4.3 Listing and Sales Contracts and Contingencies

Listing agreements are employment contracts

A listing agreement hires a broker to market and sell property; it is a contract between the owner (principal) and the broker, not between buyer and seller. The exam tests the three listing types primarily by who earns the commission.

Memory aid: the exclusive right to sell gives the broker the strongest right to payment; exclusive agency carves out the owner; an open listing is a free-for-all decided by procuring cause.

The purchase (sales) contract

The purchase agreement is a bilateral contract between buyer and seller. It must satisfy all five essential elements and be in writing under the Statute of Frauds. Key components:

• Identification of parties and property (legal description or address).
• Purchase price and financing terms.
• Earnest money amount and handling.
• Contingencies and the dates for satisfying them.
• Closing date and possession.
• Signatures of all parties.

Earnest money is the buyer's good-faith deposit, held in a trust/escrow account by the broker or a neutral third party. It is not the consideration for the contract — the mutual promises are. It does provide a fund for liquidated damages if the buyer defaults.

Offer, counteroffer, and acceptance

A contract forms only when an offer is accepted on identical terms (the mirror-image rule). Any change is a counteroffer, which:

1. Rejects the original offer (it can no longer be accepted).
2. Becomes a new offer the other party may accept, reject, or counter.

Worked example

A buyer offers $295,000. The seller responds at $305,000. That counteroffer kills the $295,000 offer. The buyer cannot later "accept" the original $295,000 — it no longer exists. If the buyer counters again at $300,000 and the seller signs, a contract forms at $300,000. Acceptance must also be communicated to the offeror to be effective.

Contingencies

A contingency is a condition that must be met for the contract to proceed. If it fails within the stated period, the protected party may cancel without penalty and recover earnest money. Common contingencies:

Appraisal-gap math

A buyer is under contract at $300,000 with a 90% loan ($270,000 expected). The appraisal comes in at $285,000, so the lender will lend only 90% of $285,000 = $256,500. The buyer now faces a $13,500 gap above the original down payment. With an appraisal contingency, the buyer may renegotiate, cover the gap in cash, or cancel without penalty.

Net listings, procuring cause, and commission disputes

A net listing lets the broker keep everything above a price the seller sets. Because the seller does not share in the upside and may not appreciate the size of the resulting fee, net listings are regulated differently by jurisdiction; treat them as a red flag on the exam.

Procuring cause decides who earns the commission on an open listing or in a dispute. The procuring-cause broker is the one whose continuous, unbroken efforts actually produced a ready, willing, and able buyer. A broker who merely opens a door once, then disappears while another broker negotiates the deal, is usually not the procuring cause. The exam frames this as: which broker's efforts were the unbroken chain leading to the sale?

Option contracts and right of first refusal

Two buyer-protection devices are commonly confused:

• An option gives the holder the unilateral right to buy at a set price within a set time. The seller is bound; the buyer is not. Option consideration is usually non-refundable.
• A right of first refusal (ROFR) gives the holder the right to match a bona fide third-party offer before the owner sells to someone else. Unlike an option, an ROFR has no set price and is triggered only when the owner decides to sell.

Worked example

A tenant holds an ROFR. The landlord receives a $250,000 offer. The landlord must first offer the property to the tenant at $250,000. If the tenant declines, the landlord may sell to the third party. With a true option, the tenant could force a sale at the agreed strike price regardless of any third-party offer.

Commission, listing termination, and the safety/protection clause

The listing broker earns a commission when a ready, willing, and able buyer is produced on the seller's terms, even if the seller then refuses to close. Commission is negotiable and never set by law or a board; any suggestion of a fixed or standard rate is a price-fixing red flag.

Many listings include a safety (protection) 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 an owner from waiting out the listing to dodge the fee.

Commission math

A home sells for $420,000 at a 6% total commission, split evenly between listing and selling brokerages. Total fee = $25,200; each side receives $12,600. If the listing broker then splits 60/40 with the listing salesperson, that salesperson earns $7,560 and the brokerage keeps $5,040. On the exam, a protection (safety) clause means this commission can still be owed if the broker introduced the eventual buyer during the listing term and the sale closes within the clause's stated window.