Real estate brokers work hard to earn their commissions. And they use specialized training and experience to secure the right buyer for the seller’s unique property. As a result, brokers deserve to be justly compensated for the value they bring to each transaction.
Most commonly, brokers negotiate with sellers to be paid through the standard exclusive right to sell listing agreement (the “listing agreement”). Put simply, the listing agreement requires the seller to pay a commission to the broker if the broker is the procuring cause of a sale during the listing term.
Per the National Association of Realtors® (NAR), procuring cause is the “uninterrupted series of causal events, which results in a successful transaction.” Common law defines procuring cause as “a broker’s activity which originates a series of events which, without break in their continuity, result in accomplishment of the prime objective of employment of the broker-producing a purchaser ready, willing and able to buy real estate on the owner’s terms.” Hurley v. Kallof, 2 Ariz. App. 446, 449, 409 P.2d 730, 733 (1966) (quoting Clark v. Ellsworth, 66 Ariz. 119 at 122, 184, P.2d 821, at 822 (1947)). If a broker was the efficient, proximate, and procuring cause of the sale of real estate listed with him, he was entitled to his commission even though the transaction was handled and closed by another broker. Bowser v. Sandige, 74 Ariz. 397, 401, 250 P.2d 589, 591 (1952) (citing Fink v. Williamson, 62 Ariz. 379, 383, 158 P.2d 159, 161 (1945)). The court has also defined “procuring cause” with the terms: “One who is the immediate and efficient cause of the sale.” Fink, 62 Ariz. at 383, 158 P.2d at 161.
Importantly, whether a broker is the procuring cause of a sale of property listed with him or her is, usually a question of fact. Clark v. Ellsworth, 66 Ariz. 119, 122, 184 P.2d 821, 822 (1947). Three apparent factors in the factual analysis are:
- Whether the buyer was already an acquittance of the seller;
- Whether the agent was “first in point of time to introduce the purchaser to the property”; and
- Whether the transaction was “a mere subterfuge to defeat the broker of his commission.”
Per statute, listing agreements must have a definite duration, including a definite expiration date. So, what happens if due to the broker’s marketing efforts, a buyer brings a full price offer to the seller just days or weeks after the listing expires? To protect brokers in this instance, most listing agreements have what is known as a “broker protection clause,” also known as an “extension clause” or “tail provision.” The broker protection clause provides that if the owner contracts to sell the property with a buyer who was procured by the broker within a specified period of time after the expiration of the listing (such as 90 days), then the full commission is owed. This prevents the unjust situation where due to the broker’s marketing efforts, a buyer contracts to purchase the property after the listing expires, and the broker receives no compensation for his or her services.
The broker protection clause, however, creates a potential economic problem for the seller who immediately enters into a new listing agreement with a second broker. In that case, the seller may expose him or herself to payment of two commissions. To prevent this problem, most listing agreements provide the following important exception to payment of commission to the original broker: “unless the seller lists the property on an exclusive basis with another broker.”
Thus, per the above exception, if the seller enters into a new listing agreement with another broker, even if the seller contracts to sell the property to a buyer who was procured by the original broker, the seller will only owe a commission to the new broker and will have an affirmative defense to any claim for a commission brought by the original broker.
In the above situation, the original broker is not without remedy. As long as the original broker can show that he or she was the procuring cause of the buyer, then the original broker should have a claim for the co-broke commission offered by the new listing broker in the Multiple Listing Service (MLS). And per the MLS Clear Cooperation Policy, “Within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants.” See //www.nar.realtor/about-nar/policies/mls-clear-cooperation-policy. As a result, the original listing broker should be protected from forfeiting their commission even after the expiration of the listing agreement, as long as they can demonstrate that they were the procuring cause of the closing.
To avoid any confusion and to protect imperfect memories, at the conclusion of every listing term, the broker should provide the seller with a written list of all buyers whom the broker delivered to the seller during the listing term. And the broker should request in writing that the seller provide this list to any future brokers they decide to hire.
If you or anyone you know have questions concerning real estate listing agreements or commission issues, contact Mr. Charles at Provident Law. Our real estate attorneys represent parties on either side of real estate and financing transactions, including buyers, sellers, landlords, tenants, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We advise, structure, negotiate, and document a variety of real estate and financing transactions, including leases, purchase and sale agreements, financing agreements, and development agreements for a variety of commercial and residential projects. Contact us today and learn how we can help.
Christopher J. Charles is the founder and Managing Partner of Provident Law®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). Mr. Charles holds the AV® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at or at 480-388-3343.
A listing agreement is a contract under which a property owner (as principal) authorizes a real estate broker (as agent) to find a buyer for the property on the owner's terms. In exchange for this service, the owner pays a commission.
Less commonly, the term listing agreement also refers to a contract made between a security issuer (e.g., a public company) and the financial exchange that hosts the issue. Examples of exchanges include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), and the London Stock Exchange (LSE).
- A listing agreement is a contract between a property owner and a real estate broker that authorizes the broker to represent the seller and find a buyer for the property.
- The three types of real estate listing agreements are open listing, exclusive agency listing, and exclusive right-to-sell listing.
- The listing agreement is an employment contract rather than a real estate contract: The broker is hired to represent the seller, but no property is transferred between the two.
A listing agreement authorizes the broker to represent the seller and their property to third parties. The listing agreement is an employment contract rather than a real estate contract: The broker is hired to represent the seller, but no property is transferred between the two.
Under the provisions of real estate license laws, only a broker can act as an agent to list, sell, or rent another person's real estate. In most states, listing agreements must be written.
Because the same considerations arise in almost all real estate transactions, most listing agreements require similar information, starting with a description of the property. The description typically includes a list of personal property that will be left with the property when it's sold, as well as a list of personal property the seller expects to remove (for example, appliances, and window treatments).
The listing agreement also specifies the listing price, broker's duties, seller's duties, broker's compensation, terms for mediation, an automatic termination date, and any additional terms and conditions.
Though listing agreements are legally binding, it's possible to terminate the contract in certain situations—for example, if the broker does nothing to market the property. In addition, the listing agreement will be terminated if the property is destroyed (e.g., by a fire or natural disaster), or upon the death, bankruptcy, or insanity of either the broker or seller.
With an open listing, a seller retains the right to employ any number of brokers as agents. It’s a nonexclusive type of listing, and the seller is obligated to pay a commission only to the broker who successfully finds a ready, willing, and able buyer. The seller retains the right to sell the property independently without any obligation to pay a commission.
The Multiple Listing Service (MLS) is a shared database established by cooperating real estate brokers to provide data about properties for sale. MLS allows brokers to see one another's listings of properties for sale with the goal of connecting homebuyers to sellers. Under this arrangement, both the listing and selling broker benefit by consolidating and sharing information and by sharing commissions.
With an exclusive agency listing, one broker is authorized to act as the exclusive agent for the seller. The seller retains the right to sell the property without obligation to the broker. However, the seller is obligated to pay a commission to the broker if the broker is the procuring cause of the sale.
An exclusive right-to-sell listing is the most commonly used contract. With this type of listing agreement, one broker is appointed the sole seller's agent and has exclusive authorization to represent the property. The broker receives a commission no matter who sells the property while the listing agreement is in effect.