INTRODUCTION
This chapter will cover the listing agreement, which is the employment contract between the agent and seller. It’s important to fill it out correctly as it will reflect how competent you are.
Also covered is the valuation of the property and how to arrive at a figure. Remember you can be liable for under-valuing the property. Then how to service the listing, this is keeping the client up-to-date during the process.
AGENCY
AGENCY is the authority to act on someone’s behalf for a certain period of time. The agent has a fiduciary responsibility to his/her client. However the agent must also disclose information to third parties. Disclosures made by any agent are not to be taken as advice or direction.
Comparing the role of an agent between parties:
FIDUCIARY
Honesty: All disclosures made
No secret profit
Integrity for actions
Obey laws
Utmost care taken
Loyalty above all else
TRUTHFUL
Honesty: All disclosures made
Fair dealing
Reasonable care
Good faith dealings
LISTING AGREEMENTS
This is a legal and binding contract that explains the rights and duties of agent to seller. An employment contract to receive commission when a buyer is found.
Listing agreements can cover both the buyers agent and the sellers agent. Sellers contracts are usually time based.
5 elements must be present to be valid:
• Must be in writing
• All parties must be legal and able
• Consideration, agent supplies buyer and seller compensates.
• Mutual offer + acceptance
• Lawful object
All listings belong to broker and are not transferable. If any one of the parties dies… contract is cancelled.
TYPES OF LISTINGS
Basically to define relationship between broker and principal, describing who is authorized to sell property and what commission is to be paid.
2 main categories… exclusive and nonexclusive.
6 different types of listings:
• Open
Considered unilateral nonexclusive, property listed with many brokers. No time constraints or notice upon sale.
• Exclusive-agency
Agency has exclusive listing, no other brokers may list site. Seller may sell home and broker will not get commission. Seller and broker in competition. There is a time limit.
• Exclusive-authorization-and-right-to-sell
Most common. Has a fixed date where the broker will have no competition, even from the seller and is guaranteed a commission. Added safety clause that states is a buyer procured by the broker purchases home, will get a commission, even if another broker with another listing offer finds the buyer.
• Net
An addition to above deals where a minimum price is agreed upon. Anything above that price, the broker gets to keep. Seldom used in CA.
• Option
This allows the broker to purchase the listing. If a buyer offers above asking price. The broker can purchase the property at asking and sell to the found buyer at the offered price. Disclosure of this attempt must be made to all parties.
• Exclusive authorization to acquire real property
This is a buyers listing. Defines the relationship between the buyers agent and the sellers agent. This authorizes a broker to act on behalf of the buyer. When broker represents both buyer and seller, the commission will pay-off what the buyer may owe.
Also a unilateral listing or bilateral listing. Uni = one party agrees (seller promises the broker who brings buyer a commission). Bi = both parties agree (seller promises commission and broker promises buyer)
SAMPLES
ANALYSIS OF EXCLUSIVE-AUTHORIZATION-&-RIGHT-TO-SELL
This is the first of many documents a client will need to fill out. Need to explain what it all means before the client will want to sign it. Important to understand it yourself to maintain client confidence.
Exclusive-authorization-and-right-to-sell
SECTION 1 Exclusive-right-to-sell
• Fill in name of seller
• Fill in name of broker
• Begin and end date (normally 3 to 6 months, better based on market)
• City, county and address
• Consider adding a description (Lot, block and tract numbers)
SECTION 2 Items included and excluded
• List of items to be excluded in the sale
• Items to be included (appliances, recreational or furniture)
SECTION 3 Listing price and terms
• Price
• Terms (escrow length, financial arrangements)
SECTION 4 Compensation to broker
1-4 units requires this, more than 5 not.
• Subsection A
Commission due at close. States comm. is due if buyer is found during time period or 3 days after. Important to keep strict records of potential buyers. If the buyer withdraws listing, full comm. due.
• Subsection B
If sale fails and damages are due… the broker is due equal to the smaller of the entire comm. or half the damages.
• Subsection C
More common now for brokers to charge administration costs, which need to be listed here.
• Subsection D
Allows brokers to work and share comm. with.
• Subsection E
Assigns comm. directly to the broker, avoiding escrow.
• Subsection F
Seller must state if he/she has listing with multiple brokers, thus no comm. is due.
SECTION 5 Ownership, Title and authority
Sellers state they have sole ownership and have authority to sell property.
SECTION 6 Multiple-Listing Service
Sellers wether they want to list on the MLS. They must be made aware that all transactions are made available.
SECTION 7 Seller Representations
Seller states that property is clean and safe for sale. No default, litigation, government investigation, etc.
SECTION 8 Broker’s and Seller’s duties
Broker promises to show due dilligence to find qualified buyer. Seller in turn, promises to make home available to show and not hold broker liable for misrepresentations seller made.
SECTION 9 Deposit
Broker can accept and hold deposits.
SECTION 10 Agency relationship
Broker represents the seller, but also represents other sellers. If a buyer without representation is found the broker will represent both.
SECTION 11 Security and Insurance
Broker is not liable for theft or damage during open houses. Home will be accessible to many agents and inspectors. Seller must take steps to protect property.
