The vast majority of listings are exclusive listings. An exclusive listing is an agreement whereby the interests of a seller are represented exclusively by a single real estate agent. In this agreement, the agent must find a buyer for the seller. In return, the agent is entitled to an exclusive, negotiated commission upon the close of the transaction.
Exclusive listings incentivize the agent to sell a property for the highest price in the fastest timeframe possible. Consequently, they produce the highest likelihood of finding an appropriate buyer.
All exclusive listings must have a clear beginning and end date.
Listings cannot be for an indefinite period of time, or use vague language like “the listing will terminate within the months of January or February.” Rather, a listing should state a clear termination date.
The Civil Code states: “an agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate for a period longer than one year, or to procure, introduce, or find purchaser or seller of real estate is for a period of no longer than one year” (Section 1624 (4)). This means exclusive listings cannot exceed longer than a one year term.
Should no termination date exist in the listing, a seller may terminate the agreement at anytime with no advance warning to the agent. Such an omission may also subject an agent to disciplinary action, including potentially having his or her license suspended.
Unless an agent has violated the listing agreement, a seller cannot terminate the listing prior to its termination date without the listing agent’s consent. Additionally, sellers cannot cancel the listing agreement if they benefited from it.
As agents do not get paid until the close of a transaction, they are legally entitled to continue working until the agreed-upon termination date. Should the seller cancel a listing without reason, or sell the property without informing the agent, the agent will still be entitled to his or her commission.
Exclusive Right to Sell Listing
An exclusive right to sell listing allows one agent the exclusive right to represent a seller’s interests with a guarantee that the agent will be paid a commission, regardless of who found the buyer. This means that even if a seller locates a buyer, the agent will still earn a commission.
Unsurprisingly, it is the most preferred type of listing agreement for agents.
Many exclusive right to sell listings contain safety clauses. A safety clause entitles an agent to his or her commission if a property is sold after the listing’s termination date. This ensures that an agent is compensated in the event that a seller sells a property using the previous efforts and/or clients of a terminated agent.
For example, assume Jerry signs an exclusive right to sell listing agreement with a real estate agent named Tim. Tim tries, but is unable to sell Jerry’s property. The listing expires. However, within three days of the listing’s termination date, Jerry is able to sell his property to a buyer that was formerly introduced to him by Tim. As Tim introduced the buyer in the transaction, he is entitled to a commission.
In the event that a listing agreement terminates without a sale, a seller may choose to acquire a new agent. Some contracts contain clauses that negate a seller’s obligation to his or her initial agent. However, if no such clause exists, the seller may be liable to pay two commissions — one to the first agent, and one to the second agent.
Purpose of Exclusive Right to Sell Listing
An exclusive right to sell listing, also known as an exclusive authorization, provides the broker with the greatest protection in recovering commissions. The exclusive right to sell listing makes the listing agent the sole agent on the listing and ensures that regardless of who procured the buyer, the agent is entitled to the full commission for the successful completion of the transaction. Because of the increased protection, brokers almost always utilize this type of agreement. In fact, many brokers will not entertain transactions that are not an exclusive right to sell listing because of the potential of not being compensated.
Even if a buyer finds the property on the MLS, through local advertisements, or driving by the property, the agent will be compensated regardless of the transaction’s origin. In the event another broker introduced a buyer, the listing agent and other agent may share a portion of the commission. If the listing agent introduces a buyer prior to the listing agreement’s expiration, he or she will be entitled to the commission, even if the transaction did not successfully close prior to the listing date’s expiration.
Example
If prospective buyer Sandra finds a property while driving past the property and makes an offer that the seller accepts, is the listing broker entitled to a commission, even if they did not directly contribute to the close of the sale?
Yes, regardless of who introduced the buyer, the listing broker is entitled to a commission if the property was listed as an exclusive right to sell listing.
Case Law Relating to Exclusive Authorization and Right to Sell Listing
Case Review: Nystrom v. First National Bank of Fresno (1978)
The case, Nystrom v. First National Bank of Fresno (1978) 81 Cal.3d 769., involved a bank that refused to pay a broker with whom it had an exclusive agency agreement.
A bank (First National Bank of Fresno) had an exclusive agency agreement with a broker (Nystrom). A property was originally intended to be a standard sale, upon which Nystrom would receive commission. However, First National Bank of Fresno ultimately sold the property through a deed in lieu of foreclosure without notifying Nystrom. The bank then refused to pay Nystrom a commission. Nystrom sued for a breach of contract.
The Superior Court ruled in favor of First National Bank of Fresno. Nystrom appealed, and the Court of Appeals reversed the lower court’s ruling. It ruled that although the acquisition of the property had occurred in a manner different than originally intended, the transaction had ultimately closed. Thus, the bank could not deny Nystrom his right to collect commissions.
