather than the seller, is the principal. The purpose of the agreement is to find a suitable property. An agency agreement gives the buyer a degree of representation possible only in a fiduciary relationship. A buyer's broker must protect the buyer's interests at all points in the transaction. A sample buyer representation agreement – TAR Form F94 – Exclusive Buyer Representation Agreement (Buyer Agency) is presented in the chapter.

Three basic types of buyer agency agreements exist:

1. Exclusive buyer agency agreement (or exclusive right to represent)—This is a completely exclusive agency agreement. The buyer is legally bound to compensate the agent whenever the buyer purchases a property of the type described in the contract. The broker is entitled to payment regardless of whether he or she locates the property. Even if the buyer finds the property independently, the agent is entitled to payment.

2. Exclusive-agency buyer agency agreement—Like an exclusive buyer agency agreement, this is an exclusive contract between the buyer and the agent. However, this agreement limits the broker's right to payment. The broker is entitled to payment only if he or she locates the property the buyer ultimately purchases. The buyer is free to find a suitable property without obligation to pay the agent.

3. Open buyer agency agreement—This agreement is a nonexclusive agency contract between a broker and a buyer. It permits the buyer to enter into similar agreements with an unlimited number of brokers. The buyer is obligated to compensate only the broker who locates the property the buyer ultimately purchases.

A number of issues must be discussed by a broker and a buyer before they sign a buyer agency agreement. For instance, the licensee should make the same disclosures to the buyer that the licensee would make to a seller in a listing agreement. The licensee should explain the forms of agency available and the parties' rights and responsibilities under each type. The specific services provided to a buyer-client should be clearly explained. Compensation issues need to be addressed as well. Buyer's agents may be compensated in the form of a flat fee for services, an hourly rate, or a percentage of the purchase price. The agent may require a retainer fee at the time the agreement is signed to cover initial expenses. The retainer may be applied as a credit toward any fees due at the closing. A buyer's agent also may be compensated by sharing the commission being paid by the seller.

 

As in any agency agreement, the source of compensation is not the factor that determines the relationship. A buyer's agent may be compensated by either the buyer or the seller. Issues of compensation are always negotiable.

Because the agency contract employs the agent to represent the buyer and locate a suitable property, the licensee must obtain detailed financial information from the buyer. In addition, the buyer's agent needs information about the buyer's specific requirements for a suitable property.

IN PRACTICE   Buyer agency, like any other kind of real estate agency, is increasingly subject to detailed provisions of state law. If a state has adopted an agency statute, it is highly likely that the rights, duties, and obligations of buyer's agents are specifically established.

To acquire an inventory of property to sell, brokers must obtain listings. Types of listings include exclusive-right-to-sell, exclusive-agency, and open listings.

With an exclusive-right-to-sell listing, the seller employs only one broker and must pay that broker a commission regardless of whether it is the broker or the seller who finds a buyer, provided the buyer is found within the listing period.

Under an exclusive-agency listing, the broker is given the exclusive right to rep-resent the seller, but the seller can avoid paying the broker a commission by selling the property to someone not procured by the broker.

With an open listing, to obtain a commission the broker must find a ready, willing, and able buyer on the seller's terms before the property is sold by the seller or another broker.

A multiple-listing provision may appear in an exclusive-right-to-sell or an exclusive-agency listing. It gives the broker the additional authority and obligation to distribute the listing to other members of the broker's multiple-listing organization.

A net listing, which is illegal in some states and considered unethical in most areas, is based on the net price the seller will receive if the property is sold. The broker is free to offer the property for sale at the highest available price and will receive as commission any amount exceeding the seller's stipulated net.

An option listing, which also must be handled with caution, gives the broker the option to purchase the listed property.

A listing agreement may be terminated for the same reasons as any other agency relationship.

When listing a property for sale, the seller is concerned about the selling price and the net amount he or she will receive from the sale. A competitive market analysis (CMA) compares the prices of recently sold properties that are similar to the seller's property. The CMA or a formal appraisal report can be used to help the seller determine a reasonable listing price. The amount the seller will net from the sale is calculated by subtracting the broker's commission, along with any existing liens and any other expenses that the seller incurs, from the selling price.

A wide variety of listing contract forms may be used, depending on the customs and laws in an area. Typically, they are preprinted forms that include such information as the type of listing agreement, the broker's authority and responsibility under the listing, the listing price, the duration of the listing, information about the property, terms for the payment of commission (including antitrust concerns and encumbrances) and for the buyer's possession, and nondiscrimination laws. Detailed information about the property may be included in the listing contract or on a separate property data sheet. Disclosure of the broker's law of agency relationship and discussion of the broker's agency policies have become the focus of laws in many states. The seller may also be expected to comply with mandatory disclosure of property conditions.

