By Michael Repka, ESQ.
Many sellers enter into a listing agreement feeling very optimistic and with a high level of trust in their listing agent. However, there may be devils lurking in the details of the listing agreement that the sellers are being asked to sign.
Many sellers erroneously conclude that they can sign the “standard form” listing agreements published by the California Association of Realtors (“C.A.R.”) or Peninsula Regional Data Service (“PRDS”) without review. These agreements are written by the Realtor® community and contain many provisions which should be carefully considered, either by the sellers or, ideally, by their attorney. After careful consideration of the “standard form,” the sellers should prepare a comprehensive addendum spelling out the precise nature of the agreement and making sure that both sides are treated fairly. Below are eight areas to consider when selecting a listing agent.
Approach to Conflicts of Interest
When an individual agent represents both buyers and sellers, it is inevitable that one of their buyers may be interested in one of their listings. This is particularly true because many buyers find homes on their own and approach the listing agent thinking they will either get a better price or a portion of the commission rebated back to them if they go through the listing agent. Therefore, sellers should have a detailed conversation with the agent about how such situations will be handled if either the listing agent or another agent in their office represents the buyer. DeLeon Realty prohibits all of its employees from working on, or taking any money from, both sides of a transaction. In fact, DeLeon Realty waives all buyer’s-side commission when its agents represent a buyer on a DeLeon listing. This is a brokerage-wide policy.
Non-Disclosed Referral Fees
Unfortunately, some agents say that they will not represent a buyer on their own listing; however, they do take substantial referral fees if they send that potential buyer to another agent in their office. They argue that, under California law, there is no requirement that these referral fees be disclosed to the sellers prior to their acceptance of the offers. Therefore, sellers may be receiving biased advice, yet have no idea that the listing agent is making more money if one offer is accepted over another. To protect themselves, sellers should include in an addendum a requirement that all referral fees be disclosed or, ideally, the listing agent (and/or their entire office) should waive all commission if his/her buyer is the one to purchase the property.
Lack of Specificity in the Listing Agreement
Sellers have more bargaining power to negotiate the terms of the listing agreement before signing on the dotted line. The language included in the common “standard form” listing agreement provides incredible latitude to the listing agent in deciding what marketing, if any, he/she will provide for the property. Typically, these forms provide that the listing agent can advertise and market the property in any medium selected by him/her unless otherwise instructed in writing by the seller. As such, the addendum to the listing agreement should include a comprehensive breakdown of exactly what marketing the listing agent will provide, including the size and frequency of any ads, the number of TV commercials, the type of home brochure, a sample of the home’s video, the scope of international marketing, and any other relevant marketing techniques that will be implemented to sell the house.
Sellers should be beware of any agents that make statements such as: “I will market aggressively,” “I will turn over every stone until I find the buyer,” or “I have a secret list of potential buyers who will buy your house.” Similarly, sellers should be cautious of agents who claim to have a buyer whom they will bring as soon as the sellers sign the listing agreement. If these claims were true, they should be specifically identified in terms that can be measured.
Long Listing Agreements
Once the sellers have signed a listing agreement, they are bound to pay commission throughout the entire length of the agreement unless they can prove that the listing agent has not lived up to contractual requirements. Before signing the listing agreement, sellers should negotiate for a shorter duration listing agreement (e.g., no more than 45 days after the home hits the market) rather than let the listing agent bind them to a 90-day or 180-day listing agreement. If the property has not sold during the listing period, the seller may elect to extend the agreement if they are pleased with the overall efforts and the quality of work exhibited by the listing agent. Sellers, however, should not be contractually bound for many months to an agent that falls short of the client’s expectations.
Listing agents should make a financial investment in the listings. Nowadays, many, if not most, listing agents will pay for staging, property inspection, and pest inspection fees if required by the sellers at the time the listing agreement is signed. Not only does this relieve the sellers of some costs, it also makes sure that the listing agent is fully vested in the result. Before signing the listing agreement, the seller should ask the listing agent for pictures of other homes that the agent has staged so that the seller can ascertain the quality of the design and furnishings. In other words, it is important for the sellers to know that their home will be staged by a high-end stager with the appropriate style of inventory for their property.
Focus on Brokerage Rather Than Agent
Some agents will attempt to distract the sellers from their limited amount of volume or experience by touting the combined volume of all of the independent contractor agents in their office rather than their individual statistics. It is important to note that most brokerages utilize independent contractors that are licensed to use the brokerage name for marketing purposes. These agents are not employees and they generally have no financial stake in the other agents’ sales results. Therefore, the seller is really only going to get the attention of the individual agent or team with whom they work and very little, if any, collaboration from other agents in their office.
Paying Out of Escrow
The addendum to the listing agreement should specifically identify items that the listing agent will pay for during the listing period. Occasionally, the listing agents will agree to pay for certain items with a provision that they will be reimbursed by the sellers out of escrow or, conversely, the sellers must pay for certain items upfront and the agent will reimburse them out of escrow, assuming that there is a close of escrow. Neither of these approaches is the same as the agent paying for the expenses themselves and not being reimbursed by the sellers. Therefore, the sellers should be very careful to ensure that their understanding is documented in the listing agreement.
Although it does involve some additional cost, many sellers would benefit from having an independent residential real estate attorney review the listing agreement and the related addendum prior to signing. Additionally, the sellers should request a written printout of all of the listing agent’s sales in the area to ensure that the sellers accurately understand the listing agent’s sales volume and experience.