What are listing agreements?

In this post, we will cover what listing agreements are and the parts that make up a listing agreement. As a seller/owner of real estate, you are typically asked by brokers/agents for an authority to sell or a listing agreement.

Definition 


A listing agreement essentially is a contract or agreement between a seller/owner and an agent representing the seller/owner. This is most often called the "Authority to Sell" or the acronym "ATS" in the Philippines.

Importance


A listing agreement is important since it clearly identifies the property, the owner, the asking price, terms, conditions, treatment of expenses, and much more that the agent is authorized to offer to buyers. If ever there is some confusion on the sale. This is the document you should always refer back to.

Confusion of Terminologies

Sometimes this listing agreement or the term "Authority to Sell" is a source of confusion. You might say "What! I don't want them to sell without my signature or consent!". Please note the Authority to Sell or listng agreement effectively only gives the broker/agent the "Authority to Offer For Sale" and doesn't give a special power of attorney or right to sign on your behalf.  I will talk about the special power of attorney in another article.

What it is Not

The listing agreement does not give the agent complete authority to sell a given property. In fact, it is given to limit the authority of the agent i.e. duration of the listing agreement, for what price and who shoulders what, and so on and so forth. It only gives the broker/agent the authority to offer for sale or purchase a property. Owners/Sellers will still have to make the final decisions and signatures to convey the property over to the Buyer.

Elements or Parts


There are a number of parts found in a listing agreement. The succeeding sections cover each one more in detail. Understanding each element will help you understand it's importance in the listing agreement and will give you more confidence when you put your pen on the paper.

Owner


This element serves to identify who the owner of the property is. This should be the person or persons on the title of the property since they are the rightful owner. Information should be enough to identify the person, marital status, how to contact the person. Should the person be married then marital consent is also needed from the spouse. Should the owner be a corporation, then the formally authorized signatory will be the one listed here.

Authorized Person


This element is typically the real estate broker, and their real estate broker license number is also printed. This is the agent who will be authorized to sell the property identified.

Type of Agreement


This element is typically one of two options

1. Exclusive - where the primary agent who is granted this kind of listing agreement, he/she is the one and only one agent that is authorized to sell the property. If they work with other agents, the primary agent aside from managing his/her own clients, is responsible for managing other agents and their respective clients. the primary agent must register clients with the owner.

2. Non-exclusive - where the primary agent who is granted this kind of listing agreement is not the only one primary agent to who is authorized sell this property. The agent may still work with other agents and will be still responsible for managing these agents and their respective clients. However, the owner is now responsible for managing all primary agents, secondary agents, clients that come into the picture with regards to the property. The primary agent should register clients with the owner.

Duration



This element just calls out the duration of the listing agreement. This varies from 1 month to a year or to ever how long you both agree. Usually, there can be a start date and end date. Or there can be a start date and a duration and you just have to calculate the end date.

Property



This element is just the proper identification of the property. i.e. what is being sold. Aside from the document based items such as the land and the improvement, it is also good to note down what else is included or excluded for clarity e.g. furniture, appliances, artwork, parking, etc. Also, the condition can also be stated e.g. as is where is or if some repairs will be thrown in. 

Property classification

This element is based on the primary use as well as what the classification in property documents e.g. residential, commercial, etc. But this is important is it is the basis for applying the right taxes when making a sale.

For example, if you have used the property to derive income, the property may be subject to VAT.

Asking Price


For this element, we focus on the typical in the industry.

For residential properties, asking price is the gross selling price. Gross selling price is inclusive of capital gains tax and the broker's professional fee i.e. capital gains tax and the broker's professional fee is for the account of the seller.

For commercial properties, asking price is the gross selling price + VAT. Gross selling price is inclusive of creditable withholding tax and broker's professional fee i.e. creditable withholding tax, broker's professional fee, and VAT are for the account of the seller.

Terms and Conditions



This element typically covers the accepted payment terms i.e. schedule of payments .will accept bank financing or all cash or a mixture. Also covered are related conditions concerning the payment i.e. what is refundable which is not refundable and other related terms.

Taxes and Expenses



This element clearly calls out a list of taxes and expenses and for whose account they are for. The typical is other than asking price, as mentioned earlier above, all other expenses are for the buyer's account.

Typically what are for the seller's account varies per property classification. If the property is residential and hasn't been used to generate income, the seller is accountable for the broker's a professional fee and capital gains tax. If the property was used for business, the seller is accountable for the broker's a professional fee, creditable withholding tax, and value-added tax.

These are typical but from case to case these items are typically negotiated. It is just a matter of who pays for what at the end of the day.

Holdover clause


This element exists to properly recognize that even after the expiry of the listing agreement the agent that was the procuring cause for the sale of the given property will still be credited with the said professional fee. In other words given the agent was able to register a client with a seller. The seller is still obligated to provide the agreed-upon professional fee.


Please note this section and the next 3 sections focus on the process after a listing agreement has been finalized.

Client Registration



1. The agent with the listing agreement must register clients with the owner and the agent should take note where the client came from either it's a direct client or a client from another agent. In the case of closing a deal, proper traceability of agents involved and providing the right compensation for each of the agents involved can easily be managed.

2. The owner has the responsibility to note down the agent, who was granted the listing agreement, where the client came from since they are the one who is authorized and was the one who procured the client regardless if this agent has worked with other agents. This could be as simple as noting it down using a piece of paper or if you want to get more high-tech then a document on your computer or mobile phone notes.

What if already registered?


What to do if an agent A with the non-exclusive listing agreement comes up to you to register a specific client. As an owner, you check your notes and find that the client already was registered by Agent B and was shown the property.

Answer: Inform the agent A about the client already being registered with another agent and provide the name. This prevents duplicate agent client ownership, maintains ethics in the transaction and also makes compensation straight forward since the agent with a listing agreement that first registered the client is the procuring cause.

Updates 



If there are updates to the listing agreement e.g. change in property details, terms, price etc. the listing agreement may be reissued and signed. Or the agreed changes are documented via email and the parties copied and agreed.

Please take note updates for example to pricing is a double-edged sword. If you increase the price after the property was offered to some buyers, the agent/broker will need to update buyers and most often I have experienced buyers becoming not interested anymore unless they really don't have any other choice. If you decrease the price, well buyers are happy but maybe asking why the reduction as if something wrong with the property.

Cancellation 


If there is a need to cancel the listing agreement e.g. will not sell the property anymore, one party just has to inform the other and get a confirmation. Do take note that the holdover clause is still in full effect even if the listing agreement is canceled. This means if sometime later on the broker/agent's previously registered client purchases the property outside the period of the authority of the listing agreement, the broker/agent is still considered the procuring cause and needs to be credited for the sale of the property.

Summary


In summary, a listing agreement is a contract between an agent and an owner/seller. It is also typically called an authority to sell or ATS. It serves to define and limit the authority to sell. Various elements comprise the listing agreement. Having a clear listing agreement serves to benefit both parties.