A buyer agency agreement ensures a buyer that his or her interests will be rep-resented. Different forms of buyer agency agreements exist. A buyer's broker is obligated to find a suitable property for the client, who is owed the traditional fiduciary duties. Buyer agency may be regulated by state agency laws.

A real estate broker is defined as a person licensed to buy, sell, exchange, or lease real property for others and to charge Li fee for those services. As discussed previously, Tennessee requires a license to act as an agent, advertise one’s services as an agent, negotiate, collect rents, and find prospects for real estate-related activities if the act includes the expectation of the receipt of valuable consideration

Brokerage agreements are essentially employment contracts that request the professional services of the licensee, not the transfer of real estate. Brokers enter into employment agreements with their all hated licensees, with sellers, with buyers, with landlords, and with tenants. Brokerage agreements confirm compensation issues.

Depending on the agreement, the broker will be an agent or a principal. In the employment contract with affiliate licensees, the broker is the principal and the affiliate licensees are the broker's agents. In a listing agreement, the seller is the client and the broker is the agent who "subs" the work to his/her agents (affiliate licensees). In a brokerage agreement with a buyer, the buyer is the client and the broker is the agent, again "subbing" the work to his/her affiliates.

Although Tennessee law does not address this issue, the Internal Revenue Service requires an employment contract for statutory independent contractor status. Brokers enter into employment agreements with the licensees who work for them, and such agreements permit licensees to act as agents for those brokers. Thus, even though an affiliate broker or other associated brokers may negotiate the listing or buyer brokerage agreement, the agreement is in the name of the managing broker.

The managing broker is responsible for supervising the real estate activities performed by an affiliate. or any other broker employed by or otherwise associated with the broker as the broker's representative. even if the affiliated licensee is classified as an independent contractor. the affiliated licensee is responsible for keeping the managing broker fully informed of all activities being conducted on behalf of the broker and any other activities that might affect the managing broker's responsibilities.

A brokerage agreement sets forth the rights and obligations of both parties and generally includes an agreement for broker compensation. These agreements are entered into by the brokerage with sellers, buyers, tenants, and landlords. The rules are the same whether the real estate is residential, commercial, industrial or special-purpose.

A seller hires a broker under a listing agreement. An agreement between a broker and a buyer is a buyer agency or brokerage agreement. A management agreement is a contract between a rental property owner and the broker who is hired to manage the rental property

Even if an affiliate broker negotiates the agreement, the contract is still between the consumer and the managing broken It is important to remember that the agency disclosure merely acknowledges disclosure; the aforementioned agreements address exclusivity and compensation issues.

To have legal recognition, all listing contracts in Tennessee must be in writing to form the agency relationship. If an agency relationship is being created between the brokerage firm and the seller (or the individual licensee and the seller in a designated agency situation), the listing must be written and signed by the seller and a representative of the firm. It must also have an expiration date and, to avoid its being suspected of being a net listing, it must have a commission amount stipulated. Of course, a list price, terms of sale, and an adequate description or the real estate must be included.

Are there any other considerations that may be included in a listing agreement?

Because Tennessee does not require the use of any specific form. the managing broker may insert other terms as he or she deems necessary, such as a fair housing adherence statement and/or a statement that commission rates are not set by law. The Tennessee Association of Realtor’s does have forms for use by its members.

It is also customary to have a clause specifying that the broker will hold the earnest money deposit, but the law and the rules of the TREC do not specify which broker, listing or selling, will hold it. The TREC rules do specify that the affiliate broker must turn over the earnest money to the managing broker immediately on receipt. Also, the broker must deposit the money promptly on acceptance of the offer unless the offer specifies a date on which it is to be deposited.

To have a valid listing agreement, everyone who has an ownership interest should sign the listing agreement.

A net listing is an agreement that specifies a net sale price to he received by the owner with the excess over that price to be received by the broker as commission. This situation presents a potential conflict of interest for the broker. Often, the seller only realizes the true selling price of the property when an offer to purchase is obtained. There is the possibility of the appearance of a conflict of interest between the broker-client relationship and the broker's profit motive.

Net listings are illegal per Rule 1260-2-.08 of the TREC: "no broker or affiliate broker shall enter a listing based on a ‘net price,’ i.e., a price excluding the customary commission and expenses associated with the sale.”

Exclusive and nonexclusive agency relationships are allowed in Tennessee, though neither is defined in the law or the rules and regulations of the TREC.   Exclusive listing agreements give brokerage firms the exclusive right to market the seller’s property and receive a commission during the term of the listing regardless of which person sells it, including the owner.

