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Option Listing

DEFINITION

Type of listing where the listing agent has the opportunity to purchase the property.

EXPLANATION

An opting listing grants an agent the ability to purchase a seller’s property. Put another way, it makes an agent both the seller’s agent and the seller’s buyer.

An option listing is a type of listing where the listing broker has the option to purchase the listing. In an option listing, the broker can technically be the principal and the agent on the same deal. This opens room and allows for the potential to be a conflict of interest. Agents are required to disclose all offers to the seller. Failure to disclose all offers may result in a revocation of the agent’s license. The broker must inform the principal of all offers and if he or she decides to use the option to purchase the listing, the broker must disclose his or her intention to purchase.

An agent may exercise an option listing at anytime throughout the course of a listing. He or she does not have to make an offer in order to do so. In order to properly execute an option listing, an agent must:

inform the seller that he or she possesses a real estate license

disclose his or her desire to purchase the property to the seller

purchase the property in his or her own name

fully disclose any other buyer offers that are received

disclose if his or her goal is to purchase the property in order to resell it for a profit (including if he or she plans to renovate the property before doing so)

disclose if his or her goal is to purchase the property to make a rental income

disclose the amount of profit that he or she will make on the transaction

Ideally, an agent in an option listing should indicate his or her dual role in a written disclosure form signed by the seller. However, if a seller objects to an option listing, he or she may have the right to terminate the execution of a transaction.

Option listings can create severe conflicts of interest for agents. Although an agent is still bound by his or her fiduciary duty to the seller, the desire to purchase the seller’s property may incentivize the agent to prioritize personal goals.

For example, an agent in an option listing may intentionally fail to disclose offers received by other potential buyers. An agent may do this to make a seller believe that his or her listing price is too high, and subsequently encourage the seller to lower it. The agent may then purchase the property at an artificially low price, and resell it for a profit.

Because of the risks of conflict of interest, many brokers do not allow their agents to engage in these types of transactions.

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