5.3 Listing and Buyer-Representation Agreements
Key Takeaways
- An exclusive right-to-sell listing pays the listing broker a commission no matter who finds the buyer; an exclusive agency listing lets the owner sell it themselves without owing commission.
- An open listing can be given to many brokers and pays only the one who produces the buyer; a net listing is discouraged or illegal in most states because it creates a conflict of interest.
- Net listings are illegal in the great majority of states; only a few, including Texas, permit them, and even there strict disclosure rules apply.
- Agency can terminate by performance, expiration, mutual agreement, or revocation; wrongful revocation may expose the canceling party to damages.
- The procuring cause is the broker whose continuous efforts directly resulted in the ready, willing, and able buyer, and that broker is generally entitled to the commission.
Listing Agreements: The Four Types
A listing agreement is an employment contract between a seller and a broker that creates a seller agency and authorizes the broker to market the property. The exam focuses on four types and the dramatically different commission outcomes each produces:
| Listing type | Who may sell | Who earns commission |
|---|---|---|
| Exclusive right-to-sell | Only the listing broker is the agent | Listing broker is paid no matter who finds the buyer — even the owner |
| Exclusive agency | Listing broker, but owner reserves the right to sell directly | Broker is paid unless the owner personally finds the buyer |
| Open listing | Multiple brokers may be engaged | Only the broker who actually produces the buyer is paid; none if owner sells |
| Net listing | Seller sets a net amount; broker keeps any excess | Broker's pay is whatever exceeds the seller's net — a conflict of interest |
The exclusive right-to-sell listing offers the broker the most protection and is by far the most common, which is why brokers and the MLS favor it. With an open listing, the seller can list with several brokers at once, but this gives each broker little incentive to invest in marketing because they may never be paid.
Net Listings and Their Legality Concerns
A net listing sets a fixed amount the seller wants to net from the sale; the broker keeps every dollar above that figure as commission. This structure is dangerous because it directly pits the broker's pay against the seller's interest — the broker profits by getting the seller to accept a low net while the property sells high, undermining the fiduciary duties of loyalty and disclosure. ** A few states, including Texas, permit them only under strict conditions and full disclosure, and many exam questions simply test that a net listing is prohibited or strongly discouraged.
Treat any exam scenario describing a net listing as a red flag for breach of fiduciary duty.
Buyer-Representation Agreements
A buyer-representation agreement (also called a buyer-agency or buyer-broker agreement) is the mirror image of a listing: it is an employment contract in which a buyer hires a broker to represent the buyer's interests. It creates full fiduciary duties owed to the buyer rather than the seller. Like listings, it can be exclusive (the buyer works with only that broker and owes compensation per the agreement) or non-exclusive. These agreements have become standard practice because they make representation explicit and prevent a buyer from being treated merely as a customer.
Termination of Agency
An agency relationship — whether a listing or a buyer agreement — can end in several ways the exam expects you to list:
- Performance (completion) — the purpose is fulfilled; the property sells and closes.
- Expiration — the term stated in the agreement runs out. A listing should always have a definite expiration date; an open-ended listing is disfavored or prohibited.
- Mutual agreement — both parties agree to cancel.
- Revocation — one party unilaterally ends the relationship. A principal can usually revoke, and an agent can renounce, but wrongful revocation before the term ends may expose the canceling party to damages for breach.
- Operation of law — death or incapacity of either party, destruction of the property, or bankruptcy automatically terminates the agency.
Procuring Cause and Commission
The procuring cause is the broker whose continuous, unbroken efforts started the chain of events that resulted in a ready, willing, and able buyer who actually purchases on the seller's terms. The procuring-cause broker is the one entitled to the commission, even when more than one broker had contact with the buyer. A commission is generally earned when a buyer meeting the listing terms is produced — sometimes before closing — though most agreements make payment contingent on a successful closing. Disputes between cooperating brokers over who is the procuring cause are commonly resolved through arbitration.
The Multiple Listing Service (MLS)
The Multiple Listing Service (MLS) is a cooperative database in which member brokers share their listings and make a unilateral offer of compensation to cooperating brokers who bring a buyer. The MLS widens a property's exposure and is the mechanism through which buyer's brokers and subagents are typically compensated. Membership requires brokers to follow MLS rules and accurately submit listing data.
Only the broker — not an individual salesperson — is a party to the listing or buyer agreement and to the MLS. A salesperson works under the sponsoring broker, so any commission a sales agent earns is paid through their broker, and listings legally belong to the brokerage, not the agent who signed them. If an agent leaves the firm, the listings ordinarily stay with the broker. Understanding that the brokerage holds the contract explains why disputes, trust-account duties, and commission obligations all run to the broker.
Putting It Together: A Typical Transaction
A seller signs an exclusive right-to-sell listing with a broker, who enters it in the MLS with an offer of cooperation. A buyer's broker, working under a buyer-representation agreement, finds the buyer and writes an offer. At closing the listing broker is the procuring cause of compensation under the listing, shares the cooperative fee with the buyer's broker, and both have satisfied the agency relationships that the agreements created. The listing then terminates by performance.
Tracing this flow shows how listing agreements, buyer agreements, procuring cause, and the MLS interlock — exactly the integrated reasoning the exam rewards.
Under which listing type does the listing broker earn a commission only if the broker personally finds the buyer, while the owner pays nothing if the owner sells the property without help?
Why are net listings prohibited or strongly discouraged in most states?
Two cooperating brokers each had contact with the buyer who ultimately purchased. Which principle determines which broker is entitled to the commission?
A listing agreement ends automatically because the seller dies before any buyer is found. This termination occurs by: