Listing agreements are the most misunderstood documents in real estate. Their original purpose has been revised to a point where they are among the least advantageous documents consumers are likely to encounter in any field.
No one has the self-proclaimed right to offer a property for sale without the express permission of the owner. A listing agreement is a contract between an owner and a broker which establishes that the broker has permission to represent the property and obtain compensation if the terms of the listing contract are met. Listing agreements in this context, are necessary to retain brokerage services.
Over a period of time listing agreements have obtained new meaning. Today, in addition to securing the right to represent, listing agreements serve other purposes.
A principal function of listing contracts now is to limit competition. The most commonly used listing agreement, the "exclusive right to sell" contract, not only bars other brokers from representing a property but also prevents the owner from selling independently during the term of the listing without paying a full commission.
Listing contracts create an inventory for brokers at little or no cost. In exchange for specific seller obligations, brokers under most listing contracts are vaguely required to provide the "service and facilities" of their offices. Meanwhile, during the term of the listing the broker has access or control of a property while the owner continues to pay taxes and interest whether or not the broker makes any realistic attempt to sell.
Listing contracts usually do not concern the purchase of a home. Instead, they routinely provide that the terms of the listing agreement will be fulfilled when a broker finds a buyer who is "ready and able" to purchase the property.
Suppose you list your house for $60,000. A signed offer is brought from a buyer for that amount. The offer requires you to make certain repairs. So you decide not to accept the offer. However, the listing agreement may have cited only the selling price as the sole variable factor required of the broker. Once the broker produces a buyer who meets the terms of the listing contract a commission is due even if the owner elects not to sell the property.
It has been noted earlier that brokers have an "agency obligation" to serve a principal. This obilgation exists only after a contract of employment - the listing agreement - has been signed. Until a listing is written, brokers and sellers have an "adversary" relationship right to seek the best possible terms.
Those terms, whatever they are, can be found in the listing agreement. Sellers should be extremely careful when considering a listing contract. These agreements are often passed off as a minor formality of no particular consequence. In fact, listing agreements are legal contracts and - like any legal obligation - require appropriate scrutiny.