4.3 Listing and Sales Contracts and Contingencies

Listing and Sales Contracts and Contingencies

Real estate transactions are built from two contract families: the listing agreement between owner and broker, and the purchase contract between buyer and seller. Knowing which listing pays the broker and which contingency protects which party is heavily tested.

The three listing types

The exclusive right to sell is the strongest for the broker and the most common. Under it, even if the owner personally finds the buyer, the listing broker is owed the commission. Under an exclusive agency, the owner reserves the right to sell to a buyer they find without paying. An open listing lets the owner engage many brokers and pay only the one who is the procuring cause of the sale. A net listing (broker keeps everything above a set net to the seller) is discouraged or regulated differently by jurisdiction because of the conflict of interest.

A related concept is procuring cause — the broker whose efforts actually set in motion the chain of events that produced a ready, willing, and able buyer. In open-listing and commission-dispute questions, the procuring-cause broker earns the fee even if another broker wrote the final contract. Do not award the commission to whoever happened to be present at closing; trace which broker's continuous effort produced the buyer.

The purchase contract and earnest money

The purchase contract (sales contract / contract of sale) identifies the parties, the property, the price, the financing, the contingencies, the closing date, and how risk and prorations are handled. Earnest money is a good-faith deposit; it is evidence of the buyer's seriousness and a potential source of liquidated damages, but it is not the consideration that forms the contract — the mutual promises are.

Offer and counteroffer logic governs formation:

1. Buyer makes a written offer.
2. Seller can accept (contract formed), reject (offer dead), or counter.
3. A counteroffer rejects the original offer and becomes a new offer the original buyer may accept or counter again.
4. Once any party makes a material change, the prior offer is dead and cannot be "revived" by later acceptance.

Trap: a seller who changes the closing date and signs has made a counteroffer; the buyer is free to walk. The seller cannot later force the original terms.

Contingencies

A contingency is a condition that must be satisfied (or waived) before a party must perform. If the condition fails and the party cancels properly, it is not a breach, and the earnest money is usually returned. Common contingencies:

• Financing contingency — buyer must obtain a loan at stated terms by a date; if denied, the buyer may cancel.
• Inspection contingency — buyer may cancel or renegotiate after a satisfactory inspection period.
• Appraisal contingency — protects the buyer if the property appraises below the contract price.
• Sale-of-current-home contingency — buyer's purchase is conditioned on selling their existing home.
• Title contingency — seller must deliver marketable title.

Worked example — appraisal gap math

A buyer offers $450,000 with a 20% down payment, financing $360,000. The appraisal comes in at $435,000. The lender will lend only against the lower of price or appraised value, so it bases its 80% on $435,000: 0.80 × $435,000 = $348,000.

The buyer planned to borrow $360,000 but now can borrow only $348,000 — a $12,000 gap. With an appraisal contingency, the buyer may cancel, renegotiate, or pay the $12,000 difference in cash on top of the original down payment. Without the contingency, the buyer must cover the gap or risk default and loss of earnest money.

Contingencies must be satisfied or waived by their stated deadlines. A buyer who lets a financing-contingency date pass without acting may lose the protection and convert a conditional obligation into an unconditional one. Always read whether a contingency is for the benefit of the buyer (and thus waivable by the buyer alone) or built into the contract for both parties. Misreading who controls a contingency is a frequent source of wrong answers on the national portion.

Procuring Cause, Protection Periods, and Worked Commission Logic

Under an exclusive-right-to-sell listing the broker earns the commission no matter who finds the buyer; under an exclusive-agency listing the owner may sell themselves commission-free; under an open listing only the broker who is the procuring cause is paid. Procuring cause is the broker whose continuous, uninterrupted efforts started the chain that led to the sale.

A protection (carryover) period prevents an owner from waiting out the listing to dodge a commission: if a registered buyer the broker introduced closes within the stated days after expiration, the commission is still owed. Worked example: Broker shows a home, the open listing expires, and 20 days later that same buyer closes directly with the owner during a 90-day protection period covering registered prospects — the broker is owed the commission because the buyer was a protected, procured prospect. Commissions are always negotiable and never set by law or by a board, an antitrust point the exam tests directly.