Definition of an Exclusive Right of Sale Listing Agreement
Understanding the Exclusive Right of Sale Listing Agreement in Florida: A Comprehensive Guide
Most real estate listing agreements are for a specific duration and most are exclusive. What this means is that (for the most part) while a real estate agent or real estate broker holds a listing to sell real estate, no one else can sell or offer to sell the real estate. At the point that the listing expires, the real estate owner may then (at least theoretically) sell the property without involving a realtor or a broker and without any obligation to pay a commission.
Those words "for the most part" are important here. An exclusive right of sale listing agreement (as a type of an exclusive listing agreement) trumps the general rule. Even though the property owner may enter a listing agreement with more than one real estate agent and even though there may be multiple agents working on the sale of the property, in an exclusive right of sale listing agreement, the real estate agent or broker holding an exclusive right of sale listing agreement is guaranteed a commission if the property sells during the term of the listing agreement.
In other words, let’s say Bob Coldwater is an employee of a real estate agency called Federal Realty, Inc. Bob Coldwater enters an exclusive right of sale listing agreement to sell some real estate (let’s call it "Coldwater Springs"). A buyer who has no agent or representation for the purchase of Coldwater Springs buys the property, Bob Coldwater and his real estate company (Federal Realty, Inc . ) will still be entitled to a commission because Bob Coldwater held an exclusive right of sale listing agreement with the seller. If Coldwater Springs sold for a million dollars, Bob Coldwater and his company (Federal Realty, Inc.) would have been entitled to the commission agreed to in the listing agreement.
This example is not without exception – an exception must be carved out for a breach of the listing agreement and that exception is as follows. The real estate broker or real estate agent who holds an exclusive right of sale listing agreement is only entitled to a commission if the sale closing occurs during the term of the listing agreement (or if there is a breach of the listing agreement). If the sale of a property occurs after the end of the term of the exclusive right of sale listing agreement, that sale would not be subject to a listing agreement. The realtor/broker would not be entitled to a commission based on the sale of the property after the term of the listing agreement expired.
Who Holds All The Cards In An Exclusive Right of Sale Listing Agreement In Florida? The real estate agent or real estate broker holds all the cards. The owner of the real property who has signed an exclusive right of sale listing agreement is at the mercy of the real estate agent/broker. The owner must comply with the terms of the exclusive right of sale listing agreement or risk a lawsuit for breach of contract and damages. It is critical for a real estate owner to understand what they are getting into before signing an exclusive right of sale listing agreement.
Benefits of an Exclusive Right of Sale in Florida
Benefits of an Exclusive Right of Sale in Florida
For sellers, having the guarantee that their property will be sold is a considerable advantage. They can breathe easy and not worry about whether or not they’ll be receiving payment in a timely manner for their property. They can also walk away confident that their agent has been looking out for their best interests and handling all negotiations. Even if the house doesn’t sell, the seller knows that their agent was still working for them.
For real estate agents, having a commitment from a client to sell is a huge advantage. You know that you’re not going to be wasting time and effort on a client that could back out of the contract at any moment. You can look for a buyer with confidence, knowing that you’ll be getting a commission as long as the sale goes through. You can also put more time and resources into marketing and advertising for the client. Your hard work will result in a return on investment.
Having an exclusive right of sale to your property will give you the peace of mind of knowing that it’s going to sell. You can rest assured that your agent is doing everything possible to market your house and get you the best deal. And whether you’re a seller acting solely on your own or working with your real estate agent, the exclusive right of sale will ensure that you and your agent are on the same page and in total agreement.
Legal Duties Under an Exclusive Right of Sale
When an individual or entity enters into an exclusive right of sale listing agreement with a licensed real estate agent, several legal requirements must be met. For the property owner, among other things, the owner must sign and date the contract, provide the correct legal description of the property to be sold, and pay the broker the agreed compensation in the event of a closing within the timeframe established in the agreement. Failing to pay the commission to the real estate agent pursuant to the terms of the exclusive right of sale listing agreement can result in the broker seeking legal action to enforce specific performance or seeking damages for the realtor’s compensation on the claimed property sale.
The duties and obligations of the real estate agent under the listing agreement are to act in good faith, to exercise reasonable skill, care, and diligence when performing the services for the owner, and to comply with any statutory duties and common law duties of a licensed real estate agent. More frequently, the relationship between a real estate agent and the property owner under an exclusive right of sale listing agreement is described as that of a "fiduciary". A fiduciary relationship creates ethical and possibly, legal obligations to the client and could create a cause of action against the real estate agent and/or the brokerage if a duty owed is breached.
Drafting an Exclusive Right of Sale Listing Agreement
The process of preparing a sale listing agreement involves several steps. The right listing agreement can be the difference between an ugly mess later on and a wonderful closing.
- Decide on the Listing Terms: The seller and the listing broker negotiate the commission and any other matters they want to deal with in the listing contract.
