The Listing Agreement: What Is It And Why Should It Be In Writing?

Attorneys, when called upon to litigate contract disputes between clients and their real estate brokers are asked to predict the outcome of the litigation, they wisely caution that it depends on the particular circumstances of the case. In other words, to coin a phrase, “the devil is in the details.”

What we will look at in this article are some of those details. The Listing Agreement, a contract entered into by the seller and broker, which defines their respective rights and obligations, is a good place to start.

First, under New York State’s Statute of Frauds, a Listing Agreement which is binding for a year or less need not be in writing to be enforceable; but experience dictates otherwise. It’s hard enough to decipher the facts when the Listing Agreement is in writing, and fraught with difficulty when it is oral.

Courts have ruled that if a real estate broker produces a ready, willing, and able buyer prepared to go to contract, in writing, that meets all of the terms as posed by the seller, the broker is considered to have earned the commission agreed to in the Listing Agreement. If the seller backs out of the deal through no fault of the buyer and without legal excuse, the seller owes the broker the commission. A common misunderstanding is that the broker has not earned the commission unless title passes. The fact is, passing of title may not be necessary unless the Listing Agreement makes the commission contingent upon title passing, except for willful default by the seller. If the buyer backs out through no fault of the seller or without legal excuse, the broker is not due the commission but the seller may be authorized by the contract between the seller and buyer to keep all or part of the deposit being held in escrow by the seller’s attorney. In that case, would the broker be entitled to receive part of the deposit kept by the seller? Courts have ruled, not unless a provision in the Listing Agreement between the seller and broker states that.

In instances where a broker has successfully sued a seller for a commission, the courts have awarded the commission, plus statutory interest retroactive to the date the commission was earned, not the date of the court ruling. Four years is a case in point.

The Listing Agreement should specify to whom and in what percentage or amount, the seller will be obligated to pay the listing broker’s commission, a sub-agent of the seller, a broker’s agent, or a buyer’s agent. Courts have ruled against a broker when these obligations were not clearly established in the Listing Agreement.

It is common for real estate brokers to include in their Listing Agreements a clause that addresses the circumstances by which the broker will be entitled to a commission from the seller should a buyer to whom the broker showed the property during the term of the Listing Agreement buy the property after the Listing Agreement has expired.

A word of advice: A Listing Agreement is a legally binding contract and should be entered into only with the advice of counsel.

In a future article we will examine the type of agreement that defines the rights and obligations between a broker and a buyer client.