4.3 Listing and Sales Contracts and Contingencies
Key Takeaways
- Exclusive-right-to-sell pays the broker regardless of who finds the buyer; exclusive agency does not pay if the seller finds the buyer; open listings pay only the procuring broker.
- Utah Rule R162-2f-401b(h) prohibits an individual licensee from taking a net listing.
- Contingencies (financing, inspection, appraisal, sale-of-home) let a buyer exit without penalty if a condition fails.
- Earnest money is held in escrow/trust, never commingled, and applied to the price at closing.
- An appraisal below price creates a cash 'gap' the buyer must cover, renegotiate, or escape via the appraisal contingency.
Listing and Sales Contracts and Contingencies
Listing agreements create the broker's right to be paid; purchase agreements create the buyer's and seller's obligations to close. Contingencies protect parties by making the deal conditional. The exam tests the types of listings, who earns a commission, and how contingencies and earnest money work.
Types of Listing Agreements
| Listing type | Who can earn the commission | Key point |
|---|---|---|
| Exclusive-right-to-sell | The listing broker, no matter who finds the buyer | Best protection for the broker |
| Exclusive agency | The listing broker, UNLESS the seller finds the buyer | Seller may sell themselves and owe no commission |
| Open listing | Whichever broker procures the buyer | Seller may use many brokers; seller-sale = no commission |
| Net listing | Broker keeps any amount above the seller's net | Prohibited for a Utah licensee under R162-2f-401b(h) |
A listing is generally a unilateral, employment-type contract: the seller promises to pay if the broker produces a ready, willing, and able buyer.
Under an exclusive-agency listing, the seller personally finds the buyer with no help from any broker. What commission is owed to the listing broker?
Common Contingencies
A contingency is a condition that must be satisfied or the contract can be voided without penalty:
- Financing contingency - buyer must obtain a loan by a stated date.
- Inspection contingency - buyer may cancel or renegotiate after inspections.
- Appraisal contingency - the property must appraise at or above the price.
- Sale-of-home contingency - buyer must sell their current home first.
If a contingency fails through no fault of the buyer, the buyer is generally entitled to a refund of the earnest money. Waiving a contingency removes that protection.
Earnest Money
Earnest money is a good-faith deposit, held by an escrow or trust account - never commingled with the broker's operating funds. It is applied to the purchase price at closing. If the buyer defaults without a valid contingency, the seller may keep it (often as liquidated damages).
Worked Numeric: Appraisal Contingency Gap
A buyer contracts to purchase at $400,000 with 20% down and an appraisal contingency. The appraisal comes in at $380,000. The lender will lend only against the appraised value.
- Lender loan at 80% of $380,000 = $304,000.
- Purchase price $400,000 minus $304,000 loan = $96,000 cash needed.
- The buyer's planned down payment (20% of $400,000) was $80,000, leaving a $16,000 appraisal gap to cover in cash.
Because the appraisal contingency is in place, the buyer may: pay the extra $16,000, renegotiate the price toward $380,000, or cancel and recover the earnest money. Without the contingency, the buyer would risk losing the deposit if unable to close.
A buyer's purchase contract includes a financing contingency. The buyer applies in good faith but is denied the loan before the deadline. What typically happens to the earnest money?
Ready, Willing, and Able - When Is the Commission Earned?
Under most listings, the broker earns the commission when they produce a buyer who is ready, willing, and able to purchase on the seller's terms - even if the sale later falls through because of the seller. 'Able' means financially capable of completing the purchase.
Worked example: a broker on a 6% exclusive-right-to-sell listing produces a full-price, all-cash buyer at $400,000. The seller then refuses to sell for personal reasons.
- Commission earned = 6% of $400,000 = $24,000.
- Because the broker performed (a ready, willing, and able buyer at the listed terms), the commission is owed even though no closing occurred.
This is why exclusive-right-to-sell offers the strongest broker protection.
Procuring Cause and Commission Splits
In an open listing or a cooperating-broker scenario, the broker who is the procuring cause - the one whose efforts set in motion the unbroken chain of events leading to the sale - earns the commission. Disputes over procuring cause are common and are usually resolved by arbitration between brokers.
When a listing broker cooperates with a selling (buyer's) broker, the total commission is split per their agreement. Example: a 6% commission on a $350,000 sale is $21,000; a 50/50 cooperative split gives each brokerage $10,500 before the brokerage splits with its own agent.
Never assume a fixed commission rate - rates are fully negotiable and price-fixing among brokers is illegal under antitrust law.
Sales Contract Essentials and Amendments
A purchase agreement should clearly state the parties, a legal description of the property, the price and financing terms, the earnest-money amount and holder, the closing date, and any contingencies. Vague terms invite disputes and can render parts unenforceable.
Changes after signing are handled two ways:
- An amendment alters the terms of an existing contract (e.g., changing the closing date) and needs all parties' signatures.
- An addendum adds new provisions or contingencies, attached and incorporated by reference.
Traps to watch: an unsigned change is not binding; striking a contingency by initialing it is a waiver of that protection; and 'as-is' clauses do not relieve a seller of the duty to disclose known latent defects.
Time Is of the Essence and Contingency Deadlines
A time-is-of-the-essence clause makes every deadline a strict, enforceable date: missing it is a breach, not a minor delay. Contingencies - financing, appraisal, inspection, and sale-of-buyer's-home - each carry their own deadline, and the party who benefits must act or waive.
Worked example: A contract gives the buyer 17 days for a due-diligence (inspection) contingency and states time is of the essence. The buyer's inspector finds a cracked heat exchanger on day 19. Because the buyer did not cancel or object within the 17-day window, the contingency is waived and the buyer is bound to proceed or forfeit earnest money. Had the buyer delivered a written objection or cancellation on day 15, the buyer would preserve the right to renegotiate or walk away with the deposit. The exam reliably rewards the answer that respects the written deadline over informal extensions.