BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Listing Price TBD
Q: I am a listing agent and my practice is to meet with sellers and sign up the listing with the Listing Price indicated as “To Be Determined” or just abbreviated as “TBD.” I do this because I may not know the best list price until I do a complete CMA based on the full knowledge of the property and its condition after meeting with the sellers. Other times, I will recommend that the property be held off the market while the sellers upgrade or improve the property to improve its curb appeal and overall appearance or to repair defects that need addressing.
Two days ago one of my sellers signed a purchase agreement with a buyer who approached him directly. I had just signed a TBD listing with that seller one week earlier and was recommending contractors for some needed work. I called the seller who said he had talked to his attorney and that we didn’t have an enforceable listing agreement and he was free to sell the property and didn’t owe me a commission. Can that be right?
A: Signing a listing agreement with the Listing Price to be determined, or TBD, is a dangerous practice. First, the Statute of Frauds requires all contracts for the payment of compensation to real estate brokers for licensed activity must be in writing. But even written contracts cannot be enforced if a material element is missing. For example, if there were a TBD Listing Price and the seller were to “breach” that listing agreement, and the listing broker were to seek damages in the form of a commission, how could a court determine what the commission would have been when there is no Listing Price to rely upon?
Other writings, such as e-mails, might be helpful in determining what Listing Price was discussed. But the listing broker would likely have to hire an attorney to try to prove that there was sufficient agreement around a specific number to create enforceability.
To avoid this problem, avoid taking listings with a TBD Listing Price.
PRACTICE TIP
1. It is best to agree to a Listing Price for the listing and then add a clause in “Other Terms and Conditions,” or in an Addendum, which states that the Listing Price may change after a CMA or after repairs or improvements are done. Such a clause could be something like:
“Seller and Listing Agent agree that the Listing Price may be adjusted after completion of: (a Comparative Market Analysis) or _____________________ (repairs, renovations or upgrades to the property) prior to commencement of marketing.”
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© Copyright Broker Risk Management 2014 8/22/14