4.3 Listing and Sales Contracts and Contingencies

Listing agreements

A listing is an employment contract between the seller and the broker. The three classic types differ in who earns the commission:

Most listings are exclusive-right-to-sell because they best protect the broker. A net listing (broker keeps everything above a set seller net) is discouraged or illegal in many states because of the conflict of interest. A listing also terminates by expiration, performance, mutual agreement, or destruction of the property.

Offers, counteroffers, and earnest money

A purchase agreement forms when one party makes an offer and the other accepts it exactly as written and communicates that acceptance. Any change to terms is a counteroffer, which legally rejects and destroys the original offer — the original offeror can now accept, reject, or counter again.

Worked trap

Buyer offers $300,000. Seller responds "I accept, but the price is $310,000." That is a counteroffer, not an acceptance — there is no contract at $300,000 or $310,000 until the buyer accepts the $310,000 term. If the buyer then says "$305,000," the $310,000 counteroffer is dead.

Earnest money is a buyer's good-faith deposit, not a contract element. It is typically held in the broker's trust/escrow account, not commingled with the broker's own funds, and is credited to the buyer at closing or handled per the default provisions if the deal collapses.

Contingencies

A contingency is a condition that must be met before the parties are obligated to close. If a contingency fails and is not waived, the buyer can usually cancel and recover the earnest money. Common contingencies:

• Financing — the contract is void/cancelable if the buyer cannot obtain the specified loan.
• Inspection — the buyer may cancel or renegotiate based on findings within a stated period.
• Appraisal — protects the lender and buyer if the property appraises below the contract price.
• Sale of current home — the buyer must sell an existing property first; sellers often add a "kick-out" clause to keep marketing.

Numeric example

A buyer makes a $250,000 offer contingent on appraisal. The appraisal comes in at $240,000 and the lender will finance only 80% of the appraised value = $192,000. The buyer must now cover the $10,000 appraisal gap plus a larger down payment or invoke the appraisal contingency to cancel or renegotiate. The contingency is the buyer's exit; missing the contingency deadline can waive it.

Procuring cause and commission entitlement

Under an open or competitive arrangement, the broker who is the procuring cause — the one whose continuous efforts set in motion the chain of events that produced a ready, willing, and able buyer — earns the commission. A broker who merely opened the door once, then disappeared while another broker did the real negotiating, is usually not the procuring cause.

Commission is traditionally earned when the broker produces a ready, willing, and able buyer who meets the seller's terms, even if the seller then refuses to close. In practice most contracts tie payment to actual closing, but the exam still tests the classic "earned at acceptance" rule. Watch the distinction between earned and paid.

Commission math

A home sells for $420,000 with a 6% total commission split 50/50 between the listing and selling brokerages. Total commission = $420,000 x 0.06 = $25,200. Each side's brokerage receives $12,600. If the listing agent is on a 70/30 split with their broker, the agent nets $12,600 x 0.70 = $8,820 before expenses. Master this two-step: compute total commission first, then apply the cooperating split, then the agent's internal split.

Amendments and addenda

An amendment changes a term within the existing contract; an addendum adds new provisions, typically attached before signing. Both require the agreement of all parties. A unilateral change scribbled by one side is not binding — mutual assent still governs after formation, just as it did at formation.

Equitable conversion and the executory period

Once an enforceable purchase contract is signed, equitable conversion gives the buyer equitable title — an insurable interest — while the seller keeps legal title until closing. This is why buyers should bind hazard coverage immediately and why risk-of-loss clauses matter during the executory (pending) period. The Uniform Vendor and Purchaser Risk Act, where adopted, places risk on the party in possession or as the contract assigns it.

Types of listing agreements compared

Trap: A net listing invites the conflict of inflating the broker's take and is prohibited or tightly restricted in most jurisdictions. The exclusive right to sell gives the broker the strongest protection.

Worked contingency timeline

A contract has a 10-day inspection contingency and a 30-day financing contingency. The buyer's inspection on day 8 reveals a failed septic system. Because the inspection contingency is still open, the buyer may cancel and recover earnest money or negotiate a repair credit. Had the buyer waited until day 12 to object, the inspection contingency would have expired, the buyer would be deemed to have accepted the condition, and refusing to close could forfeit the deposit. The lesson the exam tests: a contingency protects a party only while it is open; missed deadlines waive the protection.