“Documents create a paper reality we call proof.”
– Mason Cooley, American literary academic and aphorist
Last January 2015, I got a text message from two colleagues about a similar concern. Both of them were having a problem about the exclusive authority to sell extended to them by their respective owner-sellers.
SM was upset that a licensed broker refused to acknowledge her exclusive authority to sell signed by the owner of the property. The buyer of SM was outbidded by a higher purchase price of the buyer of this broker. The other broker said that there was nothing in the law that would dictate how they will share the commission.
Meanwhile, VB mentioned that she has an exclusive authority to sell a property signed by the owner. But she asks what is the arrangement if the owner himself finds a buyer for the property? Her authority does not contain any provision on such an instance.
The problems of SM and VB are quite the norm with regard to the exclusive authority to sell. But most real estate service practitioners overlook or forget to undertake certain steps to protect themselves from unscrupulous owner-sellers and unethical brokers.
A dutiful real estate broker should always execute a Listing Agreement with the owner-seller prior to exerting any efforts to market and sell the property. This is the most important document needed to be secured first and foremost. Numerous real estate brokers forget this very important piece of document that governs the relationship between the licensed real estate broker and the owner-seller.
I myself have overlooked this document several times in the past in my eagerness to market, advertise and put up for sale a particular piece of property. Most often, this happens when the owner-seller is a good friend or a client of mine.
But I would say now that no matter what your relationship is with the owner-seller, the number one order of the day for all licensed real estate brokers is to draft a Listing Agreement and have it signed by the owner-seller. This becomes especially important when the owner-seller is a stranger to the broker.
A Listing Agreement is a binding legal document executed by and between the owner-seller and the licensed real estate broker that governs the relations of the parties regarding the marketing and sale, lease or mortgage of a property and the professional fees due to the latter when there has been a successful consummation of the transaction.
There are several types of Listing Agreement as to exclusivity. The first is open listing or non-exclusive. This type is where the seller lists the property to several or many brokers. This type also allows the owner the right to sell the property himself without paying any professional fees to brokers who have already exerted efforts to market the property and find buyers for it.
The second is exclusive agency where the owner-seller agrees to list the property to only one broker during the listing period but reserves the right to sell his/her own property without the obligation to pay professional fee to the said exclusive broker.
Finally, we have the exclusive listing (exclusive authority to sell) which is the agreement that grants to a particular real estate broker the right to sell the property during the listing period and payment of the professional fee is absolutely due to the broker in all instances when the property is sold, even if by the owner himself.
Unfortunately, there are owner-sellers out there who do not honor their agreements with their licensed real estate brokers. On the other end of the spectrum, you have licensed brokers who likewise do not honor the terms of the exclusive authority to sell.
But, often times, the owner-seller and the rival brokers take a chance to disregard the exclusive listing simply because the said agreement was not properly drafted and explained by the exclusive broker to the owner-seller. Here is an example of a faulty Exclusive Authority to Sell.
I have been approached by a lot of real estate brokers asking if they can sue the owner-seller for reneging on the obligation pertaining to the exclusive authority to sell. However, my advice is always to dissuade that colleague from filing a case against the owner-seller because most often the listing agreement is not air tight.
The Supreme Court has promulgated several cases where the exclusive listing agreements have been upheld and owner-sellers have been directed to pay the outstanding professional fees due to the real estate broker.
But that would be another article for the future. In the meantime, you can download a sample Listing Agreement that I have used myself.
Atty. Ernesto “Jojo” Perez II and Jay McLean are co-authors of an upcoming book, “The Anatomy of Real Estate Deals: Winning the Real Estate Game.” In the book, Jay will share his vast experience in successful real estate deals that increased his income 200% in a year. He will also help you create a mindset that will give you ammunition to succeed in the real estate industry and elsewhere. Atty. Jojo will share on how to successfully close real estate deals and will give you proven techniques that you can use to succeed in your real estate projects.