4.3 Listing and Sales Contracts and Contingencies

Listing agreements: the four types

A listing is an employment contract between a seller and a broker. The type controls when commission is owed.

Trap: Exclusive right to sell and exclusive agency sound alike. The difference is whether the owner can sell on their own commission-free — yes under exclusive agency, no under exclusive right to sell.

Most listings are bilateral and include a definite expiration date, a stated price, and the broker's authority. A listing with no expiration date is a red flag the exam may flag as improper.

Sales contracts, offers, and contingencies

A purchase agreement starts as the buyer's offer. The seller may accept (a contract forms), reject, or make a counteroffer. A counteroffer legally rejects and terminates the original offer; the roles flip so the seller becomes the offeror. An offer can be revoked anytime before acceptance is communicated.

Common contingencies

A contingency is a condition that must be met or the contract can be voided without penalty, usually with return of earnest money.

• Financing contingency: buyer must obtain a loan on stated terms; if denied, buyer exits and recovers the deposit.
• Inspection contingency: buyer may cancel or renegotiate based on inspection results within a deadline.
• Appraisal contingency: if the appraisal comes in below the contract price, the buyer can renegotiate or cancel.

Worked example: appraisal gap

Contract price is $420,000 with 20% down ($84,000) and an 80% LTV loan. The appraisal returns $400,000. The lender lends 80% of the lower of price or value = 80% × $400,000 = $320,000. The buyer needed $336,000 financed (80% of $420,000), so there is a $16,000 shortfall the buyer must cover in cash or renegotiate. With an appraisal contingency, the buyer can instead cancel and recover earnest money.

Options

An option contract gives a buyer (optionee) the right, but not the obligation, to purchase at a set price within a set period for separate option consideration that is usually non-refundable. It is unilateral until exercised.

Trap: Adding any condition to acceptance is a counteroffer, not an acceptance — the original offer dies even if the change is small.

Procuring cause and when commission is earned

Under an exclusive-right-to-sell listing the broker is paid if the property sells during the term no matter who finds the buyer, but disputes between two brokers turn on procuring cause — the broker whose continuous, unbroken effort actually produced the ready, willing, and able buyer. Merely opening a door or sending one email rarely establishes procuring cause; an uninterrupted chain from introduction to contract does.

Classic rule: a broker earns the commission when a ready, willing, and able buyer is produced on the seller's terms, even if the seller then refuses to close. If the seller backs out of a full-price, no-contingency offer, the commission can still be owed because the broker performed.

Contingency mechanics and deadlines

A contingency protects the party it favors, but only if its deadline and notice requirements are met. A buyer who misses the inspection-objection date typically waives the contingency and is bound to proceed.

Worked example: financing contingency math

A buyer offers $360,000 contingent on a 75% LTV loan at no more than 7%. The lender approves only $252,000 (70% LTV) at 7.5%. Because the approved terms fall short of the contingency (both the amount and the rate), the buyer may invoke the financing contingency, cancel, and recover the earnest money rather than bring the extra $18,000 in cash. Had the buyer instead waived the contingency to win a bidding war, that exit would be gone and the deposit would be at risk.

Trap: A kick-out (escape) clause lets a seller who accepted a home-sale-contingent offer keep marketing the property and bump the first buyer if a stronger offer arrives, usually giving the first buyer a short window to remove their contingency.

Termination of a listing and the buyer-representation mirror

A listing agreement ends by performance (the property sells), expiration of its term, mutual rescission, revocation/renunciation, or operation of law (death, incapacity, or destruction of the property). A net listing — where the broker keeps everything above a seller's stated net — is discouraged or illegal in many states because it invites the broker to favor a high price for self-gain over the seller's interest.

The buyer-representation agreement mirrors the listing on the buyer's side: it can likewise be exclusive or non-exclusive, must state a term and the compensation, and creates the same fiduciary duties toward the buyer that a listing creates toward the seller. A buyer who signs an exclusive buyer agreement may owe the agreed fee even if they find a home on their own during the term, exactly paralleling the exclusive-right-to-sell logic on the seller side.