4.3 Listing and Sales Contracts and Contingencies

Listing Agreements

A listing agreement is the employment contract between a seller and a broker. There are three main types, and the exam tests how each affects commission.

Exclusive-right-to-sell - the broker earns a commission if the property sells during the term no matter who procures the buyer, including the seller. This is the strongest listing for the broker and the most common.

Exclusive-agency - one broker is appointed, but the seller may sell the property without owing a commission if the seller personally finds the buyer.

Open listing - the seller may engage multiple brokers; only the broker who actually procures the buyer earns a commission, and the seller owes nothing if they sell it themselves. Open listings are typically unilateral.

Table: Listing Types

Missouri Rule 20 CSR 2250-8.090 prohibits licensees from entering a net listing.

The Purchase Agreement

The purchase agreement (also called a sales contract or contract of sale) is the binding bilateral contract between buyer and seller. It must include the parties, an adequate property description, the price and financing terms, and signatures.

Key provisions tested on the exam:

• Earnest money amount and where it is deposited.
• Closing date and possession date.
• Contingencies and their deadlines.
• Allocation of closing costs and prorations.

Contingencies

A contingency is a condition that must be satisfied (or waived) for the contract to move forward. If a contingency fails within its deadline, the protected party can cancel and usually recover the deposit.

• Financing contingency - protects a buyer who cannot obtain the loan described.
• Inspection contingency - lets the buyer cancel or renegotiate after a professional inspection.
• Appraisal contingency - protects a buyer if the property appraises below the contract price.
• Sale-of-home contingency - lets the buyer condition the purchase on selling their current home.

Worked Example

A buyer has a 21-day financing contingency. On day 18, the lender denies the loan. The buyer notifies the seller and cancels, recovering the $5,000 deposit. If the buyer missed the deadline and the contract said time is of the essence, the buyer could forfeit the deposit instead.

Options and Right of First Refusal

An option contract gives the optionee the unilateral right to buy a property at a set price within a set period. The optionor (owner) receives option consideration and cannot revoke or sell to someone else during the option period. The optionee is not obligated to buy; the contract becomes bilateral only when the option is exercised.

A right of first refusal is weaker. It only lets the holder match a bona fide offer the owner later decides to accept. The owner is never forced to sell, only to offer the holder a chance to match.

Table: Option vs. Right of First Refusal

Common Exam Traps

• Confusing exclusive-right-to-sell (broker always paid) with exclusive-agency (seller can sell free).
• Thinking a contingency that fails forfeits the deposit; usually it is returned.
• Treating an option as a binding purchase; the optionee may walk away.
• Forgetting that Missouri Rule 20 CSR 2250-8.090 prohibits net listings.

Buyer-Representation Agreements and Procuring Cause

Just as a listing employs a broker for the seller, a buyer-representation (buyer-agency) agreement employs a broker for the buyer and defines how that broker is paid.

Commission is negotiable and never set by law or by agreement among competing brokers (that would be illegal price-fixing). It is usually a percentage of the sale price or a flat fee, earned when the broker is the procuring cause of a ready, willing, and able buyer on the seller's terms.

Procuring cause means the broker started an uninterrupted chain of events that led to the sale. Disputes arise when more than one agent touches a buyer; the one whose efforts actually produced the sale is generally entitled to the commission.

Worked Example

A seller lists at $400,000 with a 6% commission under an exclusive-right-to-sell. A buyer the seller found personally pays full price. The broker still earns 6% x $400,000 = $24,000, because this listing type pays the broker regardless of who finds the buyer. Under an open or exclusive-agency listing, the seller would owe nothing on that sale.

When a Contingency Fails: A Scenario

Contingencies protect the party who benefits from them, and the exam tests what happens at the deadline.

Scenario. A purchase agreement has a 10-day inspection contingency and a 30-day financing contingency, with $8,000 earnest money. The inspection on day 7 reveals a failing foundation.

• The buyer may cancel within the contingency period and recover the $8,000 deposit, or renegotiate (ask for a price cut or repairs).
• If the buyer instead waives the inspection contingency and proceeds, the right to cancel for that issue is gone.
• If the buyer misses the 10-day deadline in a contract where time is of the essence, the contingency expires and the buyer can no longer use it to escape - risking the deposit if they then refuse to close.

Exam Trap: A satisfied or waived contingency removes that escape hatch. A failed contingency invoked on time returns the deposit; a missed deadline can forfeit it.