What Do You Need to Know About Listing Agreements?
A listing agreement is a legally binding contract between a seller and a broker stating the broker will act as an agent to assist the seller in selling the property. In exchange, the seller agrees to pay the broker a commission if the property sells. The agreement gives the broker the right to represent the seller, market the property, and negotiate on the seller’s behalf.
The terms of a listing agreement vary depending on which type it is. There are three broad types of listing agreements used in Minnesota:
Open Listings
In an open listing agreement , more than one broker can be engaged by the seller to sell a specific property. Any broker that sells the listing will receive the agreed-upon commission. If the seller sells the property themselves, no commission is paid.
Exclusive Agency Listings
Like the open listing agreement above, any broker who sells the property will receive the commission. However, the seller keeps the right to sell the property themselves and avoid paying a commission.
Exclusive Right to Sell Listings
In this most common type of listing agreement, the seller grants an agent the exclusive right to sell the property on their behalf. The seller cannot sell the property themselves and the broker is entitled to the commission regardless of who sells the property.
Concerns that Lead Sellers to Want a Termination
Common Reasons Sellers Want to Cancel
Once a listing agreement is signed, most sellers are attached to their chosen agent and remain committed to selling their property. However, there are situations where a seller may want to terminate the relationship and simply move on. The first thing that the Realtor should do is take care of any of the seller’s concerns and keep the seller happy. Here are some of the reasons why a seller might seek to terminate a listing agreement:
Dissatisfaction with the Agent. A seller may not be happy with the service, knowledge or skills of the agent. This is an unlikely situation, as the seller took time to research and interview agents that meet their needs. If a seller is dissatisfied with the listing agent, they may request to terminate the listing agreement in order to contract with a new agent.
Better Selling Opportunity. A seller may not believe it is the best time to sell the property, but offers are coming in, more than one, that are too good to pass up. If a seller has just signed a listing agreement and receives an offer well above their asking price, they may discuss the termination of the listing agreement in order to sell the property quickly.
A Change in Personal Circumstances. The seller may experience life changes like a divorce, relocation or death in the family that will or will potentially affect their ability to sell the property. (We will discuss this in the next section.)
A seller might want to terminate a listing agreement under different situations. The best practice is to try to solve any problems experienced and keep the property listing.
What Do the Law and a Listing Say About Termination?
Every agreement has its terms, including a listing agreement. A listing agreement is no different than a lease or mortgage. They are each contracts that are legally binding. So there is legal exposure if a party wants to terminate prematurely. This is true for sellers who are breaking a listing agreement.
Terminating a listing agreement in violation of the contract means that it is a breach of contract. Like any breach of contract, the remedy is determined by what the contract states. If a party terminates without cause, the party might have to compensate the other for the damages that occur because of the breach. The damages could be the costs of having to list the property again after violating the agreement.
An example of an improper termination would be one that is done without notice when the contract requires a notice period. When a party violates the contract, the other party can either choose to terminate the contract or affirm the contract. Usually, it is wise to affirm the contract and seek damages. By affirming the contract, the seller can reduce the damages, especially if the property sells quickly once re-listed.
How to Bring a Listing Agreement to an End
All listing agreements in Oklahoma real estate, whether residential or commercial must have a definite termination date per 59 O.S. § 859. A seller may choose to terminate the listing agreement with their agent when: In addition to the requirements above, it is also important that the seller be aware of the contract process in order to avoid any potential for liability for commission. The listing contract may outline specific requirements for the seller to terminate the contract. If so , the seller must ensure that it complies with any formal notice requirements to the agent. While some agents may be accommodating in personally communicating with the seller to terminate the contract, it is nonetheless best practice to review the contract between the seller and the agent to ensure that formal notice to terminate the listing agreement is provided.
How to Negotiate Terms of Termination and What Happens After
Negotiating the terms of a listing agreement is part of the sales transaction, and should always be handled at the beginning of negotiations. The basis for this negotiation is R.C. 1341.20, Ohio’s statute authorizing registered real estate brokers and sales persons to enter into exclusive listing agreements for the sale of real property.
Normally, the agreement itself will specify the contractual terms under which it can be terminated. It may allow a specified grace period or will clearly spell out the requirements for terminating the agreement. Read the fine print.
If, after reviewing the terms of the listing agreement and the negotiating power you have, you are in a position where you will need or want to terminate the agreement prematurely, several possible solutions to this problem are:
1. The Agent (Broker) may agree to modify the terms of the listing agreement by reducing the listing period, for a price. This is similar to the idea of an early cancellation fee or penalty commonly found in most consumer contracts. Make sure you have something in writing as a receipt or acknowledgement of the agreement. Such modification will usually clearly stipulate the agent is not admitting to any liability, and the potential buyer is aware that the decision is based on their decision to back out of the purchase sooner rather than later and can back out with a refund of their earnest deposit.
2. If the above is not a viable option, another way to save the deal while ending the listing agreement is to request to have another real estate agent within the same real estate brokerage represent the transaction. In Ohio, the agency law regarding real estate states that if a real estate agent lists a home or other piece of property, they and other agents at their brokerage are effectively "one" agent. The result is a listing contract between property owner and one agent, and the agent and the buyer. A breach in the listing contract by one agent releases both parties from that contract.
When it’s Time to Bring in a Lawyer
When a homeowner wishes to be released from a contract, a potential buyer may be reluctant to terminate the contract. If the parties agree to allow the sale to proceed, the homeowner may be required to pay back a released or partial release of BTS, which can be substantial. For example, if the sale fails and the homeowner does not receive his or her money at closing, then there is no net BTS generated. In such case, if the home was not even put back on the market afterwards, the partial refund owed to the seller could be substantial (the "payback rate") .
In such a scenario, it is a good idea to consult with a real estate attorney. A real estate attorney would review the listing agreement and other facts and circumstances before advising whether the listing agreement can be terminated pursuant to its provisions.
However, there are some situations in which it may be necessary to seek legal assistance, such as the following: Consulting with an attorney can help you determine the most effective way to reach an advantageous outcome.
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