What is a California Listing Agreement?
A California Listing Agreement is essentially a contract that allows a real estate broker to represent a homeowner or business in the selling of a property. In the same vein, a Listing Agreement with a broker or a real estate agent in California is an instrument whereby the seller of the real property gives the broker or real estate agent the right or authority to sell the real property on the terms and conditions specified in the agreement.
Listing Agreements in California are most commonly written on a form devised and approved jointly by the California Association of Realtors , the California CFP REALTORS and the California Land Title Association. However, there are multiple ways to enter into a Listing Agreement under California law. For example, either party can draft a written Listing Agreement that clearly states what each party is agreeing to do.
The Listing Agreement may be an important part of the entire transaction and basic to the closing of any sale. In the absence of a written Listing Agreement, buyers, sellers, and agents may find it difficult to substantiate their claims regarding commission or expenses. For these reasons, Listing Agreements in California should be written clearly and in a detail-oriented manner.
Types of Listing Agreements in California
There are three types of listing agreements available in California. Each type has its advantages and disadvantages for both the seller and the agent.
Exclusive Right to Sell Listing
The most common type, exclusive right to sell listing agreements are contracts which allow the real estate agent to have exclusive rights to sell the client’s home. This gives the agent sole effort in the sale of the home. The client is usually legally bound to the sale, excepting certain circumstances, and the agent is entitled to commission regardless of who sells the property.
Pros: The most significant pro for an exclusive right to sell listing is that the agent will put forth the most effort to market the property and earn their commission. Because they are making the most effort, they are entitled to the most rewarding commission. Additionally, an agent who has exclusive right to sell has the easiest job, because they do not compete with other real estate agents.
Cons: This type of listing agreement is extremely favorable for the real estate agent, and often to the detriment of the client. To get around this, the contract can be modified to allow the agent to list the property on a listing service, but doing so can result in irritating some clients who thought they were hiring an agent who would actively market their property themselves. It can also lead to disagreements later on if the type of marketing does not suit the client’s preferences.
Exclusive Agency Listing
In an exclusive agency listing, the agent is entitled to their commission if the agent or the agent’s broker sells the home without any help from a multiple listing service or a real estate agent. If the homeowner sells the home on their own, without any sales help from the real estate agent, the agent is not entitled to a commission.
Pros: This kind of listing is favorable to the seller because their agent is not guaranteed to make a commission, motivating them to put more effort into the sale of the house. The seller also maintains control over who markets the home, how the home is marketed, and the terms of the sale.
Cons: This kind of listing only works when the house is not listed on a multiple listing service, because that would prevent the agent from being the sole seller. This limits the number of people who see the property, and therefore limits the seller’s pool of potential buyers. It also makes selling the property much more difficult for the agent, so the agent may not work as hard on the sale. Because the seller is not required to pay the agent a commission, the agent may take longer to sell the home and may arbitrarily raise the commission rate until the home sells, even if the home is currently listed with another agent.
Open Listing
An open listing allows the seller to employ multiple agents to help them sell their property. If one of the agents does not sell the property, the seller is not liable to pay any commission to any of them. This can be the most affordable option for a seller, but it can also fail to motivate their agents to sell the property quickly and efficiently.
Pros: This listing kind of listing has the low cost benefit for the seller. However, it may result in a low level of effort on the part of the real estate agent in marketing the property. This can be the best choice for sellers when their property is in an area with high demand, as the demand alone may be sufficient to bring in offers. It also allows the seller maximum flexibility by allowing them to choose which agent to work for after each showing.
Cons: Because open listings give out less commission money to multiple agents, each agent has less motivation to put effort into the sale of the house. As a result, it can be much more difficult to sell the house. This can lead to wasted time as the homeowner has multiple agents regularly showing the house to uninterested clients. Over time, this can lead to tension between the homeowner and the real estate agent. An open listing may be most beneficial for a seller in a high-demand market, but in low-demand areas, it can be much more difficult to sell the property.
