How a Listing Agreement is Terminated

What is a Listing Agreement?

The Listing Agreement is a contract creating an agency relationship between a broker and their seller client. Put simply, a Seller and a Broker enter into an agreement whereby the Broker agrees to list the Seller’s property for sale for a stated period of time, at a stated price and the Commission they are to be paid if the property sells; in exchange, the Seller agrees to pay the stated Commission to the Broker.
Available types of Listing Agreements include Open, Exclusive Agency and Exclusive Right to Sale. Unfortunately, many would believe there is a fourth type of Listing Agreement, Non-Exclusive or Non-Exclusive Right to Sale, however, it is not a true Listing Agreement as no agency relationship is created, nor will the Broker receive the Commission unless he sells it. The more common Listing Agreements are the Exclusive Agencies, however , they can have both written and oral forms.
The most common Listing Agreement is the Exclusive Right to Sale Listing Agreement. In this type of agreement, the Broker is granted the right to be the sole person listed to sell the property and is entitled to the entire Commission if the property is sold. Even if the seller finds the buyer himself, the agent is entitled to the Commission. An Exclusive Agency Listing Agreement gives the Seller a way out – if he finds the buyer (without the help of the agent) then he is not obliged to pay any Commission to the agent.
Under a normal Listing Agreement, the first Commission to be paid to a Broker when a property sells is usually 3%. This is known as the Co-op Commission. This commission is normally offered to the Buyer/Seller agent, known as the Cooperating or Subagent. The Seller generally pays the Commissions involved in the sale, however, the Broker can negotiate a different arrangement in order to reduce the Seller’s closing costs.

Common Listing Agreement Termination Grounds

Not every listing agreement is meant to be. Unless a listing agreement is for a predetermined term, it is likely to be terminated when that term expires; however, sellers will sometimes wish to terminate a listing agreement before the term expires. Some common reasons to terminate a listing include:
Expired time frames. Listing agreements are entered into for a set period of time. In a majority of instances, when the term of a listing agreement ends, the seller is under no further obligation to sell the property through that particular broker. In some cases, the listing agreement gives the seller the right to extend the agreement under certain conditions.
Mutual consent. If both the seller and the listing broker agree to terminate the agreement, measures need to be taken to ensure that the termination is legal in the eyes of the law.
Breach of contract. If the agent or broker is in breach of any major terms or covenants set forth in the listing agreement, the seller may choose to terminate the listing. Some examples of unfulfilled responsibilities that would constitute a breach of contract include: Separate from the brokerage. A seller may decide to terminate a listing agreement if he wants to sell his home through a real estate brokerage other than the original one. In such instances, the seller may choose to exercise the exclusion if the agreement has an exclusion stating that the seller can list with a different company upon expiration of the contract and avoid paying the sales commission to both brokers. However, the seller must be certain to comply with any provision in the listing agreement that addresses the rights of prior brokers to receive a commission if a sale occurs during the term of the agreement.
Seller dissatisfaction. A seller may be dissatisfied with the service provided by his listing brokerage. This is the case when an agent fails to fulfill his agreed responsibility for providing marketing services. The seller may decide to terminate the contract in such a case.

Termination Legal Grounds

There are a number of reasons that a listing agreement can be terminated. First, and most frequently, the contract may provide that it is terminable on the happening of a certain specified event, or upon written notice by either party. For instance, the contract may provide that it terminates upon closing of the sale, on the mutual agreement of the parties, or by the agent upon the return of the listing agreement to the owner. This type of listing agreement is often used in residential sales.
Other listing agreements may limit the time for which the agreement is binding by permitting termination of the agreement at the end of each successive time period, such as monthly, quarterly, bi-annually, or annually. A contract containing a term limit is usually enforceable so long as the time period is set forth in some form of a writing executed by the parties. (It is important to note, however, that in the sale of residential real estate, the buyer has the option to make a claim against the sold property even if the act is undiscovered until after the sale’s completion. Therefore, if the act or failure to act claiming grounds for recission did not come about until after the date of the listing agent’s expiration, (s)he would have no recourse against a property owner who made no claims whatsoever until after the expiration date of the listing agreement.)
A third way to terminate an agreement is by the refusal of the owner to cooperate with the agent in carrying out the terms of the contract. In the absence of any contractual stipulations to the contrary, an agent has no obligation to continue pursuing a sale of the property where it is clear that the owner’s failure to cooperate is intentional and no fault of the agent’s.
Similarly, an agent may terminate a listing contract where the sale would be unlawful, such as where the owner fails to comply with a local zoning ordinance. If an owner’s actions are – or will be – illegal, an agent has no obligation to sell the property to which the listing agreement pertains.
Additionally, a listing agreement can be terminated upon the death, insanity, or incompetency of any of the parties. Where an owner becomes legally incompetent or is deceased, a listing agent may not be able to recover fees from the offending parties without permission from that person’s estate. Thus, an agent may freely terminate a listing agreement once an owner of the listed property becomes legally incompetent.
In the absence of any of the above provisions in a listing agreement, the listing agreement will expire at the end of the specified period, or when the purpose of the contract has been accomplished, or by default or breach of the contract by the owner.