A variation is the exclusive-agency listing, in which the owner of the property promises to compensate a broker for locating a buyer but the owner reserves the right to produce the buyer without paying the broker a commission.

It is illegal to place a sign on any property offering it for sale, rent, or lease without the owner's consent, Thus, the broker may place the sign whenever the seller agrees.

Many brokerages include specific authorization for a For Sale sign as part of the listing agreement. The broker must comply with local ordinances. Additionally, TCA 62-13-310(b) requires that the sign must have the firm's name on the Sign in letters that are the same size or larger than those of the listing licensee.

Any Commission or fee in any brokerage agreement is fully negotiable among the parties to that brokerage agreement. The listing brokerage agreement generally specifies the broker’s commission rate. It can be a percentage of the sale, a flat fee, an hourly rate --- whatever is agreed on. Policy #89-CPS-005 allows a broker to pay a commission that has been earned to an affiliate broker after he or she has transferred to a new' broker, retired his/her license, or let it expire.

Once the parties to a brokerage agreement agree n the structure of the commission, no party, other than the seller or the listing agent, is allowed to alter or attempt to alter the commission arrangement without the prior written consent of the seller and the listing agent. Without the listing agent’s prior written consent, licensees should not attempt to induce buyers to write contracts that seek to alter commission arrangement either. The seller, in the listing contract, may authorize the listing company to share compensation with other licensees, including a buyer’s agent solely representing the buyer.

Brokers recognize that while one brokerage has the listing, another broker may already be working for a buyer-client. The buyer wants to continue to work with his own agent. not the listing agent. In this situation, the seller benefits from the listing brokers agreeing to share the compensation with the other broker who actually procures the buyer.

This cooperation benefits the seller by opening the property to more potential buyers. Tennessee law does not require that the broker must cooperate with or compensate another broker. Generally, multiple-listing services members agree to the rules and regulations of their MLS and the Code of Ethics of the National Association of REALTORS®. Most standard listing forms provide for the broker to indicate (with the agreement of the seller) what forms of cooperation are allowed and the compensation that will be paid.

Though not mentioned in the law or rules and regulations of the TREC, the belief is that a listing is a contract for personal services and, as such, is not assignable. The general understanding is that this is a "personal service contract," and the broker is responsible to see that it is fulfilled. The broker may delegate authority to associate brokers in the company but remains responsible. Thus. listin2 agreements may not be assigned. sold, or otherwise transferred to another designated broker without the express written consent of all the parties to the original agreement.

Tennessee considers the firm to be the owner of the listings, so that even in the event of the broker's death, the listings will not be void. Further, TREC rule 1260-2.02(2) states that a licensee who terminates his affiliation with a former firm may neither take nor use any property listing secured through the firm without the principal broker's express permission.

Under Tennessee Code Annotated, Section 62-13-403(3), after a listing expires or terminates, under an agency agreement, the agent and the transaction broker owe the client accounting and continued confidentiality. This duty extends to any information that the party would reasonably expect to be held in confidence. Of course, such information may be passed on if the party has authorized such disclosure. This duty also extends beyond closing.

For legal recognition (i.e. to be enforceable), to create an agency relationship with a buyer there must be a written, signed contract. The signing of a Confirmation of Agency Status form does not create such a relationship.

Exclusive and nonexclusive relationships are both used in Tennessee. Many firms prefer the nonexclusive type because they feel the buyer will not be so fearful of signing a contract if it does not bind him or her irrevocably and exclusively to a single firm.

Buyer brokerage agreements should contain statements disclosing the brokerage policy (if any) on cooperating with and compensating other brokerages. Additionally, duties and responsibilities of the buyer-client and the broker-agent should be spelled out. The buyer’s agent is not responsible for conducting a property inspection. Compensation issues should be addressed.

Besides a single buyer-client, other potential buyers that the agent is working with may be interested in the same property. The brokerage agency agreement terms should clarify how the buyer’s agent may a also represent those other buyers as well. regardless if the situation arises prior to during, or after the end of the contract. Again in looking at the requirement for preserving confidentiality with sellers, under the buyer brokerage agreement, the licensee should not disclose to either buyer the terms of the other's offer. The agreement should discuss methods of contacting competing buyers.

Also in the terms of the agreement, the broker should ask the buyer to acknowledge that the licensee is acting solely as an agent, and not as an attorney, tax adviser, lender, appraiser, surveyor, structural engineer, property inspector, consultant or other professional adviser. Buyers should be advised to seek professional advice concerning the condition of the property. status of title, and other legal and tax matters concerning any proposed transaction.

It is most common in Tennessee for buyer's agents to receive compensation from the seller or seller's agent. This compensation agreement is usually' not objectionable. If compensation is not offered by the seller or seller's agent, the buyer representation contract does call for the buyer to pay a fee. The amount of this Fee is negotiable.