Common Provisions of a California Listing Agreement
The key components of a California listing agreement are all pieces of information that can be negotiated to best fit the needs of the seller. The most common details that a listing agreement contains is the list price, the duration of the agreement and any contingencies or disclosures attached.
The list price is what your home will be listed at on the MLS and all listings. This number is not set in stone as the listing agent may recommend a slightly different figure, depending on market trends, recent home sales and neighborhood data. A commonly used rule of thumb is to start list price at about 1 percent below the expected sale price. For example, if you want to sell for $500,000, ask your agent to list the home for $495,000 since buyers will offer below asking price when they make an offer. A slight lower price often encourages buyers to make an offer.
The listing price will also be keyed into the MLS database, which is one of the most important facets of this agreement. The MLS includes information such as the address, type of property, square footage, number of bedrooms, bathrooms and other features. Also included is a list of open houses, disclosures, pictures and other information.
A listing agreement is also often used to ensure that the home is shown as frequently as possible so as to encourage quick offers. When the home is on the market, it needs to be available often, including evenings, weekends and holidays. Also, the owner must be flexible to allow for showings during open house events.
One thing to watch with listing agreements is the duration of the deal. California listing agreements can run anywhere from a week to several months, but they are legally binding and cannot be terminated without consequences. Setting a short duration for a listing agreement can be a good way to try out the agent without being locked into long contract. However, keep in mind that many listing contracts contain a clause that if they recruit another REALTOR® before the contract expires the listing agreement will not be terminated and the agent will still receive a commission should the second agent be able to sell the home. Also, many of these listing agreements include an automatic renewal of a listing agreement once it expires, although most of these clauses will release you from the contract after a maximum of two renewals.
Legal Responsibilities and Duties of Agents
As is the case with all of the contracts that we enter into, a person signing a listing agreement is legally bound by the duties imposed by it. A seller should therefore work with someone who they reasonably believe supports their interests.
A seller should not sign a listing agreement with someone who they have reason to believe will take actions contrary to their interest in the sale of their property. An experienced agent should not only appreciate, but also discuss the duties and obligations imposed on both them and their client by the contract that is signed. Similarly, a seller should not work with an agent who does not understand the legal requirements of the facilitator role that is imposed on the agent.
The following discussion is by way of a brief overview of some of the duties and obligations imposed upon an agent and client by a listing agreement. The reader may, and should, analyze the legal case citations and research that is embedded in these rules.
The broker shall: (1) initially discuss with the seller: (A) the brokers’ obligations to the seller under Section 2079.16; and (B) the brokers’ compensation, if any, and the rate of that compensation.
In the absence of any material provision to the contrary, the general duties to be performed by the seller’s agent for the payment of compensation when the transaction closes or by the buyer’s agent are as follows:
A listing agreement appointing the broker to act as an agent of the seller and giving the broker the exclusive right to sell the property gives the broker the right to commission if the broker: (1) Produces a ready, willing, and able buyer on the terms of the listing agreement; or (2) The seller breaches the listing agreement.
If the listing agreement states that the broker has earned the commission by producing an offer on terms acceptable to the seller and the seller accepts the offer, the seller is liable for the compensation despite the fact that the buyer fails to complete the purchase for reasons other than the default of the buyer if the buyer does not return the deposit on the purchase agreement to the seller.
If authorized by the seller, the listing broker may cooperate with, or refer the prospective buyer to, another broker, with written consent of seller, to receive compensation for providing subagent’s services to the seller.
This section shall not be construed to preclude subagents, cooperating brokers, or buyer’s brokers from entering into employment agreements with buyers. Nothing in this section shall be construed to impose liability on a principal broker who has cooperated with or referred a prospective buyer to a subagent, cooperating broker, or buyer’s broker if the buyer subsequently refuses to complete the transaction. Nothing in this section shall be construed to confer on any broker an ownership interest or a claim of lien, including a lien pursuant to Division 4 (commencing with Section 7100) of the Labor Code, on the commission or fee owed by a seller to a principal broker who employed the broker.