SECTION 12 Key Safe/Lockbox
Asks the seller if they will consider a lockbox, allowing authorized people access to property. Also doesn’t hold broker liable.
SECTION 13 Sign
Allows broker to place “For Sale” and “Sold sign on property.
SECTION 14 Equal Housing Opportunity
Explains to seller that they cannot refuse offer based on discriminatory bias.
SECTION 15 Attorney’s fees
If lawsuit occurs. Looser will pay for all fees.
SECTION 16 Additional Terms
Place additional term here. must comply with state and federal laws.
SECTION 17 Management Approval
Allows the broker to terminate a contract an agent may draw up that is unacceptable within 5 days.
SECTION 18 Successors and Assigns
Contract is binding for heirs.
SECTION 19 Dispute resolution
• Subsection A
Broker and seller agree to use mediation as first step in disagreements.
• Subsection B
Broker and Seller agree to neutral 3rd party arbitration, giving up right to go to court.
SECTION 20 Entire contract
States that this is the agreement and anything said before is null and void.
SIGNATURES
By signing, both parties have read and agree to the document.
VALUATION OF THE LISTING
Important for the agent to guide seller in creating a value that is both fair, yet realize the properties potential. Both should aim for ‘market value’, described as highest price where there is a willing seller and willing buyer.
3 ways to value a home:
Competitive Market Analysis
This is the best approach. It compares what similar properties are going for in the same area. It’s best to look at a 6 month spread to decide on future market trends. Agent must take into account both sold and asking prices when determining a sale price. The MLS provides a great database from which to define criteria.
Bear in mind this is not official appraisal. Too high and the house will sit. Too low and the seller will not realize full potential.
Obtain current data so highest maximum price can be established, if you fail to gauge the highest price correctly, you may be liable.
This is a good approach for 4 and under units and undeveloped land. When making the comparison, remember to make adjustments on like for like items. Where your listing lacks updating or certain amenities… the sale price cannot be higher than a comparable property that has been updated or includes more amenities.
• Reported-sold-prior-six-months
Contains more pertinent data that asking price
• On-market-now
Reflects current asking prices, gives client good idea as what to ask.
• Reported-expired-prior-six-months
This is where overpriced homes end up
Cost Approach
Price is obtained by using cost-to-replace data, subtract depreciation, plus value of land.
Income Approach
Used for income property. Trying to access the present worth of future benefits by working out net income after costs subtracted. Sometimes called ‘Rate of Capitalization’.
Appraiser will have to take into account, type, age, market conditions, requirements of investor, cost of money, market risks, income tax considerations. Larger risk = larger cap rate.
Must establish annual income (adjusted for vacancies). Then all operational costs must be deducted from gross income. Cap rate is determined by market conditions. Then net income divided into cap rate to determine current value of property.
Appraisals
When done by an agent, the valuation is a rough estimate. Only licensed appraisers can value a property accurately. To do so without a license and claim it to be certified, will be liable.
SERVICING THE LISTING
Keeping your seller informed of changes and progress during the life of the listing will keep the seller’s confidence,that you are servicing them to the best of your ability, high.
Actively involve your seller in the sale of his/her house. Informing them of who to put together a presentable open house, is one way. A close relationship helps when 3rd parties are involved. By knowing your seller you’ll be able to put offers in a perspective the seller understands according to their outlook. Keeping in touch will alert your seller as to how much work goes into selling a house. Knowing all the steps makes a seller more amenable to the comm.
Also important to keep in touch with everyone regarding the property, other brokers are a good source of information. If a home is not selling other brokers can repeat what their buyers are saying about the home and you can pass that on to your seller. Develops valuable feedback.
A listing has a life on the market:
• Obtain the listing, meet with the seller and discuss listing options. Sign the document and place the property on the MLS.
• Place lockbox on property for ease of showing. That frees a busy selling agent the trouble of being present for every showing.
• Place a sign outside the home. Some neighborhoods don’t allow signs and some owners prefer not to have them. Check first.
• Information sheet created. Good to hand to interested buyers, other brokers, both in and out of the office.
• Execute required inspections, or provide information to sellers to do. This will bring to the surface any problems with the property and give seller chance to correct before going on the market.
• Conduct title report and research all existing loan information. Discover status of existing loan and options for new loans.
• Send note of thanks for listing with you.
• Begin to show open houses, usually on a Saturday. Compile feedback from potential buyers. Make changes if necessary. Collect names of potential buyers from open house to database for possible later contact. Present any offers submitted.
• Be pro-active and contact neighbors and locals, alert them to the pending sale and find out if they know a friend interested in moving to that area.
• Keep owner up to date as the listing progresses in time. Offer suggestions as what to do to increase likelihood of an offer. Raise/lower price, have another open house, etc. Visit home occasionally.
• At 30 day mark, collect all activity information and have a 3rd party within the brokerage send a letter. Looks official and shows an interest of entire staff in selling the sellers home. Offer suggestions as how to generate more interest. Could be lowering price, paint room, do some landscaping, etc.
• At 60 days send another letter. Don’t have this be the only contact between 30 and 60 days.