The relationship begins at the time the broker, as either an agent or transaction broker, is engaged. The relationship continues until performance or completion of the agreement The relationship may also terminate on any expiration date or any' time agreed on by the parties.

After termination, the broker agent owes no further duty or obligation to the buyer-client, except for accounting and confidentiality. The agent may disclose information if required by law or the information has become public knowledge.

Because the buyer agency representation agreement is generally held to be a contract for personal services, it may not be sold or assigned.

No; on termination, licensees are not allowed to take or use any written buyer brokerage agreements secured during their employment. These agreements remain the property of the firm and may only be canceled by the broker and the buyer-client.

Legal and ethical implications of agency and certain duties of confidentiality survive even after the termination of a buyer’s agreement. Examples include accounting for moneys and property related to and received during the contractual period as well as keeping confidentially requested information confidential

A protection clause protects the broker from unscrupulous sellers or buyers who take the broker's generated leads and then buy or sell the property after the brokerage agreement expires to avoid paying a commission to the broker. A protection clause can be included in either the listing or buyer brokerage agreement and extends beyond the expiration of the agreement. To be enforceable, the original agreement must include the protection clause as part of the original agreement and must set a definite protection period.

For listings, before the expiration of the listing agreement, the broker should furnish to the owner the names and addresses of the persons to whom the property was presented during the active term of the listing and for whom protection is sought (although the law does not require this). If the seller enters into a contract to sell the property to one of these buyers during the protected time period, the seller owes the broker a commission.

In a buyer brokerage agreement, the broker must establish a definite protection time frame and state that at the expiration of the agreement, if the buyer purchases, leases, or acquires any interest in any property previously shown by the licensee, then the buyer agrees to pay a fee that was agreed upon. The licensee, before the expiration of the agreement, should provide the buyer with a list of sellers’ names, addresses, and property addresses for which protection is sought.

The protection is lost, in either case, if the seller or buyer enters into an exclusive-brokerage agreement with another broken

Under what circumstances may a broker (or his/her agents) meet another brokers client?

Listing agents must allow buyer’s agents to accompany prospects at any step in a real estate transaction, except that a listing agent is not required to permit a buyer’s agent to be present when presenting an offer to a seller-client or discussing confidential matters with the seller-client.

With the listing agent present, a buyer's agent sometimes-is afforded the courtesy to personally present their client's purchase agreement directly to the seller If this courtesy is not extended, the buyer's agent presents the buyer’s purchase agreement to the listing agent, and then the listing agent presents the offer to the seller.

Every year real estate agents help thousands of families by referring them to other licensees across the United States. In return for the referral, a percentage or other agreed upon fee is paid to the referring broker.

Referral fees can be paid only to licensed brokers of this or any other state. If paid to a broker of another stale, that person may not negotiate in this state unless he or she has a Tennessee broker's license.

A management contract is between a brokerage and a property owner who wishes to lease real property but does not want to deal directly with tenants and the property. The owner hires a real estate licensee to "manage the property; i.e., locate tenants, handle repairs, collect rents, and so forth. Tennessee rules require that this contract for a broker's services be in writing if an agency relationship is to be created.

In Tennessee, if an affiliated licensee wants to become a property owner's authorized leasing agent, a current written property management agreement is required to be on file with the licensee’s broker. All fees and or commissions must be paid to the principal broker. Written property management agreements or comparable written authorizations signed by the owner or the owner’s authorized agent are required before any brokerage is allowed to represent the owner of the property.

Rental or leasing activities must be done in the name of the firm only. The management contract should be in writing and outline the duties and responsibilities of both parties. The contract should, at the very minimum, address the following:

     • Duration of the contract

     • Identities of the parties

     • Address of the property to be managed

     • Fees for the manager’s services, including disclosure of any markups

     • Disclosure of the broker’s ownership interest in any company that will be providing maintenance or related services (potential conflict of interest)

     • Identity of the entity responsible for holding the security deposit, and, if interest is earned on security deposit escrow accounts, who benefits from such interest

     • Requirement that the owner receives regular monthly accounting of all funds received and disbursed

     • Process to be followed in any subsequent transfer of owner's moneys, security deposits, keys, and pertinent documents

     • Pertinent documents shall include, but are not limited to

                copies of existing leases

                copies of check-in condition reports

                keys

                outstanding tenant balances

                tenant(s) security deposit(s)

                owner's funds (subject to outstanding obligations)

The broker is required to deposit all funds received on behalf of the owner promptly into the broker's trust account. Management fees should be withdrawn from the owner's account cit least once a month and deposited into the broker's business operating account. The broker must always create a paper trail,