4.3 Listing and Sales Contracts and Contingencies

Two contract families dominate practice: the listing agreement between seller and broker, and the sales/purchase contract between buyer and seller. Add buyer-representation agreements and options, and you have the everyday paperwork the exam tests.

For each form, know which party it protects, how compensation is earned, and how contingencies allocate risk between buyer and seller. The listing is an employment contract for the broker; the purchase contract is the deal itself.

Types of Listing Agreements

The listing type controls who can collect a commission and whether the seller may sell independently.

The exclusive right to sell guarantees the listing broker a commission if the property sells during the term, even if the seller personally finds the buyer. That is why it is the form brokers prefer and the form most heavily tested. Maine prohibits net listings under 02-039 C.M.R. ch. 410, §4.

The Sales (Purchase) Contract

The purchase contract sets price, financing terms, closing date, items included, and each party's duties. It is bilateral and remains executory until closing transfers title.

A typical timeline runs:

1. Buyer writes and delivers an offer with earnest money.
2. Seller accepts, rejects, or counters.
3. On acceptance a binding contract forms and earnest money is deposited in trust.
4. Buyer orders inspections and applies for financing.
5. Lender orders the appraisal.
6. Title search reveals any defects.
7. Contingencies are satisfied, waived, or trigger termination.
8. Closing occurs and the deed transfers title.

Earnest money is not the consideration for the contract; the mutual promises are. It is a good-faith deposit held in the broker's or escrow's trust account, credited to the buyer at closing or forfeited on default if the contract so provides. Mishandling earnest money is a common cause of license discipline.

Contingencies

A contingency is a condition that must be met or the contract can be canceled, usually with the earnest money returned. Contingencies allocate risk and create defined exit ramps for the buyer.

• Financing contingency - buyer may cancel if a loan cannot be obtained on stated terms.
• Appraisal contingency - protects the buyer if appraised value is below the price.
• Inspection contingency - buyer may negotiate repairs or cancel based on findings.
• Title contingency - seller must deliver marketable title.
• Sale-of-buyer's-home contingency - performance hinges on the buyer selling another property.

Worked example: a buyer offers $400,000 with a financing contingency for an 80% loan. The lender's appraisal comes in at $380,000, so the loan is only $304,000 (80% of $380,000) instead of the expected $320,000. The appraisal/financing contingency lets the buyer renegotiate the price or cancel and recover the deposit rather than be forced to bring an extra $16,000 in cash.

Time Is of the Essence and Addenda

Many contracts state that time is of the essence, meaning deadlines are strict and missing one is itself a breach. Changes are documented with an amendment (alters existing terms) or an addendum (adds new terms or contingencies), and both must be signed by all parties. Always check whether failing to remove a contingency by its deadline cancels the deal or merely waives the protection.

Distinguish the purchase contract from an option and a land contract. An option is a unilateral contract in which the optionor holds a price open in exchange for option consideration; the optionee may buy but is not obligated. In a land contract (contract for deed), the seller finances the buyer and keeps legal title until the balance is paid, while the buyer takes possession and equitable title in the meantime.

Contingencies in Practice

A contingency makes a contract obligation conditional on a future event; if the condition fails, the protected party may cancel and typically recover the earnest money.

• A financing contingency lets the buyer exit if a loan is not approved by a deadline.
• An inspection contingency allows the buyer to cancel or renegotiate after a professional inspection reveals defects.
• An appraisal contingency protects the buyer if the property appraises below the contract price.
• A sale-of-buyer's-home contingency ties the purchase to selling the buyer's current property.

Contingencies must be satisfied or waived in writing by their stated deadlines; missing a deadline can waive the protection. Always track contingency dates carefully, because a lapsed contingency can put the buyer's earnest money at risk.