Because we are all accustomed to using Exclusive Listing Agreements, many agents don’t spend a lot of time thinking about ways to protect their commissions on the listing side. However, there are a number of problems that can occur with listing commissions if you’re not paying close attention.
Here are some of the things you should do as a listing agent to protect your listing commission (All references are to the CAR Listing Agreement Form RLA):
1. Do not present any offers to seller without a signed listing agreement.
If you present an offer without a signed Listing Agreement in hand, it may be impossible to collect a commission. The law requires a writing signed by the seller in order to enforce a seller’s obligation to pay a commission.
Also, once the seller knows the buyer’s name there is nothing to stop a seller from going direct to the buyer and cut you out. Without a written listing agreement, or some other agreement signed by the seller agreeing to pay you, you cannot even get into court.
2. Ask about prior Listing Agreements.
The National Association of REALTORS® Code of Ethics requires that REALTORS® ask prospects whether they are a party to any exclusive representation agreement prior to providing “substantive services” such as taking a listing (Standard of Practice 16-13). Paragraph 3.F.1 of the CAR Listing Agreement provides a place for sellers to indicate whether they had any prior listings with other brokers on the property.
If seller has had a prior listing, ask if seller’s prior listing agent has submitted any names of prospective buyers. These may be “protected” buyers under Paragraph 3.A.2 of the prior listing agreement. If so, the prior listing agent may be entitled to the listing commission for those buyers.
You may want to contact the prior listing agent and discuss these names to see whether that agent is actually entitled to claim the listed parties as protected buyers. To qualify as “protected buyers” for the prior listing agent, they would have to be persons: (a) to whom listing agent or cooperating brokers have shown the property, or (b) for whom they have written offers. (See paragraph 3.A.2)
Be sure to list any of these “protected buyers” in paragraph 3.F.2 of your new listing, as exclusions from your listing, so as not to expose your seller to having to pay two commissions.
3. Fill out the Listing Agreement completely.
Be especially careful to fill in the blank in paragraph 3.A.2 for the length of the protection period. If this is left blank, there is no protection period if a party, to whom you or a cooperating broker showed the property or for whom you wrote an offer, buys the property after the expiration of your listing.
4. Make sure all parties on title have signed the Listing Agreement.
Ask the seller(s) to identify all parties on title. Get all of their signatures prior to marketing the property. If an offer comes in before you have all signatures, and a seller who has not signed the listing balks at completing the sale, you will have a very upset buyer – and likely no commission.
If the property is in trust, obtain a copy of the trust agreement at the time of taking the listing to determine which trustee or trustees are required to convey property. If you have questions, have your title officer review the trust document to determine who must sign.
For more information on sellers signing as trustees, executors/administrators, conservators, guardians, pursuant to a POA, or on behalf of a corporation or LLC, see Weekly Practice Tip “Signing in a Representative Capacity.”
5. Extend your Listing Agreement through the escrow period.
If you ratify a contract during your listing period, you have earned a commission even if your listing expires prior to the close of escrow. But, if you are in escrow, and another offer comes in after your listing has expired, and your escrow falls through – good luck collecting a commission.
6. At the end of the listing, submit names of qualified prospective buyers to Seller prior to the expiration of your listing.
Paragraph 3.A.2 now requires that you submit to seller the names of any prospective buyers: (a) to whom you or a cooperating broker have shown the property, or (b) for whom you have written an offer, PRIOR TO the expiration of the listing period. The day after your listing expires is too late.
7. Single Party Compensation Agreement.
If you do not have a listing agreement and an offer comes in to you from another broker on a listing of yours which has expired, you can use the Single Party Compensation Agreement (form SP on zipForms) for this purpose.
In the first paragraph insert the commission amount and, in the line for the buyer’s name, just insert: “Buyer to be identified in a written offer no later than _________, 202__”.
8. Have your probate or bankruptcy listing agreement approved by the probate or bankruptcy court.
Probate listings must be approved by the Probate Court. Also, any extensions would require court approval. EXCEPTION: The only exception is if the Executor is operating under “full” powers of the Independent Administrations of Estate Act (IAEA) to administer the estate, in which case court approval of your listing is not needed.
If the owner is in bankruptcy, or files bankruptcy during your listing, be sure to have the bankruptcy trustee have your listing approved by the bankruptcy court, or you may not get paid.
9. Check the Preliminary Title Report for a “short sale.”
Many owners have over-encumbered their property. If the debt on the property exceeds the amount due the seller (after paying your commission), you may suffer a commissionectomy. Ask the seller about indebtedness on the property. Check the PTR as quickly as you are able to confirm that there is enough equity to close the transaction – and pay you. (See the Weekly Practice Tip on Short Sales)
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2016 04/08/16