4.3 Listing and Sales Contracts and Contingencies

Listing and Sales Contracts and Contingencies

A listing agreement is an employment contract between an owner and a broker. A purchase agreement is the contract between buyer and seller. Both are tested for type, required terms, and the conditions that control when duties become enforceable.

Listing agreement types

The exclusive right to sell is bilateral and the broker's strongest position. An open listing is generally unilateral. A net listing instead describes an open-ended compensation structure and can be paired with different listing arrangements.

Worked numeric: commission split

A home sells for $480,000 at a 6% total commission, shared 50/50 between the listing brokerage and the cooperating (buyer's) brokerage.

• Total commission: $480,000 x 0.06 = $28,800
• Listing side: $28,800 x 0.50 = $14,400
• Cooperating side: $28,800 x 0.50 = $14,400

If the listing salesperson is on a 60/40 split with their broker (salesperson keeps 60%), the salesperson earns $14,400 x 0.60 = $8,640, and the brokerage retains $5,760. Build the math in layers: total, then side, then agent split. The exam often gives the side figure and asks for the agent's take-home, or vice versa.

Net listing trap

In a net listing, the seller names a net amount they must receive; the broker keeps everything above it. Suppose a seller wants to net $300,000 and the broker sells for $360,000 — the broker pockets $60,000. This creates a direct conflict of interest: the broker may exploit superior knowledge of market value when the seller sets the fixed net or obscure the size of the resulting fee. Net-listing rules vary by jurisdiction. On the exam, the correct answer treats a net listing as a red-flag conflict, not a clever fee structure.

Purchase agreement essentials and earnest money

A purchase agreement identifies the parties, the property, the price, financing terms, contingencies, the closing date, and signatures. Earnest money is a good-faith deposit that becomes part of the buyer's funds at closing. It is commonly held by the broker or escrow in a trust account. Earnest money is not a required element of contract validity — consideration can take other forms — but it strengthens the seller's confidence and may serve as liquidated damages if the buyer defaults.

Contingencies as conditions precedent

A contingency is a condition that must be satisfied (or waived) before a party's duty to close arises. Common ones:

• 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 the price.
• Sale-of-current-home contingency — buyer must first sell their existing home.

If a genuine contingency fails despite good-faith effort, the buyer may cancel and recover earnest money without breaching. Waiving a contingency removes that escape — the duty to close becomes unconditional. An option contract differs: it gives the optionee a one-sided right to buy within a set period (the optionor is bound; the optionee is not), and the option fee is generally non-refundable.

Procuring cause, safety/protection clauses, and waiver

Two cooperating brokers sometimes both touch a sale. Procuring cause awards the commission to the broker whose continuous, unbroken effort actually caused the ready, willing, and able buyer to purchase — not merely the one who first opened a door. Disputes between MLS members are arbitrated, not litigated.

A safety (protection / extender) clause protects the listing broker after expiration: if, within a stated number of days after the listing ends, the owner sells to a buyer the broker introduced during the term, the commission is still owed. This prevents an owner from waiting out the listing to dodge the fee. The clause typically requires the broker to register protected prospects in writing before expiration.

Contingencies as conditions precedent — worked timeline

A contingency is a condition precedent: the duty to close does not mature until it is satisfied or waived.

If a genuine contingency fails despite good-faith effort, the buyer cancels and recovers earnest money without breaching. Waiving a contingency makes the duty to close unconditional — a buyer who waives the financing contingency and then cannot fund has breached, exposing the earnest money as liquidated damages.

Listing-type outcomes and the net-listing conflict

The four listing types differ only in who earns the commission, and the exam tests the edge cases. Under an exclusive right to sell, the listing broker is paid no matter who finds the buyer — even the owner. Under an exclusive agency, the broker is paid unless the owner alone procures the buyer with no broker help, in which case no commission is owed.

Under an open listing, only the broker who is the procuring cause is paid, and the owner owes nothing if the owner sells it personally. Louisiana R.S. 37:1448.3 prohibits a broker from advising, encouraging, or entering that structure for residential real estate or land defined in R.S. 47:2302.

Worked outcome: a seller signs an exclusive-agency listing and the owner's own neighbor buys directly, with zero broker involvement — the broker earns nothing, because the owner-procured exception applies. Change it to an exclusive right to sell and the broker is owed the full commission on the same facts.

Exam shortcut: "owner sells it themselves and owes no fee" can only be open or exclusive-agency; "broker paid regardless of who sells" is exclusive right to sell; "broker keeps the overage" is a red-flag net listing. Match the entitlement language to the type rather than guessing from the word 'exclusive' alone.