Listing Contract is Not a Mere Formality

Do not consider a listing contract to be a mere formality, it can have long-term ramifications.  Consider the case of First Weber v. Horsfall.  This case initially involved a claim from a 2002 transaction by First Weber Group Inc against a seller with whom it had a prior listing agreement as well as against its former agent.  First Weber's claim against its former agents arising from this 2002 transaction was finally rejected on appeal by the United States Court of Appeals for the Seventh Circuit in 2014 nearly 12 years after the underlying transaction.

In this case, a home seller signed a listing contract presented by a First Weber Group agent.  The agent later left First Weber.  After the listing contract expired, the agent presented an offer from a buyer who was a "protected party."  The buyer had been shown the property during the term of the listing agreement.  Therefore, even though the listing agreement between the seller and First Weber had expired, First Weber had a potential claim if the buyer presented an offer within 1 year after the listing agreement terminated.  The buyer eventually purchased the house, and the transaction closed with the seller paying a commission as it had agreed in the contracts entered into after the First Weber listing expired. Almost six years later, First Weber sued the seller and its former agent claiming to be entitled to a commission!!!  Litigation then ensued for the subsequent 6 years!?!

Takeaway #1 for consumers -  Be careful with whom you do business.  The listing contract a home seller signs is a contract with the broker and not with the agent.  The agent can sign for the broker when entering into the agreement but cannot modify or cancel the listing agreement without the broker's consent.  You may believe that the agent would be fair and reasonable in making accommodations under a listing agreement, but it is not the agent's prerogative to change the contract.  Some brokers are simply more litigious than others.  When considering hiring a real estate brokerage, search the CCAP records for the company to see how many times the listing broker has been involved in litigation.

Takeaway #2 for consumers - Give careful consideration and seek legal advice before entering into a real estate listing agreement.  People often treat the listing agreement as a mere formality.  Sellers assume that the form must be fair since it is standard.  They also assume that they know generally what it says without reading it.  THIS IS DANGEROUS.  Most people do not realize, for example, that a commission is earned regardless of whether a transaction closes!!?!  The fact of closing does not affect whether a commission is earned under the standard form listing agreement.  The agent presenting the agreement may offer assurances such as, "we never try to collect when the deal doesn't close."  Do not believe it.  The agent does not have the authority to modify the agreement to that effect and does not have the ability to live up to that promise even if he or she wants to.  The contract is between the seller and the broker.  Further, there are many cases where a listing company has sued a seller for a commission even though the transaction did not close.  

Takeaway #3 for consumers.  At a minimum, read the contract.  For example, many sellers do not realize that the standard form listing contract default language includes a 1 year "tail" for protected buyers.  This means that the listing company may have a claim for commission up to 1 year after the listing agreement has expired.  Given a 6 year statute of limitations on contract claims, a broker may be able to bring a commission claim against a seller almost 7 years after closing.