It shall be unlawful for any broker to negotiate or submit to a party other than is principal, any offer or counteroffer to purchase real property presented to the broker by that party without the written consent of the other principal.
How to Terminate a California Listing Agreement
Many people will ask how to terminate a California listing agreement. There are basically three ways to exit a listing agreement and all of them are lawful. First, at any point during the listing, the seller may send a cancellation notice to the listing agent and all involved parties via certified mail. This is not an immediate action, but after a period of time, a reasonable period, the seller will have effectively terminated the listing. Second, you can mutually agree to terminate the listing agreement . Simply have the agent and the seller sign a termination agreement, and remember that it must include at least a 10 day notice, because this is the rule, or use certified mail. The third way to terminate a listing agreement is if the listing agreement was made under undue influence, fraud, duress, insanity, mistake, broken fiduciary duties or even unilateral rescission, although it is advisable to consult with an attorney when you are breaking a listing under these circumstances. It should be a last resort to break the listing if there is no mutual consent.
Common Errors in Listing Agreements
One of the most common mistakes in California listing agreements is not being specific enough. Listing agents want to make the document as short and simple for themselves as possible, but that can lead to issues for the seller down the road. For example, if you don’t specify exactly who will be paying closing costs, then your buyer may expect you to pay some or all of them.
That rule can be broken in specific cases. For example, if your buyer’s agent has been very successful in negotiating closing costs to be paid by the sellers in similar transactions, and that agent is asking you to pay their closing costs in your transaction, this is an exception to the rule. In that case you could pay the buyer’s closing costs. Typically, however, it’s best to be as precise as possible, so that no one feels like they were taken advantage of.
Another mistake that both buyers and sellers commonly make is assuming that the lender will allow a real estate commission to be paid out of the proceeds of the sale from escrow. In other words, some people selling their home don’t have enough money upfront to pay a real estate commission. In these circumstances, the agent asks the lender to cover the cost of a real estate commission. This is not always successful. So as a precaution, always confirm with the lender today that a real estate commission may be paid out of escrow at the time of closing, before anything is signed.
Choosing the Right Real Estate Agent
When selling your home in California, it is important to take the time to select a real estate agent that is a good "fit." To find a California real estate agent that is a good fit for you, start by seeking recommendations from friends and family who have sold their homes. Often, people have either loved or hated the selling experience and can offer good suggestions.
When you narrow your list down based upon recommendations, check each agent’s website for listings. Look to see if they have recently sold or currently listed houses in your area. Walk or drive around your neighborhood or the neighborhoods you are interested in selling in and get a list of agents who have signs in the yards of homes that have sold or are currently for sale. While we are seeing some firms pool resources, listing properties in the same neighborhood, the best-fit agent for you is not necessarily the person who has the largest listing presence in your neighborhood.
After a little background research, narrow your list to three or four agents you would like to interview. Ask relatives, friends , and acquaintances who have gone through the process for their recommendations. Once you have a short list, make three or four appointments. Try to interview the agents in your home and at around the same time so you can get a good comparison.
During the interview process, ask the interviewer if he or she works on their own, or is part of a team. Some agents work solo and may have time in their schedules to devote to you, while agents with teams may be able to devote a larger amount of time to selling your home. If the agent appears to spend a lot of time on other listings or with clients, it may be an indication that they will not be able to devote adequate time to selling your home.
Broker compensation in California is flexible. Agents in California earn a commission in California that is based on the current sale price of the home. Agents are allowed to discuss commissions, and you can agree together on a commission that works for you both. If you end up hiring this agent, they must formulate a written listing agreement that explains the commissions, compensation and specific responsibilities of all parties and includes the signature of all the parties involved.