- Fill In The Appropriate Blank Spaces: The Florida listing agreement form (FAR-25 or FR/BAR-24) consists of some standard terms and conditions followed by blank spaces indicating the various choices which have to be made by the parties. On the FAR-25 the spaces are lettered like the alphabet (e.g. A, B, C, D) On the FR/BAR version, the spaces are numbered (e.g. 1, 2, 3, 4).
- Cross-Out The Terms You Reject: Any terms you and the broker reject must be crossed-out. Depending on the deal , this is not as simple as it may seem. In negotiating the terms you may end up rejecting terms contained in the form. Or you may find gaps in the form where terms need to be added to the agreement. Any gaps which are not filled make the listing agreement more confusing and open to arguments about their meaning.
- Make Sure All Of The Spaces Are Filled In: The listing contract must have all of the appropriate blank spaces filled in, and any blank terms which are rejected or modified must be crossed-out. If the blanks are not filled-in the agreement may be argued to be incomplete. In other words, a deal may be made to close that was never really finalized.
- Seller Signatures: Only sign the listing agreement in the presence of your real estate broker. Florida statutes have strict licensing requirements for brokers. If your broker is not licensed you are entitled to recover any amounts paid under the listing contract.
Common Mistakes and How to Avoid Them
Sellers or property owners, as well as agents, can run into some common errors when dealing with an exclusive right of sale agreement. These mistakes can be costly and make the sale of a property more difficult than necessary.
Failing to Understand the Terms
Both buyers and sellers can get charged fees if they fail to read the terms of an exclusive right of sale agreement closely. For example, if a seller relinquishes payments on an agreement before an acceptable offer is received, they can lose out on potential money from a buyer after the offer period ends. So make sure you read your agreement all the way through and understand how it works before signing the deal.
Letting Agents in the House
A mistake that many sellers make is not getting access to their home. You may think that this is not possible under the terms of the agreement, but more on the seller side of the table have stories of not being able to use their own residence while an agent has it listed than you might think. Remember that your agreement specifies the terms for showing the house, and anyone involved in the sale should respect those terms on both ends of the deal.
Not Ending Your Agreement
Sometimes a sale will not go through. It’s not uncommon for this to happen. If it does, make sure that you know the terms for ending the agreement and have done so, otherwise you might find that a deal has fallen through but you must continue to pay the agent for the agreement.
How to Cancel an Exclusive Right of Sale
The Florida Department of Business and Professional Regulation (DBPR) has promulgated Form 1 – Exclusive Right of Sale Listing Agreement. It is a contract between a licensed real estate broker and a property owner (or owner’s authorized agent). The owner grants the broker the exclusive right to list the owner’s property for sale. The exclusive right of sale may last from one day to six months. The owner pays the broker a commission according to commission amount specified in the listing agreement if the owner sells the property within the time specified in the listing agreement regardless of who sells the property.
The exclusive right of sale is beneficial to the listing broker and the real estate industry because the broker is guaranteed a commission if the listed property sells within the term of the exclusive right of sale. The listing broker spends hundreds of man-hours, money, and other resources trying to sell the listed property. The broker earns his or her commission by performing services, not because the property sold. These same reasons sometimes make the exclusive right of sale undesirable for the owner.
Sometimes the owner may have buyer’s remorse due to hastily signing the listing agreement or perhaps the owner did not put enough thought into the listing agreement. The owner may not have wanted to list the property for a long period of time or at the price that was listed. Other times the owner may have predetermined a closing or timing of an event that made the listing unlikely to result in a sale. And, the owner may have signed multiple exclusive right of sale listings for the same property and wants to terminate a listing agreement on some of the properties in order to list with another company and/or broker.
In Florida, contracts are generally freely terminable by the parties , unless there are terms in the agreement that control the termination rights. If there are no execution dates of agreed events of default in the exclusive right of sale listing agreement, then the listing agreement may be terminated by the parties for any reason by mutual agreement. However, if an exclusive right of sale listing agreement has a pre-printed date of termination, the parties must abide by that date unless the agreement is terminated by mutual agreement or other unforeseen circumstances.
A termination agreement by mutual agreement is commonly called a rescission. To validate and confirm that the listing agreement is terminated by mutual rescission, all of the parties to the listing agreement should sign a rescission document. The parties can create their own rescission by preparing a short sentence that states that the parties mutually rescind the exclusive right of sale listing agreement and include the contract number and date to identify the listing agreement.
A rescission should also include any provision concerning the payment of commissions. The rescission can provide that no commission is owed, a full commission is owed, or a partial commission is owed upon the listing company selling the property.
The rescission agreement terminates the listing agreement and such termination preempts Florida Statute ยง 475.1705, which discusses the limitations on the right to terminate a listing agreement during the first 90 days after the execution of the listing agreement by the seller.
After the exclusive right of sale listing agreement is rescinded, the owner may engage a different broker to sell the property or attempt to sell the property on his or her own. However, if the rescission agreement does not excuse payment of a commission, then the former listing company may still have a right to payment of the agreed upon commission up to the amount of the commission or net sales price if the property is sold by the owner or new listing company.