In the vast majority of cases, the relationship between the sellers of property and their agents is a positive one, with both parties looking back gratefully at their collaboration once the ink has dried. Of course, there are some exceptions. Sometimes there are misunderstandings that can cause frustrations for both parties, for example, a lack of understanding regarding a listing agreement. In rare instances, those frustrations can escalate into serious conflicts.
There are a few potential causes for misunderstandings between sellers and their agents. In most cases, the problems that arise are rooted in a misunderstanding of the seller’s rights and obligations vis-a-vis the agent, all of which should be outlined in the listing agreement. When it comes to seller-broker agreements, there are three common sources of contention. Below I’ll outline these issues, why they occur, and how they can be resolved:
Mandate to Sign a Listing Agreement
Ironically, many issues I have encountered with listing agreements in the past pertained to the wrong people signing the listing agreement. Anyone will (hopefully) agree that in order to sign a listing agreement, you need to hold the right to sell the property. The problem is that in some cases the person who is engaging with the listing agent thinks that they are entitled to sign the agreement, but are not.
The scenario in which not one single person can sign the agreement is a situation in which there is more than one owner. Everybody who co-owns a property needs to agree on the sale, in principle. When there is a disagreement, a court order can tie the knot. In other instances, when there is an agreement between parties but not everybody will—or can—actually sign, the co-owners will need to work with a power of attorney. It goes without saying that the exact rules on how courts resolve conflicts and on powers of attorney will vary from state to state.
Terminating the Listing Agreement
There are two very common reasons why sellers will want to back out of a listing agreement. The first case is where a seller is impatient because the property has not been sold in the preferred amount of time. In most agreements, the duration of the contract will be 12 to 13 months. Some sellers will get very anxious before the duration of the contract has ended and will want to get out prematurely.
The second case is where a seller has second thoughts on the price that has been set. In such an instance there will be a bid for the property that matches the full asking price but the seller now regrets not putting the asking price higher. Some sellers will then not want to accept that bid and withdraw the property from the market, which is allowed as per most contracts, and not even pay the agent the agreed-upon commission for the work delivered (this is never allowed as per all contracts).
While it is very human for sellers to lose their patience or suffer from a bout of “fear of missing out,” sellers need to understand—and this will also be understood from carefully reading the listing agreement—that neither of these aforementioned scenarios are legitimate grounds for premature termination of the agreement unless the agent is compensated within the terms of the listing agreement.
Reluctant to Pay the Full Commission
The listing agreement will communicate the commission that is due in unambiguous terms. While there is never a misunderstanding with the seller about what that commission amounts to (it is typically 6 to 10 percent of the selling price), sellers will sometimes want to get out of paying the commission in full.
Ironically, most instances where I have seen sellers balk at paying the agreed-upon commission concerned agents being too successful at marketing the property where the land is sold quickly after it has been listed. In such instances, sellers felt it to be “unfair” to pay for an effort that was less than what was originally anticipated.
While such knee jerk reaction to the swift sale might be human, it is actually only fair (and foreseen by the listing agreement) to pay the agent the full commission whether the sale went through 130 days, 120 days, or 300 days after the date of listing.
Sellers will often be mistaken about whether they can even sign a listing agreement in the first place and what their obligations are towards the listing agent in terms of paying the agreed-upon commission and not terminating the agreement prematurely without compensation.
A careful reading of the listing agreement between the seller of land and the agents that represent them—whereby many questions are asked to the agents beforehand, and even legal counsel is sought for large transactions—will help sellers avoid important mistakes in how they approach and manage their relationships with their agents.
Sellers need to keep in mind when they can and cannot sign the listing agreement, what rules apply to the termination of the agreement, and what duties they have towards the agents as far as the payment of commissions is concerned.