Types of Listing Agreements/Employment Agreements – Agency Law and Ethics

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Agency Authority

In general, agency law agents can have one of two types of authority to conduct real estate related activities on behalf of a principal including, actual authority or apparent authority.

Actual Authority is when a principal grants express or implied authority, the agent’s authority is titled “actual.” Express authority comes in the form of express terms. This means that a verbal or written listing agreement gives a broker actual authority to list a property on an MLS, while implied authority is authorization to perform duties that have not been expressly authorized.

For  example, a broker delegates a sales person to act on his behalf on carrying out the duties of selling a property; so, the sales person goes out and does things like measure square footage, takes pictures, puts a sign in the yard, and more.

Apparent Authority is where  an agent has apparent authority when he or she does not have actual authority, yet the principal neglected to or purposefully allowed the  appearance that the agent’s actions were authorized. A principal is obligated by duties performed within the scope of an apparent authority, but the claims of the agent alone do not establish apparent authority by themselves. In order to qualify, the principal must be made aware of the declaration or acts and make no effort to deny that they are authorized.

Quick Quiz

Fill in the Blank:
Authority is when a principal express or implied authority.

The difference between actual and apparent authority is in permission and taking actions for grated you may say. If the principal knows and gives authority to the agent  or the agent act as the agent in authority and the principal does nothing to negate these actions so as to imply agency authority that is not actual but apparent.

Agency Liability

Accountability for actions taken within an agency relationship is generally acknowledged by imputed knowledge and vicarious liability.

Vicarious liability refers to a situation where someone is held responsible for the actions or omissions of another person. In a workplace context, an employer can be liable for the acts or omissions of its employees, provided it can be shown that they took place in the course of their employment.

Imputed Knowledge

The term “impute” means to attribute the fault or responsibility of a problem to a cause. The American Heritage Dictionary identifies the following two examples:

1) imputed the rocket failure to a faulty gasket;

2) kindly imputed my clumsiness to inexperience.

In real estate agency law, after a relationship has been established, the principal may be bound by the acts of the agent that are within the agent’s authority. This means that the principal could be held liable for damage resulting from negligence or wrongful acts committed by the agent. Under imputed knowledge rule, the principal may also be responsible for all of the information the agent knows, as an agent’s knowledge is imputed onto the principal by the terms of agency.

NOTE: The imputed knowledge rule is not enforced the same in all states. In many states, an agent or the agent’s brokerage is less likely to be accountable for information that they knew but inadvertently neglected to pass on to their clients. If you have questions about how your  state enforces accountability through imputed knowledge, you should consult with your brokerage or another experienced real estate professional.

Quick Quiz

Fill in the Blank:
Under knowledge rule, the principal may also be for all of the information the agent knows.

Why do people List?

Sellers sell for all variety of reasons. Job relocation, another addition to the family makes it necessary to move into a larger home, children are all gone and on their own so the huge home now is too big and a downsize is in order, a death, illness, job loss, marriage are just a fraction of reasons people move.  When they have decided to sell the home, 97 %  go to the internet to do research and to possibly find an agent. They may have a friend who knows a real estate agent or they ask around the work place to find someone who can help implement their goal of selling their property. Now as an agent of a seller it is said that you are hired by the seller to market and sell the property for the most money and in the shortest amount of time. That is true in most cases but there are people who have time constraints. They may need to sell and rent back for a few months. Some may need to be in the property for a two year period from their purchase date and recordation of the sale due to tax reasons and capital gains.

We are not giving tax advise here so your seller should always  asks these questions  of their tax professional it there is a question, prior to putting the house on the market. It is too late once you have it listed and are in escrow. A listing agreement is an employment contract between the seller and the listing broker. The agreement establishes the duties of the broker and the terms under which the broker will earn a commission.

Types of Listings

OPEN Listing

The OPEN Listing is an agreement that allows the seller to hire more than one broker tohow-to-choose-the-right-realtor market and sell the property and only receive a commission if that broker brings a buyer that causes a successful closing.  An open listing is almost like a “for sale by owner” listing. Which ever broker procures the ready, willing and able buyer who will purchase under the precise terms of the seller is the broker that will get the compensation  that was agreed to. This would be the procuring broker. Working with clients in a series of events with out break in the process which results in a successful closed transaction.

This means that if you have an open listing with a seller that you are working against others to bring a buyer. Most agents won’t take this type of listing because the seller can either sell the home alone or withdraw the listing without notice. Few agents will spend their time or money working on an open listing, except when the property is very unique or if the the inventory of homes for sale is very low.

NET Listing

A net listing is a listing agreement where the broker receives all monies over the list price. These types of listings can create a conflict between the seller and the broker as the broker is not entitled to receive a commission if the property sells at list price. There is a danger of fraud and may even be prohibited in some states. These are legal in Arizona. Examples of what could happen under this agreement: the seller tells their agent the net price they want for their home. The listing agent can then add the desired commission onto this net price when presenting it to buyers. If the agent obtains a purchase offer far above the seller’s net listing price, the seller may feel cheated and accuse the listing agent of not disclosing the home’s true market value. Or, if the agent receives a low purchase offer close to the net price, yielding the listing agent little or no commission, the agent might be tempted to not present the offer to the seller.

Exclusive Agency (EA) and Exclusive Right to Sell (ER)

An exclusive agency listing contracts one agent to sell the home. If that agent, or any other licensed cooperating agent finds an acceptable buyer, the seller must pay a sales commission. Again, as with a open listing, no sales commission is owed if the home seller finds a buyer on his own. Due to the lack of control over the outcome, most real estate agents are reluctant to work on an exclusive agency listing. Ask your broker which form to use. Most brokers will want you to use the ER or Exclusive Right to sell that protects you as the agent. You wold be due a commission even if the seller found a buyer.  If the property is transferred during the listing agreement, the broker would still be owed a commission if a sale occurred. The two forms for ARMLS or Arizona Multiple Listing Servise, are the same except that the EA has extra verbiage regarding the agent’s commission. You can find this on linesSection 6: Lines 63-68.

lines for EA different than ER

 

OWNER’S RIGHT TO SELL/RENT. Owner reserves the right to sell/rent the Premises during the term hereof, without incurring liability for any compensation to Broker, provided that such sale/rental is not made to a person produced by Broker or with whom Broker has negotiated during the term hereof, or through any other broker, and provided that Broker, prior to such sale/rental, has not become entitled to compensation in accordance with the terms hereof. If Owner sells/rents the Premises, Owner shall promptly notify Broker in writing, specifying the name of purchaser/lessor, the purchase/rental price to be paid and shall indicate whether or not the sale/rental was or is being made through another broker.

The ER is what 99% of the agents use. The listing agent has 100 percent control of the transaction. Whether the seller, the listing agent or a cooperating selling agent finds an acceptable buyer, the listing agent will earn the sales commission. If another cooperating agent is involved, the commission is typically split between the agents. If the agent is doing a good job when the listing expires, the listing can be renewed as most listing agreements are for 3 month to 180 days. Unless you are working with a short sale listing then you would most likely have an ER for up to a year.

Quick Quiz

Fill in the Blank:
An exclusive agency listing one agent to sell the home.

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