Listing Agreements – What you should know before you sign.

Listing Agreements – What you should know before you sign.

Listing Agreements are commonly used in real estate.  They form a contract between the broker and owner either to sell or lease a property.  Their purpose is to spell out the terms and conditions under which both parties agree to abide.  The broker agrees to perform certain duties to market the property and is guaranteed a period of time in which to do it.  In return, the owner agrees to pay the broker a specified commission if the project successfully completes.  It sounds simple enough, but it is not.

Let’s start with the small print.  Listing agreements are usually presented to the owner on legal-sized pre-printed forms with exceptionally small fonts.  The legalese looks formidable.  The document appears ironclad and unalterable.  It’s that way for a reason.  Though intended to benefit both parties, listing contracts clearly favor the broker.  Brokers prefer not to make changes to the pre-printed form.  Does this make the broker a bad person?  No.  The broker merely wants protection to get paid if successful in performing according to the terms of the listing.

Notice the last sentence did not read “if successful in selling or leasing the property.”  Why the distinction?  It is because listing agreements usually provide the broker is due a commission “if a buyer (or tenant) is found who is ready, willing and able to complete the sale of lease.”  In other words, they don’t even have to close.  The owner may have to pay a commission even though the deal doesn’t go through.  Most brokers will agree to strike that provision if asked; and owners are strongly advised to do so.

Next is the listing period.  How long is it?  Is it 6 months or a year?  Owners should ask themselves if the term is reasonable.    The easy answer is it should not be longer than 6 months unless the owner has a right to terminate early.  The reason for this is simple – momentum.  The first 3 months of the listing are the honeymoon period for the broker.  It’s when the broker is excited about the listing and keenly focused on getting the job done.  As time goes on, the broker’s attention usually begins to wane, and they become distracted with other business prospects.  It’s a natural phenomenon that just happens.

Finally comes the right to be paid a commission after the listing expires.  In concept, the principle seems reasonable.  If a buyer/tenant is negotiating a deal, but it doesn’t finalize before the end of the listing, the broker should be protected for their commission, right?  Well, yes and no.  This is where double jeopardy comes into play.  If a sale or lease is not completed and the owner proceeds to list with a subsequent broker, the owner may still be obligated to pay broker #1 a commission.  Unless the owner excludes the party still negotiating from broker #2’s new listing, they might end up having to pay both brokers for the same transaction.   It may not seem right, but it is standard language in virtually every listing agreement.

Advice – read the small print and ask for changes or deletions of anything you don’t agree with.

For more about this and other topics, contact Tom Gibson at tgibson@gibsoncompany.com

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