4.3 Listing and Sales Contracts and Contingencies

4.3 Listing and Sales Contracts and Contingencies

Two contracts dominate the exam: the listing agreement (seller hires broker) and the purchase agreement (buyer offers to buy). Know who gets paid under each listing type and what makes a sale binding.

Listing Agreement Types

Trap: Under an exclusive agency listing, the seller pays no commission if the seller personally finds the buyer. Under an exclusive right to sell, the broker is paid even then.

The Purchase Agreement

A purchase agreement (sales contract) becomes a binding bilateral contract upon offer and acceptance — not at closing. Closing is performance. Key components: identification of parties and property, purchase price and financing terms, earnest money, contingencies, closing date, and signatures.

Earnest money is a good-faith deposit, typically held in the broker's or escrow agent's trust account. It is not consideration for the contract (the mutual promises are) — it is evidence of the buyer's serious intent and is credited toward the purchase price at closing.

Contingencies

A contingency is a condition that must be met before the contract is fully enforceable. If a contingency fails and is not waived, the protected party may cancel and typically recover the earnest money.

• Financing contingency — buyer must obtain a loan by a deadline.
• Inspection contingency — buyer may cancel or renegotiate after inspection.
• Appraisal contingency — property must appraise at or above a value.
• Sale-of-current-home contingency — buyer must sell their existing home first.

Worked example (appraisal gap). A buyer offers $350,000 with a $20,000 down payment and an appraisal contingency. The appraisal comes in at $335,000. The lender will finance only against the appraised value. The buyer can: (1) cancel under the contingency and recover earnest money, (2) renegotiate the price to $335,000, or (3) waive the contingency and pay the $15,000 gap in cash on top of the planned down payment, raising cash needed to $35,000.

Commission Math

Commission is calculated on the sale price, not the list price.

Worked numeric. A home lists at $420,000 and sells at $405,000 with a 6% total commission split 50/50 between the listing and selling brokerages.

• Total commission: $405,000 x 0.06 = $24,300
• Each brokerage: $24,300 / 2 = $12,150
• If the listing agent then splits 60/40 with their broker (agent keeps 60%): $12,150 x 0.60 = $7,290 to the agent.

Procuring Cause and the Safety/Protection Clause

When more than one agent touches a deal, commission turns on procuring cause — the agent whose unbroken efforts actually produced the ready, willing, and able buyer. Merely opening a door or sending a flyer is not enough; the agent must have set in motion the chain of events leading to the sale. Disputes between cooperating brokers over procuring cause are usually resolved through Realtor association arbitration, not the licensing exam, but the concept itself is tested.

Most exclusive listings include a protection (safety) clause: if the property sells within a stated period after the listing expires to a buyer the broker introduced during the term, the commission is still owed. This prevents a seller from waiting out the listing to dodge the fee. The clause typically requires the broker to have registered the prospect's name in writing before expiration.

When Commission Is Earned vs. Paid

A broker traditionally earns the commission when they produce a buyer who is ready, willing, and able on the seller's terms — even if the seller then refuses to close. In practice, modern listing agreements tie payment to actual closing, so read the contract's language. Two fact patterns recur:

• The buyer defaults after a binding contract: whether commission is owed depends on the listing's wording, but a 'ready, willing, and able' buyer generally satisfies the broker's obligation.
• The seller backs out or cannot deliver marketable title: the broker has performed and commission is typically owed.

Earnest money sits in trust and is not the broker's commission. If a sale collapses and the deposit is forfeited to the seller, the listing agreement (not the buyer's deposit) governs what, if anything, the broker is paid. Never assume an agent may simply keep forfeited earnest money as a fee.

Contingency Mechanics and Deadlines

A contingency protects the party it favors only until its deadline passes. If the buyer does not act by the stated date, many contracts treat the contingency as waived automatically, exposing the deposit. Read each contingency for three things: who it protects, the deadline, and what happens on failure (cancel with refund vs. proceed).

• Financing contingency — protects the buyer; failure to secure the committed loan by the deadline lets the buyer cancel and recover earnest money.
• Inspection contingency — gives the buyer a window to inspect and to cancel or renegotiate; once it expires, condition objections are generally lost.
• Appraisal contingency — ties the deal to a minimum appraised value; a low appraisal triggers the renegotiate/cancel/cash-the-gap choice.
• Sale-of-current-home contingency — sellers often add a kick-out clause letting them keep marketing and bump the contingent buyer if a better offer arrives.

Worked timing example. A buyer has a 10-day inspection contingency and a 30-day financing contingency. On day 12 the buyer discovers a roof problem. Because the inspection window closed on day 10, the buyer can no longer cancel on inspection grounds; only the still-open financing contingency remains. Tracking which contingencies are live on a given date is a recurring exam skill.