4.3 Listing and Sales Contracts and Contingencies
Key Takeaways
- Listing agreements differ by who earns the commission: exclusive-right-to-sell, exclusive-agency, and open.
- Kentucky defines net listings but does not categorically prohibit them; the open-ended spread creates compensation and client-duty risks.
- The purchase agreement is the binding sales contract; contingencies condition the duty to close.
- Options and the equitable title doctrine define buyer rights before closing.
Listing and Sales Contracts and Contingencies
Listing agreements employ the broker; purchase agreements bind buyer and seller. The exam tests which document does what and who gets paid.
Listing agreement types
| Listing type | Who can earn commission | Owner can sell themselves commission-free? |
|---|---|---|
| Exclusive-right-to-sell | The listing broker, no matter who finds the buyer | No |
| Exclusive-agency | The listing broker, unless the owner finds the buyer | Yes |
| Open listing | Whichever broker procures the buyer | Yes |
| Net listing | Broker keeps any amount above the seller's net | Defined in KRS 324.010; not categorically prohibited |
The exclusive-right-to-sell is the broker's strongest listing: the broker earns a commission even if the seller personally finds the buyer during the listing period.
Net listing caution
In a net listing the seller states a net amount; the broker keeps everything above it. Because the broker keeps the entire spread above the seller's fixed net and may exploit superior market-value information or obscure the resulting fee, net listings are regulated differently by jurisdiction. On the exam, choose the answer flagging the conflict of interest.
Commission and the ready, willing, and able buyer
A broker generally earns commission by producing a ready, willing, and able buyer on the listing's exact terms, even if the seller then refuses to close. Procuring cause — being the agent who actually set in motion the chain of events leading to the sale — determines who earns the commission in disputes.
The purchase (sales) agreement
The purchase agreement is the binding bilateral contract of sale. It states price, parties, property, financing terms, closing date, and contingencies. Once signed, the buyer holds equitable title — an equitable interest in the property — while the seller retains legal title until closing.
Contingencies
A contingency is a condition that must be satisfied or waived before a party must perform. If a contingency fails, the protected party may cancel without breach and typically recover the earnest money.
- Financing contingency — buyer must obtain a loan on stated terms.
- Inspection contingency — buyer may cancel or renegotiate after inspection.
- Appraisal contingency — property must appraise at or above an amount.
- Sale-of-current-home contingency — buyer must sell their existing home.
Worked example
A buyer signs a $275,000 purchase agreement with a financing contingency requiring a loan at no more than 7% interest. The best rate the buyer can obtain is 7.5%. The financing contingency fails, so the buyer may cancel and recover the earnest money. This is not a breach — the condition simply was not met.
Options
An option is a unilateral contract: the optionee pays the optionor for the right, but not the obligation, to buy within a set period at a set price. The option money is consideration and is usually non-refundable. The optionor cannot back out; the optionee may walk away and lose only the option fee.
Trap watch
Do not confuse an option (right to buy) with a right of first refusal (right to match an offer the owner actually receives). And remember an open listing can be given to many brokers at once, but an exclusive listing cannot.
Under which listing agreement does the listing broker earn a commission even if the seller personally finds the buyer during the listing term?
A buyer's purchase agreement includes a financing contingency for a loan at no more than 6.5%. The lowest available rate is 7%. The buyer cancels. What is the result?
Commission entitlement, termination, and earnest-money handling
A listing is a personal-services employment contract between seller and broker, so several rules follow. The broker earns commission by producing a buyer who is ready, willing, and able on the listing's terms; if the seller then refuses to sell, the commission may still be owed because the broker performed. Brokers — not individual salespersons — are the parties to the listing, and salespersons are paid by their broker, never directly by the seller.
How listings terminate
| Termination cause | Effect |
|---|---|
| Expiration of the term | Listing ends; no automatic renewal |
| Sale / performance | Purpose accomplished |
| Mutual agreement | Both cancel |
| Death/incapacity of either party | Listing terminates (personal service) |
| Destruction of the property | Subject matter gone |
Note that the death of the listing salesperson does not end the listing — the broker holds the contract. A protection (carryover) clause may still entitle the broker to commission if a buyer the broker introduced buys shortly after expiration.
Worked example: procuring cause
Broker A shows a home and the buyer later writes an offer through Broker B without A's continued involvement. If A's showing set in motion an unbroken chain leading to the sale, A may claim procuring cause; if the buyer independently re-engaged through B after losing interest, B prevails. The exam rewards spotting whether the original broker's efforts continued uninterrupted to the sale.
Equitable title, options, and rights of first refusal
When buyer and seller sign a purchase agreement, the buyer immediately gains equitable title — an enforceable interest in the property — while the seller keeps legal title until the deed delivers at closing. This is why the doctrine of equitable conversion can place the risk of loss on the buyer during escrow in some states, and why a buyer can sue for specific performance of a unique parcel.
Option vs. right of first refusal
| Instrument | What the holder gets | When it is triggered |
|---|---|---|
| Option | Right to buy at a set price within a set time | Holder's choice, any time in the window |
| Right of first refusal (ROFR) | Right to match a bona fide offer | Only when the owner decides to sell |
An option is a unilateral contract: the optionee pays non-refundable option money for the right (not the duty) to buy; the optionor is bound and cannot sell to anyone else during the term. A ROFR gives no power to force a sale — it merely lets the holder match an offer the owner actually receives.
Worked example
A tenant holds a 90-day option to buy at $250,000 and pays $3,000 option money. On day 80 the tenant exercises. The seller must convey at $250,000, and the $3,000 typically applies to the price. Had the tenant let day 90 pass, the option simply expires and the $3,000 is lost — no breach, because the tenant was never obligated to buy.