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SMITH & GARG – LONG BEACH REAL ESTATE ATTORNEYS
Variations Of Types Of Brokerage Contracts
Depending on your Listing Agreements, certain types of agreements ultimately are beneficial to the Broker while others favor the listing principal (the owner). You MUST consult an experienced real property attorney prior to signing a Brokerage agreement, especially if you are selling an investment property. In California, there are essentially five different types of Listing Agreements. They are as follows:
The first, and most common type in residential properties, is called an “Exclusive Right-to-Sell Listing.” The Exclusive Right-to-Sell Listing will allow the Broker to list your property on the MLS or other listing services. Regardless of whoever procured a buyer, the Broker still earns the commission. The commission may be split with another Broker, or the Broker may receive a smaller commission if the Seller pays a finder the service fee, but the Broker will always obtain a commission, however large or small.
- The second type of listing is called an “Exclusive Agency Listing.” In an Exclusive Agency Listing, the listing broker may obtain a commission for a specific amount of time. However, if the Seller brings the buyer, then the Broker does not earn the commission. §2.100
- The third type of Listing Agreement is called an “Open Listing” or “Non-Exclusive Listing.” As the name suggests, the Open Listing requires that the Broker must procure a ready, willing, and able buyer to get commission. A ready, willing, and able buyer is one in which (1) had negotiated with the Seller in good-faith; (2) has agreed to a purchase price and ready to enter into a sale/purchase contract; (3) has the financial capability to complete the purchase (i.e. financing has been approved).
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- The forth type of Listing Agreement is called a “Pocket Listing.” In a Pocket Listing Agreement, the Broker, who has not entered into an agreement with the Seller, names a buyer, and the Seller agrees to pay a commission to the Broker if the Broker brings that specific buyer. The Seller may have the right to sell to anyone else in the meantime. If the Broker brings a different buyer, then he needs another written Agreement.
- The fifth type of Listing Agreement is the “Net Listing.” This type of Listing Agreement is typical in a Listing Agreement for commercial properties. The Broker’s commission is determined based on a sale price above a specified price. Typically, the higher the purchase price, the higher rate of commission. Thus, if the Broker brings a buyer above “X” amount of money, then the Broker will retain certain percentage of commission. A Seller should also insist on a Net Listing agreement in a good market. By negotiating a Net Listing agreement, the Seller can find his/her buyer. The Seller may want the Broker to agree to Net Listing, so that he/she will only incur a certain percentage of Brokerage fee if the purchase price is above a certain level (high).
As you can see, there are numerous types of Listing Agreements and there can be a multitude of variations in a specific type of Listing Agreement. For example, a typical Listing Agreement may be for a period of six (6) months. However, many Brokers will take advantage of an inexperienced Seller and will insert provisions that would allow them to collect the commission even if the sale was six or twelve months after the expiration of the Listing Agreement. Thus, it is essential for a Seller, especially in a commercial property, to contact our experienced real property attorneys prior to signing an agreement with a Broker. You should allow your attorney to review the Listing Agreement and negotiate an agreement that is in your favor. That minimal representation could save you thousands of dollars and potential litigation later on, which could also be very expensive. On the other hand, if you have signed a questionable Listing Agreement or have provisions that you do not comprehend, please contact the Smith & Garg, LLC’s real estate attorneys or call our office at 1-877-517-4275.
Should you have any questions or concerns, please contact our experienced real estate attorneys at Smith & Garg, LLC. The experienced real estate transaction and litigation attorneys at Smith & Garg, LLC can help.
Call Smith & Garg, LLC today at 1-877-517-4275 or complete our Contact Form and let us assist you.
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