Q: We have been trying to sell our house for a couple of months, and have given a number of real estate brokerage firms an "open listing." One of the brokers has asked us to give him an exclusive, and we are seriously considering this. Are there any legal complications if we switch to an exclusive."
A: Yes, there are legal complications.
First, let's define some basic terms. Over-simplified, when a seller wants to use a real estate broker, there are three kinds of arrangements that can be created:
Open Listing. Under this kind of arrangement, the seller of property is not prohibited from using more than one broker. A real estate commission is earned if a broker finds a buyer who is "ready, willing and able" to purchase. Where several real estate brokers are employed, the sale of property either by the owner or by any of the brokers, operates at once to terminate the authority of all other brokers. This is true even if they had no actual notice of the sale.
Exclusive Agency. Under this listing, a real estate company is made the exclusive agent of the seller. If the real estate company or any company finds a ready, willing and able buyer, the owner owes a real estate commission to the exclusive agent. However, the owner retains the right to sell the property without the use of a broker, and if the owner is successful, no commission is owed.
Exclusive Right to Sell. Under this listing agreement, the real estate company selected by the owner is guaranteed a commission in the event the property is sold by the named broker or by anyone else. Even if the owner sells the property himself, the broker is still owed a commission.
The multiple listing is an off-shoot of the exclusive right to sell. Under this arrangement, the broker with the exclusive right has the authority to utilize a computer-listing service to give the property exposure to other brokerage companies.
You have raised the question about legal complications involved if you switch from an open listing to an exclusive right to sell. A recent case in New Hampshire highlights some of the problems in this area.
The Hopewell brothers owned valuable lakefront property in New Hampshire.
In 1974, the brothers placed the property for sale under an open listing and the asking price. In 1975 and 1976, broker Blanchard showed the property to more than 20 potential buyers. One prospect, a Mr. Gingras, expressed great interest in purchasing, but had to settle some other matters before signing a contract. At about the same time, however, the Hopewell brothers entered into a written exclusive listing with another broker.
The broker with the exclusive listing agreement was not aware that Gingras had been an interested purchaser. Subsequently, Gingras approached the new broker, signed a contract and purchased the property.
Blanchard filed suit against the Hopewells. The Supreme Court of New Hampshire ruled in favor of Blanchard. Since he found the purchaser and the purchaser ultimately bought the property, Blanchard was entitled to a commission.
Thus, the seller ended up having to pay two separate real estate commissions.
The lesson to be learned from this case is that if you intend to switch from an open listing to an exclusive listing, notify all brokers of the new arrangement. This may be difficult, but you must make the effort. More importantly, if the broker with whom you have an exclusive presents you with a real estate contract, the contract shold contain the following clause:
"Purchaser warrants that broker . . . is the sole procuring cause of the sale, and that there are no other brokers involved in this transaction."
This provision will protect both the seller and the listing broker against any claims for commission by any broker who may have been involved while the property was under an open listing.