REAL ESTATE SALES
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An agency agreement is an employment agreement for personal services based on a fiduciary
relationship of trust and confidence in the broker. A seller uses a listing contract to hire a bro-
ker to market property and pay the broker a commission if a ready, willing, and able buyer is
procured according to the contract terms. A ready, willing, and able buyer is not under duress,
is financially qualified, and of legal age. A buyer uses a buyer agency agreement to hire a
broker to negotiate an ownership interest in a property. A tenant uses a tenant representation
agreement to hire a broker to negotiate a lease interest.
Agency agreements are contracts between a client and a broker-employer, not the broker’s
employees. A salesperson or broker-employee does not have the authority to terminate, short-
en the term, or reduce the commission amount of an agency agreement without the supervising
broker’s written permission.
Agency agreements must contain all of the following elements to be valid.
1. Description of the real estate.
A listing contract uses a street address to describe the property. If the property is not devel-
oped or is a portion of a parcel, the street address may not be sufficient and a party might use
additional information like a legal description or a tax number to identify the property.
A buyer agency agreement usually includes a general description of the property rather than
a street address. For example, a buyer might describe a property as “a residential property
with a list price between $150,000 and $180,000.”
2. Statement of the price.
A seller lists a specific price of property in the listing contract. Sellers can use range pricing
as a marketing tool but should not use a range for the purchase price in the listing contract.
A seller can address range pricing in the marketing plans of the listing contract. Stating “price
to be determined” is inaccurate and not the correct way to fill out a listing contract. The price
in the listing contract is the amount at which the seller wants the broker to list the property,
not an estimation or statement about the eventual purchase price of a property.
Unlike a seller, a buyer usually states the price as a range because, as with the description
of the property, the buyer may not know exact price of the property the buyer will purchase.
For example, a buyer may state the price as $200,000-$240,000.
3. Statement of the commission.
A listing contract may list the commission as a percentage of the purchase price but brokers
use different commission structures, including flat fees. A broker’s commission structure is
set by company policy and a broker’s employees usually do not have the authority to set com-
mission structures. State law does not dictate a maximum or minimum commission.
4. Statement of the term.
This is the period for which the parties contract. Parties cannot extend an expired agency
agreement.
5. In writing. Agency contracts must be in writing.
6. Signed by the person who will pay the commission.
The party that signs an agency agreement is agreeing to pay the broker for successful com-
pletion of the contract terms. Usually the person signing an agency agreement is the buyer or
the seller but the law states that it must be signed by the person who will pay the commission,
which may not always be the buyer or the seller.
A professor takes a temporary assignment at a university in a different state. The assignment works out well and
the university offers the professor a permanent position. The professor is busy planning courses for the upcom-
ing semester and asks her sister to list her home so she can purchase a new home. The professor’s sister can
sign the listing contract to list the professor’s house. The professor will have to sign any offer to purchase she
wants to accept but the listing contract is valid even though the seller did not sign it.