2.4 Representation Agreements & Prohibited Practices
Key Takeaways
- A written, signed agreement with a definite expiration date is required for a Kentucky broker to enforce a commission claim
- The three listing types are exclusive right to sell, exclusive agency, and open listing, distinguished by who can earn the commission
- Net listings are prohibited in Kentucky because they create a conflict between the agent's pay and the seller's interest
- Listing and buyer agreements must include a property/scope description, price or compensation, definite term, and broker and signature information
- Protection (safety) clauses preserve commission for buyers the broker introduced, typically for 30–90 days after expiration
Why Written Agreements Matter in Kentucky
Kentucky requires a written, signed agreement with a definite expiration date for a broker to enforce a commission claim. KREC regulations prohibit open-ended ("automatic renewal" or indefinite) listings; a definite termination date is a hallmark of a compliant agreement and a frequent exam point. An oral listing may exist between the parties, but the broker generally cannot compel payment of a commission without the writing.
The Three Listing Agreement Types
The listing types differ only in who can earn the commission, so the exam tests scenarios where the owner finds the buyer.
1. Exclusive Right to Sell
| Feature | Detail |
|---|---|
| Commission earned | If the property sells during the term by ANY source |
| Broker exclusivity | One broker only |
| Owner sells it themselves | Still owes commission |
| Popularity | Most common; most protective for the broker |
2. Exclusive Agency
| Feature | Detail |
|---|---|
| Commission earned | If the property sells through the broker's efforts |
| Broker exclusivity | One broker only |
| Owner sells it themselves | Owes no commission |
| Popularity | Less common |
3. Open Listing
| Feature | Detail |
|---|---|
| Commission earned | Only the broker who procures the buyer is paid |
| Broker exclusivity | None; multiple brokers may list |
| Owner sells it themselves | Owes no commission |
| Popularity | Least common; least favorable to brokers |
Worked example: A seller signs an exclusive right to sell and then personally finds the buyer at a backyard barbecue. The broker is still owed the full commission. Under an exclusive agency or open listing, the same owner-procured sale would owe the broker nothing. Watch for that exact fact pattern.
Prohibited Practice: Net Listings
Net listings are PROHIBITED in Kentucky. In a net listing the seller names a minimum net amount and the agent keeps everything above it as commission.
| Why sellers are tempted | Why Kentucky bans it |
|---|---|
| Seems to guarantee a fixed net | Agent profits by underpricing the property |
| No stated commission rate | Directly conflicts with the duty of loyalty |
| Simple math | Invites fraud and disputes; harms the seller |
Exam Alert: A net listing is a prohibited practice that can lead to KREC disciplinary action against the license. If a question shows the agent keeping "everything over the seller's net," the correct answer is that the arrangement is illegal in Kentucky.
Required Elements of a Listing Agreement
| Element | Requirement |
|---|---|
| Property description | Address and/or legal description |
| Listing price | The seller's asking price |
| Commission terms | Stated amount or percentage |
| Definite expiration date | A fixed end date (no automatic renewal) |
| Broker information | Brokerage name and licensee identification |
| Signatures | Seller and broker (or authorized licensee) |
Buyer Representation Agreements
A Buyer Representation Agreement is the buyer-side counterpart to a listing. It establishes the agency relationship (paired with Form 401B), the broker's duties, the compensation, and the duration of representation.
Two Common Forms
| Type | Detail |
|---|---|
| Exclusive buyer agreement | Buyer works only with this broker; broker is paid if the buyer purchases through anyone |
| Non-exclusive buyer agreement | Buyer may work with multiple brokers; only the procuring broker is paid |
Required Elements
| Element | Purpose |
|---|---|
| Scope of representation | Property type and search parameters |
| Geographic area | Where the buyer intends to purchase |
| Compensation | How and by whom the broker is paid |
| Definite term | Start and fixed end dates |
Protection Periods (Safety Clauses)
A protection period, also called a safety or override clause, preserves the broker's commission after the agreement expires, so a client cannot wait out the term to dodge the fee.
| If this happens after expiration | Broker earns commission? |
|---|---|
| Agreement simply expires, no sale | No |
| Client buys/sells within the protection period to someone the broker introduced during the term | Yes |
| Client signs a new listing with another broker | Usually no (override yields to the new broker) |
How Protection Periods Work
- The window typically runs 30–90 days after expiration.
- It applies only to prospects the broker introduced during the agreement term.
- Best practice is for the broker to deliver a written list of protected prospects to the client at expiration.
Worked scenario: A 90-day listing expires. Eleven days later the seller sells privately to a couple the listing agent showed the home to during the term, and the listing had a 60-day protection period. The broker is owed the commission because the buyer was introduced during the term and the sale closed inside the protection window.
Terminating Agreements
| Method | Effect |
|---|---|
| Expiration | Ends at the definite end date |
| Completion (closing) | Transaction performed; agency ends |
| Mutual consent | Both parties agree to release |
| Breach | Material violation by either party |
Early Termination
| Situation | Consequence |
|---|---|
| Seller withdraws the listing | May still owe commission per the agreement |
| Broker terminates voluntarily | Generally no commission owed |
| Mutual termination | Per the agreed terms |
Key Point: Withdrawing a listing does not automatically cancel the commission obligation. Whether money is owed depends on the agreement's terms and the protection clause – a classic exam distractor that tempts students into thinking withdrawal is free.
Under which Kentucky listing agreement does the broker earn a commission even if the owner personally finds the buyer?
Why does Kentucky prohibit net listings?
A 90-day exclusive listing with a 60-day protection period expires. Fifteen days later the seller privately sells to a buyer the agent had shown the home during the term. What is the result?