Real Estate

Real Estate Matters

Structuring listing agreements, plus six tips to crafting an addendum to the listing agreement

Ask any real estate attorney about disputes between sellers and listing agents and you are likely to hear a lament about the lack of specificity in residential real property listing agreements. The forms widely used in Silicon Valley are generally written in a way that provides a lot of protection to real estate agents and may contain terms inconsistent with what many sellers desire. However, through detailed discussion with a reputable real estate agent and a relatively simple addendum to the agreement, most of these issues can be resolved in a way that is fair to both the seller and the agent.

There are many different approaches to marketing and selling homes in Silicon Valley, yet the two most common listing agreements used by local real estate agents do not place many specific requirements on the agents' services. Often, sellers and agents have divergent points of view when it comes to the quality and quantity of marketing that the agents will provide in exchange for their hefty commission. Similarly, some listing agreements are signed without a clear understanding of who will pay for the staging costs, property inspection, pest inspection, home preparation and escrow fees.

Although sellers and agents may not see eye to eye on the scope of the agents' services most notably with regard to the level of marketing these issues often remain hidden until after the contract is signed and the parties are bound.

The two most popular listing agreements in Silicon Valley, which are published by the California Association of Realtors (CAR) and the Peninsula Regional Data Services (PRDS), are quite vague with regard to the marketing that agents will provide. In fact, they both include language whereby the sellers authorize the broker to advertise and market the property in any medium selected by the broker, but neither agreement outlines any particular requirements imposed upon the broker.

In addition to the lack of detail with regard to the scope of services, there are two other significant issues that should be considered before signing a "standard" listing agreement. First, the forms are drafted in a way that provides a great deal of protection to the agents, which may be more one-sided than appropriate. Second, sellers may be liable for commission even if they don't sell the property. Inadvertently triggering a commission obligation can come up in a few circumstances, such as when the seller makes the property "unsaleable" (e.g., canceling the listing or renting the property), or when the seller turns down a noncontingent offer at or above the asking price. The latter situation is particularly problematic in this market because many properties are priced at a level lower than the sellers hope to obtain. While agents are quick to point out that the "sellers never have to sell," which is generally an accurate recitation of current case law, that is not the same as saying that the clients will not owe commission unless a certain price target is hit. If the agents mean the latter, then that should be specifically agreed upon and included in the addendum.

Many of these problems can be eliminated if addressed before the parties sign the listing contract, and if the agreed-upon terms are reduced to writing in the form of an addendum.

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Six tips to crafting an addendum to the listing agreement

1. The seller should address the expectations throughout the entire listing period, not just the first week.

2. Vague or general statements, such as the agent will "advertise the property aggressively" or "act diligently," should be replaced by more specific commitments, such as the agent will "run a full-page ad in [a particular publication every week until the property is sold," or "produce and distribute 300 20-page fliers specific to the particular property."

3. The agent should provide a minimum commitment in marketing expenditure (e.g., the agent will invest at least $20,000 in home preparation and marketing and provide the seller with receipts if requested).

4. If the seller wants to retain the right to turn down any offers below a certain price point, then that price should be agreed upon and included in the addendum.

5. If applicable, the seller should make sure to specifically address who is responsible for the cost of: inspections, staging, videos (reference a sample provided by the agent), brochures (reference a sample), virtual tours, photography (name particular photographer), cable TV ads (length and number), radio ads (length and number), newspaper and magazine ads (size, frequency and publications), and online marketing.

6. The seller should consider including clauses that reduce the commission if a particular price is not achieved or that increases the commission if the price exceeds a certain target.

Michael Repka, CEO and general counsel for DeLeon Realty, Palo Alto, formerly practiced real estate and tax law in Palo Alto. He formerly served on the Board of Directors of the California Association of Realtors. He can be reached at MichaelR@DeLeonRealty.com.

Comments

1 person likes this
Posted by Abitarian
a resident of Downtown North
on Aug 21, 2015 at 4:36 pm

This is a very helpful piece. I have bookmarked the page and will be sure to craft such an addendum upon selling my home.


Like this comment
Posted by neighbor
a resident of Midtown
on Aug 23, 2015 at 3:16 pm

[Post removed.]


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