Q: My brokerage represents the Sellers in the sale of an expensive home; we have also procured the Buyers. The Sellers have just informed us that they are not agreeing to pay us any commission because, although they signed an Exclusive Listing Agreement with us, the Listing Agreement is missing “key elements” regarding the term of the Listing Agreement. Is that true? If we do not have start and end dates, does that mean that the Listing Agreement is legally unenforceable?
A: Yes, incomplete Listing Agreements for residential property are legally unenforceable and, in particular, the lack of an identifiable start and ending of the “Term” of the Listing can void the agreement.
The Statute of Frauds requires that all agreements regarding the sale of real property to be in writing, signed by the Parties to that Agreement and that document must express the full and complete agreement of the Parties. The Statute of Frauds does not just apply to Purchase and Sale Agreements; it also applies to Listing Agreements.
Under California law, you cannot market the Property without having a fully-signed written marketing/listing agreement in place. Marketing is a licensee activity and thus there needs to be full compliance with real estate law – for this reason, marketing real property as a “pocket listing” without a written agreement from the seller is considered illegal activity.
There is a legal maxim that if there are any ambiguities or uncertainties about the meaning of any aspect of an agreement, the ambiguity is construed against the creator of the document. If the Listing Agreement is prepared by the real estate professional and there is no stated start or end date, then the standard legal interpretation is that there is no Listing Agreement.
WHAT ARE THE LEGALLY-REQUIRED ELEMENTS OF A CURRENT STANDARD LISTING AGREEMENT?
The seven (7) legally-required elements of a Listing Agreement are:
- A specific Start Date (March 9, 2018) that precedes a specific End Date (September 9, 2018).
- The Start Date and End Date must be a definitive date, and not a potential date. An example would be “The End Date shall be 90 days after issuance of a certificate of occupancy” (which may never occur). There must be a definitive end date, such as “The End Date shall be 90 days after issuance of a certificate of occupancy but in any event no later than December 31, 2018.”
- Identification of the Property (Address/APN#);
- List Price (not TBD or “to be determined later”) but an actual number because otherwise all you have is an agreement to agree.
- Total Amount of Commission to be paid by Seller;
- Agreement regarding use of the Multiple Listing Service; and
- Signed by all of the actual Owners of the Property and/or signed in the correct capacity (i.e., trustee, representative of an estate, pursuant to a Power of Attorney, on behalf of an entity such as a corporation or LLC).
If there is no Arbitration provision, then there is no need to have an agreement regarding that topic. However, if the Parties have used a Listing Agreement form which includes an Arbitration provision or have used an Addendum to include an Arbitration Agreement, then there needs to be mutually-consistent initials for Arbitration or there may not be a proper Listing Agreement
WHAT ARE THE ETHICALLY-REQUIRED ELEMENTS OF A LISTING AGREEMENT?
The two (2) ethically-required elements of a Listing Agreement are:
- Amount of commission to be paid to the Other Broker; and
- If the Property is not to be put into the MLS, then a proper MLS Waiver is needed.
PRACTICE TIPS:
- Before taking a listing, real estate professionals should determine who are the actual Owner(s) by either securing a Property Profile or conducting an MLS search. There is no point in taking a listing from someone who does not own the Property and everyone who owns that Property needs to sign the Listing Agreement in the correct capacity.
- As a reminder, one spouse cannot sign for the other spouse without a proper Power of Attorney that includes the authority to sell real property and the document needs to be properly notarized so that it can be recorded. And, trustee of a trust cannot delegate their trust duties to another person by way of a Power of Attorney, unless the trust document itself specifically authorizes that delegation — and most do not.
- As part of Broker Supervision, all Listing Agreements must be reviewed at the inception of the Listing – Sales Associates cannot simply obtain a signed Listing Agreement and not promptly turn it in to their Broker. This is true whether or not the Property will be advertised in the MLS and/or if it does not sell. The BRE/DRE considers Listing Agreements to be “transaction documents” even in the absence of an actual transaction.
- The Broker’s review of the Listing Agreement must start with confirming that the Sellers received the Agency Disclosure form and the Consent for Multiple Party Representation (for example the CAR PRBS form). If Agency has not been handled properly and the documentation was not provided before the Seller signs the Listing Agreement, the Appellate Courts have ruled that the Listing Agreement is voidable. The problem cannot be corrected by delivering the Agency Disclosure after the Listing Agreement is signed. Brokers should strongly consider starting the listing process over to make certain that the right documents are signed in the right sequence.
- As part of the Broker review process, whatever owner of record evidence has been obtained should be checked to make certain that all of the record owners have signed the Listing Agreement. Brokers should not proceed with the Listing without having all required signatures.
- If title is not held by a natural person but is held in any kind of trust, corporation, LLC, partnership, and/or the property is part of a bankruptcy, divorce, conservatorship or probate action, or the person signing on behalf of an owner has a power of attorney, then documents evidencing that person’s authority to act should be promptly obtained to make certain that the right people are signing in the right capacity and have the power of sale. If there is no documentation evidencing authority to act, then Brokers should not proceed with the Listing.
- The Broker’s review of the Listing Agreement must also include whether or not all of the legally and ethically-required elements are in place. If any of the legally or ethically-required elements are missing, the Listing Agreement needs to be promptly corrected by means of an Addendum to the Listing Agreement and not by changing or adding terms to the document above the Seller’s signatures.
- If multiple legally and ethically-required elements are missing, then the best advice is to start all over again and make certain that you have a valid, legally-enforceable Listing Agreement.
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.