Listing Agreement Termination Process

The process of terminating a listing agreement starts with reviewing the documents you have and deciding how you’re going to terminate the agreement. Is performance still required by both parties because it’s during the term and is it mutual? Or does one party wish to unilaterally terminate the agreement? In the first case, you need to go to the Listing Agreement and determine if there is a way to terminate by mutual consent. For example, is there a provision providing that the parties hereto may mutually agree to cancel this agreement at any time by providing prior written notice of the same. If you don’t have a provision that allows for mutual termination and you have a unilateral termination, per the Listing Agreement instructions, prior to giving notice to the Seller or Broker you are required to provide a copy of the notice of termination to the other parties and give the other parties the opportunity (within ten days) to object in writing, and the full five days must be given.
Assuming the parties are able to mutually terminate the agreement, a mutual Release of Contract or even a Release of Waiver of Contingency or Mutual Cancellation of Contract with a Notice of Release and Lis Pendence form should be used. All parties involved in the listing agreement (the Owner and the Broker) should sign the Release form and each a copy retained.
If you decide to exercise your unilateral right to terminate as the Owner, you must serve or give the Notice of Termination to the Broker, and then provide a copy of the Notice of Termination to the Owner. The requirement of providing a copy of the Termination to the other party and giving the party the opportunity to object doesn’t have to be done prior to sending it to the other party.
If the Owner decides to unilaterally terminate the Listing Agreement without objection from the Broker, the terminated agreement would not apply to the Broker but it would have to apply to the Owner.

Termination of a Listing Agreement

Depending on how the listing agreement is terminated, there can be favorable and adverse consequences for the seller and the real estate agent. If the seller has the right to terminate, but does so when the agent is satisfactorily performing, the seller forfeits any benefit derived from the listing agreement, such as the commission. If the seller terminates without adequate cause or right to do so, the agent may have a valid basis for seeking damages , including lost commissions. However, the seller may have a right to damages for the buyer who was procured and is ready, willing, and able to purchase the home on terms acceptable to the seller. Although generally the exclusivity of the agency relationship will cease upon termination of the listing agreement, if the seller receives an offer from someone procured by the agent or sells the property shortly after the termination, the agent may have a valid basis to seek a commission.

Avoiding Common Mistakes

An additional area where you can find yourself in a dispute with your client is when attempting to terminate a listing agreement. In fact, there are a number of pitfalls that one should be aware of to avoid difficulties when terminating a listing agreement.
The first two pitfalls are really the flip side of each other. The first is when a listing agreement is terminated without the required notice, or without giving the required time for the agency to terminate the listing agreement. As real estate agents, we sometimes forget that the requirement to provide either notice, or a window to request a notice of termination is in place not only for the protection of the client, but also for the agent. If a seller signs a listing agreement but decides the morning of the first day of the term of the listing agreement that he no longer wants to sell the property, the seller may be in breach of the listing agreement if he does not allow the agent the opportunity to cancel during the notice period. This would evidently be a dispute between agent and client, but as the agent, you could find that your safeguard for this type of client has not helped you if the permit the client to terminate without regard to the notice requirement.
A similar pitfall is to attempt to terminate a listing agreement when the required notice has already been given by the client. Let us think about the above scenario again. The listing agreement is signed, and was due to become effective on Monday. On Sunday, the seller says that he wants to terminate the listing agreement. You determine the effective date to wait out the notice period, and realize you do not want to wait until the end of the notice period to terminate the listing agreement. Unfortunately, according to Section 35(b) of the Code of Ethics and Standards of Practice, if the seller wants to terminate the listing agreement during the notice period, the agent must honor the seller’s request. It will then be the responsibility of the broker to terminate the listing.
One way to avoid this pitfall is simply to submit a signed termination request from the client when termination is required. You may find that your broker will provide a termination request for your signature whenever a termination request is received by a client. Conversely, if you are the broker, you may choose to follow that policy of providing a termination request when one is presented. When the form is presented, it will serve as the final notice to the agent and the client that the termination is in effect.
One pitfall that we have recently discovered that many brokers are not aware of has to do with Section 4527 of the Civil Code, which requires a broker to obtain a renewal or extension of a listing agreement in writing. In the Davis v. WP Holdings Company case, the listing agreement was terminated by the listing agent, however the listing agreement was subsequently renewed orally by the client. The court found that the renewal was void because the prior termination had not been confirmed in writing (even though the parties all believed that the listing agreement had been renewed). To avoid this pitfall, be sure your clients sign a written termination before extending or renewing a listing agreement.

Seeking Professional Guidance

While the above discussion looks easy on paper, in reality there are a myriad of issues an owner may face relating to termination of a listing agreement. Thus, we recommend seeking legal advice if an owner becomes concerned that their listing agreement is no longer effective.
When considering a termination, an owner may not know if his/her motivation is proper or if doing so may cause penalties, but an attorney with experience in real estate issues can help answer those questions. In fact, an owner/agent should consider a termination if they believe a termination is warranted , but they will want to be sure that the termination is the right decision. The discussion above was meant to give an overview of the issues that can arise when a client inquires about terminating a listing agreement. However, as with any contract, there may be other issues either of a repetitive occurrence that are unique to a specific agent or broker or more correctly classified as specific to a situation. If there is a question, chances are it would be best to contact an attorney with experience in these types of matters.
An agent or agency that is caught in a situation where termination is considered may want to have an attorney review the facts behind the termination, particularly if there seems to be a finger pointing party that may effect whether the agency receives compensation.