A listing is a bilateral employment contract between principal and broker, whereby the broker is employed by the principal to find a buyer and accept a deposit. It is the most essential element of an enforceable broker-principal relationship.
A listing hires a broker to find a buyer, not to sell a house.
This is an important distinction.
First off, remember that the seller hires the broker, not the agent, to find a buyer. People think they are hiring the agent, because for all practical purposes they are, as that is who solicited the business and will be conducting the transaction. But in actuality, the agent is working on behalf the broker. When the house sells and the seller pays a commission, the commission is going to the broker, not the agent. The broker will then share the commission with the agent as per their agreement.
The logical next question is, "If the listing agent is hired to find a buyer, then what does the agent of the buyer do?"
Think of it like this. The broker of the seller says to all the other brokers and their agents, "I have been hired to find a buyer for Mr. Smith's property on Oak Tree Lane! If you have a buyer and they buy this property, I will share my commission with you for helping fulfill my contract with Mr. Smith." The amount that is going to be shared must be disclosed to the seller.
Now, in real life, they do not stand on top of the house and use a megaphone, but that is the gist of how it works. The most commonly accepted way is to put the property on the MLS.
MLS stands for Multiple Listing Service. The MLS is a database of available properties listed by real estate agents.
A listing agreement is a personal service contract. That means that should the principal broker or the seller die, or either party becomes incapacitated or the property is physically destroyed, such as by a fire or a natural disaster, the listing agreement is terminated. In short, a personal service contract needs a person there, and you can not assign this contract to another person.
The broker and seller may mutually agree to end the listing agreement.
Both the broker and seller have mutual responsibilities. Should a party breach their duty, the other party can terminate the listing. For example, the broker is usually responsible for advertising a property. If the broker fails to advertise the property, the seller could terminate the listing.
A material change can also be cause to terminate the listing. A material change is something that would affect the value of the listed property. For example, when a property was listed it was zoned residential, and the property was changed to a commercial zone after the contract was signed. This material change would terminate the listing agreement.
Most listing contracts have a specific end date. It can be as simple as, "This contract will begin at 1 p.m. on Jan. 1, 2019 and it will end at midnight on Aug. 8, 2019." Look at our types of listings section to see which ones need a terminating date.
A listing contract contains many elements. You want your listing to contain the following:
- Names of the parties to the contract
- The type of agency created
- The broker's authority and responsibilities
- The location of the property, which may be a street address
- Legal description or tax parcel number
- The listing price
- Beginning and ending dates
- Real and personal property included
- The commission to be paid
- Authorization to advertise including the placement of a For Sale sign on the property
- Type of deed used for conveyance
- The terms for termination of the contract
- An indemnification clause
- Fair housing and anti-trust information
- The signatures of parties authorized to perform
- The protection period clause
The protection period clause is also known as a safety clause, extender, or carry-over clause. The purpose of this clause is to able to close deals with buyers you found during the term of the listing even after the listing expires.
For example, let's say that last week you showed a property to a buyer on Thursday, the listing expired on Friday, then they came back and made an offer on Saturday. You would still get paid because you were able to close the deal with buyers you found during the term of the listing within the agreed-upon time frame of the protection period clause.
If a broker is interested in buying a property that she or he has listed, this provision needs to be included in the listing agreement.
It is legal for an agent or broker to buy listed property. Most states require licensees to disclose that they have a license before an offer is made on any property that they are interested in purchasing. Many states require this disclosure to be in writing, and they may also require the disclosure of the broker's profit in the transaction. This is called listing with an option.