4.3 Listing and Sales Contracts and Contingencies
Key Takeaways
- Exclusive-right-to-sell listings pay the broker regardless of who sells; exclusive-agency pays only if the broker (not the owner) sells; open listings pay only the procuring broker.
- A net listing (seller sets a net, broker keeps the overage) is regulated differently by jurisdiction because it invites a conflict of interest.
- Common contingencies — financing, inspection, appraisal, and sale-of-current-home — must be satisfied or waived or the buyer may cancel and recover earnest money.
- A counteroffer rejects and terminates the prior offer; the original offeree becomes the new offeror.
- An offer can be revoked any time before the offeror receives notice of acceptance.
Listing agreement types
A listing is an employment contract between a seller and a broker. The type determines when the commission is earned.
| Listing type | Who earns the commission | Key feature |
|---|---|---|
| Exclusive right to sell | The listing broker, no matter who finds the buyer | Most protective for the broker |
| Exclusive agency | The broker, unless the owner personally sells | Owner reserves a right to sell commission-free |
| Open listing | Only the broker who is the procuring cause | Seller may list with many brokers |
| Net listing | Broker keeps any amount above the seller's net | Illegal/discouraged — conflict of interest |
Under a net listing the seller states a net amount and the broker keeps everything above it. The seller's fixed net may understate market value while the broker keeps the entire spread, so its legality depends on the jurisdiction. Recognize a net listing on the exam as the disfavored choice.
Worked example: commission and net to seller
A seller signs an exclusive-right-to-sell listing at a 6% commission. The home sells for $425,000. The seller's mortgage payoff is $240,000 and other closing costs are $8,500.
- Commission = $425,000 × 0.06 = $25,500.
- Net to seller = $425,000 − $25,500 − $240,000 − $8,500 = $151,000.
Because it is an exclusive-right-to-sell, the broker earns the $25,500 even if the seller's neighbor was the buyer. Under an exclusive agency, if the seller had personally found that neighbor with no broker involvement, the broker would earn $0. Under an open listing, only the broker who was the procuring cause is paid.
Procuring cause
Procuring cause is the broker whose efforts set in motion the unbroken chain of events leading to the sale. Open-listing and disputed-commission questions hinge on who was the procuring cause, not merely who showed the property first.
Listing Types Compared and the Mandatory Termination Date
| Listing type | Who earns the commission | Notes |
|---|---|---|
| Exclusive right-to-sell | The listing broker, no matter who sells | Most protective for the broker |
| Exclusive agency | Broker earns unless the owner personally sells | Owner can sell without owing commission |
| Open listing | Only the broker who procures the buyer | Seller may list with many brokers |
| Net listing | Broker keeps overage above seller's net | Conflict-prone; jurisdiction-specific rules |
A listing is an employment (agency) contract between seller and broker; in most states, including Nebraska, it must be in writing and contain a definite expiration date. A listing with no end date, or one that "automatically renews," is a common license-law violation.
Offers, counteroffers, and revocation
The purchase contract begins with an offer. Until acceptance is communicated, the contract is not formed.
- Counteroffer — any change to terms rejects the original offer and creates a new offer; the roles flip (the former offeree is now the offeror).
- Revocation — the offeror may withdraw the offer any time before receiving notice of acceptance, even within a stated time period (unless consideration created an option).
- Acceptance — must be unqualified and communicated to be binding.
Common contingencies
A contingency is a condition that must be met or the contract can be voided by the protected party.
| Contingency | What must happen | If it fails |
|---|---|---|
| Financing/mortgage | Buyer secures the stated loan | Buyer cancels, recovers earnest money |
| Inspection | Property passes inspection / repairs agreed | Buyer may cancel or renegotiate |
| Appraisal | Property appraises at or above price | Buyer may cancel or renegotiate the gap |
| Sale of current home | Buyer's existing home sells | Buyer cancels if it does not sell |
If a buyer waives a contingency and later cannot perform, the buyer is in breach and the deposit is at risk. If the contingency is not waived and genuinely fails, the buyer generally recovers the earnest money. The exam tests whether the contingency was satisfied, waived, or failed.
Earnest Money, Equitable Title, and Common Contingencies
Earnest money is the buyer's good-faith deposit, held in the broker's trust account, and credited to the buyer at closing. It is not required to form a valid contract, but it signals serious intent and funds liquidated damages if the buyer defaults.
When buyer and seller sign a binding purchase agreement, the buyer acquires equitable title - an insurable interest in the property - while the seller keeps legal title until closing. This is why the doctrine of equitable conversion can shift risk of loss to the buyer once the contract is signed, depending on state rules.
The Contingencies the Exam Names
| Contingency | Protects the buyer if | If it fails |
|---|---|---|
| Financing | Loan is denied | Earnest money returned |
| Inspection | Material defects found | Buyer may cancel or renegotiate |
| Appraisal | Appraised value < price | Buyer may renegotiate or walk |
| Sale of buyer's home | Buyer cannot sell first | Contract voids if not sold by deadline |
| Clear title | Title defects discovered | Seller must cure or buyer cancels |
A contingency must be satisfied, waived, or it fails. If the buyer waives a financing contingency and then cannot fund, the seller may keep the earnest money as liquidated damages. If a genuine contingency fails through no fault of the buyer, the buyer typically recovers the deposit. Exam scenarios hinge on this distinction, so identify the contingency, the deadline, and whether the triggering event occurred.
A seller has an exclusive-agency listing at 5%. The seller personally finds a buyer with no help from the broker and sells for $300,000. What commission is owed?
A buyer submits an offer good until Friday. On Wednesday the seller makes a counteroffer raising the price. Before the buyer responds, the seller tries to accept the buyer's original offer. What is the legal effect?