4.3 Listing and Sales Contracts and Contingencies
Key Takeaways
- Listing agreements are employment contracts between seller and broker; the three main types are exclusive-right-to-sell, exclusive-agency, and open.
- Only the exclusive-right-to-sell listing pays the broker regardless of who finds the buyer.
- A purchase (sales) contract becomes binding when offer and acceptance are communicated; until then either party may withdraw.
- Contingencies (financing, inspection, appraisal) must be satisfied or waived before a party is obligated to close.
- Options and net listings are special-case contracts that the exam tests for traps.
Listing and Sales Contracts and Contingencies
A listing agreement is an employment contract that creates agency between a seller (principal) and a broker. Know the three core types and exactly when each pays a commission.
| Listing type | Who can sell and earn the broker a commission | Broker paid if owner finds buyer? |
|---|---|---|
| Exclusive-right-to-sell | Anyone, including the owner | Yes — broker is paid regardless |
| Exclusive-agency | Listing broker only; owner may sell themselves commission-free | No, if owner finds buyer |
| Open | Whoever procures the buyer; multiple brokers allowed | No, if owner finds buyer |
The exclusive-right-to-sell listing gives the broker the strongest protection: commission is owed during the listing period no matter who procures the buyer. This is why most brokers insist on it.
Net and option listings (trap territory)
- Net listing — the seller sets a net amount; the broker keeps anything above it as commission. Rhode Island Rule 230-RICR-30-20-2 §2.26(D) prohibits licensees from accepting net listings.
- Option listing — the broker also has the right to buy the property; this requires full disclosure because the broker becomes a principal, not just an agent.
The sales (purchase) contract
The purchase agreement is the binding bilateral contract between buyer and seller. It forms when an offer is accepted and that acceptance is communicated back to the offeror.
Key timing rules the exam loves:
- An offer may be revoked any time before acceptance is communicated, even if a deadline was given (unless paid for as an option).
- A counteroffer terminates the original offer; the original offeror is now free to accept, reject, or counter again.
- Death or incapacity of the offeror before acceptance terminates the offer.
Earnest money
Earnest money shows the buyer's good faith but is not required for validity. It is typically held by the broker or escrow agent in a trust account, never commingled with operating funds. On a buyer default with a liquidated-damages clause, the seller may keep it.
Worked example: A buyer offers $250,000 with $5,000 earnest money (2%). The seller counters at $260,000. The original $250,000 offer is dead. If the buyer then accepts $260,000, a contract forms at $260,000 — the earnest money does not automatically increase unless the contract says so.
Contingencies
A contingency is a condition that must be met before a party is obligated to perform. If a contingency fails and is not waived, the contract can be voided and the earnest money usually returned.
| Contingency | Protects | What satisfies it |
|---|---|---|
| Financing (mortgage) | Buyer | Buyer obtains the specified loan by a deadline |
| Inspection | Buyer | Buyer accepts condition or negotiates repairs |
| Appraisal | Buyer/lender | Property appraises at or above contract price |
| Sale of buyer's home | Buyer | Buyer's current home closes |
| Clear title | Buyer | Seller delivers marketable title |
Worked example: A $400,000 contract has a financing contingency for a loan covering 90% LTV. The buyer is approved for only $340,000 (85%). The contingency is not met, so the buyer may cancel and recover the deposit, or the parties may renegotiate.
Options
An option is a unilateral contract: for consideration (option money), the optionee gets the right — but not the obligation — to buy within a set period at a set price. The optionor cannot revoke during the option term. Option money is usually non-refundable but may apply to the purchase price if the option is exercised.
Procuring cause and earning the commission
A broker earns a commission by being the procuring cause — the agent whose efforts set in motion an uninterrupted chain of events leading to the sale. The classic rule: a commission is earned when the broker produces a buyer who is ready, willing, and able to purchase on the seller's terms, even if the seller then refuses to close.
Worked example: A broker brings a full-price, fully financed offer matching every listing term. The seller changes their mind and pulls the property. The broker has produced a ready, willing, and able buyer and has generally earned the commission, even though no closing occurred.
Commission math
Commissions are negotiable, never set by law. On a $350,000 sale at a 6% total commission:
- Total commission = $350,000 × 0.06 = $21,000
- If split 50/50 between listing and selling brokerages, each side = $10,500
- If the selling agent keeps 70% of their side: $10,500 × 0.70 = $7,350
Protection (carryover) clauses
A protection period clause says that if the property sells within a set time after the listing expires to a buyer the broker introduced, the commission is still owed. This prevents sellers from waiting out the listing to dodge the fee. The buyer must usually have been registered or shown during the listing term.
Amendments, addenda, and counteroffers
- An addendum adds terms at the time of signing (e.g., an HOA disclosure).
- An amendment changes terms after the contract is signed and requires both signatures.
- A counteroffer changes terms during negotiation and replaces the prior offer.
Treating these as interchangeable is a common exam trap; only an amendment alters an already-binding contract, and only with both parties' agreement.
An owner lists with a broker under an exclusive-agency listing, then personally finds a buyer with no broker involvement. Is the broker entitled to a commission?
A buyer makes a written offer with a 48-hour acceptance deadline. Eight hours later, before the seller responds, the buyer phones to revoke the offer. The seller objects. What is the result?