4.3 Listing and Sales Contracts and Contingencies

Listing Agreement Types

A listing agreement is an employment contract between a seller and a broker. The three classic types differ in who gets paid when.

Table: Listing Types

The exclusive right to sell is the strongest for the broker: the listing broker earns a commission regardless of who procures the buyer. Under an exclusive agency, the seller keeps the right to sell personally without owing commission.

Net Listings and Commission Math

In a net listing, the seller sets a net amount to receive, and the broker keeps everything above it as commission. New Hampshire Rule Rea 404.04(f) expressly prohibits net listings; the underlying risk is that the seller does not share in the upside and may not appreciate the size of the resulting fee.

Commission worked example

A home sells for $350,000 at a 6% total commission, split 50/50 between listing and selling brokerages.

• Total commission = $350,000 x 0.06 = $21,000
• Listing brokerage share = $21,000 x 0.50 = $10,500
• If the listing salesperson is on a 60/40 split with the brokerage, the salesperson receives $10,500 x 0.60 = $6,300

Commission is always negotiable and is never set by law or by a board; suggesting a "standard rate" can raise antitrust concerns.

The Purchase and Sales Contract

The purchase agreement (sales contract) is the central document. It must contain the five validity elements plus practical terms: parties, property, price, financing, closing date, and signatures.

Earnest money is the buyer's good-faith deposit; it is held in the broker's trust (escrow) account, never commingled with operating funds. It is applied to the purchase price at closing or handled per the contract on default.

Key points the exam tests:

• The contract is formed on acceptance and communication of the last offer or counteroffer.
• A counteroffer rejects and terminates the prior offer.
• The buyer holds equitable title between signing and closing.

Buyer Agency and Other Service Contracts

Beyond the listing, brokers use other employment contracts the exam expects you to recognize.

• Buyer-agency agreement - the buyer hires a broker to represent the buyer's interests; it can be exclusive or non-exclusive.
• Property management agreement - the owner hires a broker to operate a rental, defining authority and fees.
• Multiple Listing Service (MLS) - not a listing type but a cooperative database where listing brokers share listings and offers of compensation.

A common trap pairs "open listing" with "MLS": the MLS is a marketing and cooperation system, while open, exclusive-agency, and exclusive-right-to-sell describe the commission arrangement in the listing contract itself.

Contingencies and Option Contracts

A contingency is a condition that must be met before the contract becomes fully binding. If a contingency fails, the buyer can usually cancel and recover the earnest money.

• Financing contingency - buyer must obtain a loan by a set date.
• Inspection contingency - buyer may cancel based on inspection results.
• Appraisal contingency - property must appraise at or above price.
• Sale-of-home contingency - buyer must first sell an existing home.

An option contract is different: for agreed consideration, the seller (optionor) gives the buyer (optionee) the right but not the obligation to buy within a set period at a fixed price. The optionee may walk away, forfeiting only the option fee. This is a unilateral contract until the option is exercised.

Contingency Default and Land Contracts

When a contingency is properly invoked and the buyer cancels in writing within the deadline, the buyer recovers the earnest money and the contract is discharged with no breach. Missing the deadline can waive the contingency, converting an escape route into an obligation - a frequent exam trap.

A land contract (contract for deed, installment contract) is a financing-and-sale hybrid: the buyer (vendee) takes possession and pays in installments while the seller (vendor) retains legal title until the balance is paid. The vendee holds equitable title during the term. Compare this with a lease-option, where rent applies toward a later purchase the tenant may or may not exercise.

Counteroffers, Multiple Offers, and Acceptance Mechanics

In a hot market a seller may receive several offers at once. Each is a separate offer the seller can accept, reject, or counter. The seller forms a binding contract the instant one acceptance is communicated; sending a counter to a second buyer at the same time risks two binding contracts if both accept.

Table: Offer Outcomes

The safe practice taught for the exam: counter or reject offers one at a time, and never accept a backup before clearly resolving the first, to avoid breaching one buyer while binding another.

Right of First Refusal, Time-Is-of-the-Essence, and Earnest-Money Disputes

Three more contract devices appear regularly on the National portion.

• A right of first refusal is weaker than an option: the holder may match a bona fide third-party offer only if and when the owner decides to sell. The owner is never obligated to sell; the holder simply gets first crack at any deal the owner is willing to make.
• A "time is of the essence" clause makes every stated deadline strictly enforceable. Closing one day late is a material breach when this clause is present, whereas absent the clause courts allow a "reasonable" delay.

What happens to the earnest money on default

The broker who holds escrow must never release disputed funds to either party on their own judgment; releasing to the wrong party is itself a violation.

Worked timing trap. A purchase contract gives the buyer until March 10 to deliver written loan approval, with time of the essence. The buyer's lender approves on March 11 and the buyer tries to proceed. The seller, who has a higher backup offer, declares the contract dead. Because the deadline was strict and missed, the financing contingency lapsed and the seller may treat the contract as terminated. The lesson the exam reinforces: a contingency is a shield only while it is alive; once its deadline passes unmet or unwaived, an escape route can convert into a binding obligation or a forfeited deal.