What is a Listing Agreement in the State of Texas?
A listing agreement is an agreement that expressly governs the relationship between a broker and a seller that is created by the seller’s written employment of the broker to find an elemental buyer for the seller’s real estate. The seller, in this case, is the person(s), who has the authority to enter into a contract for the sale or lease of the real estate, if the seller is not the sole owner. A broker has been defined by scope to include any employed individual or entity, brokers, one’s agents, sales staff, sales agents, etc.
In simple terms, a listing agreement is a relationship between a broker and a seller that establishes the rules for the relationship and how it will be handled. Generally speaking, the relationship established in a listing agreement is that the seller will provide the broker with the right to receive a commission once the property is sold. A listing agreement includes obligations on from the seller to the broker . Under this legal real estate listing contract, the real estate agent is essentially working for the seller and the commission obtained from the sale of the property is paid to the broker or agent instead of the Texas property owner. The type of compensation that the broker or agent earns from a real estate transaction is called "Brokerage".
Some of the more common types of real estate agents in Texas are exclusive right to sell and exclusive agency listing. Just like the name of the legal document sounds, this type of real estate property agent will act exclusively on behalf of the owner. The owner does not have the right to sell the land personally. All sales, contracts, and other rights will be controlled by the agent. Another similar type of real estate agent is an Open Listing. An open listing is the least exclusive level of real estate agent. Although the owner will be represented by a real estate agent, he also has the authority to sell the property.
Why Amend a Listing Agreement?
An amendment to a listing agreement may be issued for a number of reasons. For instance, the Seller may wish to reduce the price of the property to encourage a sale, the commission percentage may be increased, or the length of term the property is being listed for may be changed to extend the effective period. Perhaps you need to add an address to the original listing agreement, or you will be adding bonuses or commissions for anyone who is able to sell your property. Another familiar use for the listing amendment is to make changes to the commission rules as they apply to the English version of an exclusivity agreement based on the exclusion of the Spanish version.
There are also times when a piece of information simply has to be updated. The seller’s name or the property description may have changed, for instance. It is also possible that you are in negotiations with multiple buyers at once, and so will be marketing two different prices for your property. Listing amendments can be useful in this way, as they can apply to each specific buyer, versus providing general information on the property.
In real estate, the most common use of the listing amendment is to provide a reduction in price. Sellers will often reduce the selling price during the listing agreement period, usually around 30 days before the end of the listing agreement. The expiration date of the listing agreement may also be extended to keep the property current on the market, or the property may be withdrawn from the market altogether.
Amending a Listing Agreement in Texas
Involved parties should have a written amendment to modify the listing agreement. Realtors in Texas have access to the Texas Real Estate Commission ("TREC") forms, including TREC 2028 (Real Estate Listing Amendatory Agreement).
If the parties do not have a written amendment to modify the listing agreement, or if the modifications are not documented properly, the parties are bound to the original terms of the listing agreement. A broker has a fiduciary duty to obey lawful instructions from a client. A broker who does not follow lawful instructions may be liable for a breach of a fiduciary duty to the client. It is important to have a written amendment to a listing agreement to avoid any possible trouble with the escrow and commission.
As a rule, a modification or amendment to an existing contract that requires a written form will require the use of a writing that will need to be dated and signed. However, a writing with only the broker’s signature may be sufficient to modify the listing agreement without including the seller’s signature, when the modification is made for the convenience of the broker and the seller has already expressed an agreement to the modification.
The broker and realtors may alter a listing agreement through the use of a written contract form. A broker may also be able to enter into a posted listing agreement unilaterally by simply posting the listing information on the Multiple Listing Service ("MLS"). In this case, the broker will only be required to give the seller notice of the unilateral alteration.
Suppose that the seller and the realtor (acting on behalf of the broker) sign a new listing agreement with a new price and/or new terms and conditions. Or, they may sign an amendment to an existing listing agreement. Regardless of whether the parties sign a new listing agreement, they can be bound by a written contract altering the existing listing.
If there are multiple realtors involved in the listing, all of the realtors must sign the modification. However, the signatures of the realtors on a written listing agreement or an amendment to the existing listing are not required to establish a valid modification binding on them.
Real estate professionals: (i) are not required to keep copies of listing agreements or amendments posted in the MLS for the listing term; and (ii) may still be subject to contractual duties when they post the listing, but their failure to post the listing (in the MLS or otherwise) or to keep copies of listings in the MLS for the listing term does not affect the validity of the listing. Furthermore, real estate licensees are not required to reduce to writing modifications made to a listing agreement.
A listing as well as any amendments and supplements to a listing agreement should include the signatures of all of the involved parties involved.
Common Pitfalls and Mistakes
Even though an amended written listing agreement is not required by law, both the seller and broker are highly recommended to limit their rights and obligations as the seller’s agent to those contained in the written listing agreement. Since the purpose of an amendment is typically coordinate the parties’ interests, a mistaken reference to an incorrect provision or referencing a portion of an earlier agreement that has been replaced by the amended one could be fertile grounds for claims and counterclaims in a lawsuit.
A common mistake is the reference to a provision of the original agreement rather than the specific amended agreement. For example, in the case of a Listing Agreement, a specific listing price may have been stated in the original agreement and after several amendments it no longer reflects the current terms between the broker and the seller. If the latest amendment refers to the "Listing Agreement" it may mean the wrong agreement unless the specific date of the Listing Agreement is also stated, i.e. "the Listing Agreement dated March 5, 2015."
Another pitfall is when the parties execute an amendment at a time when a written listing agreement is not in effect, and fail to refer to the original listing agreement that preceded it. Without the original written listing in existence to salvage an unsuccessful lawsuit against the broker, the listing broker exposes himself to a claim for damages that could have been completely avoided.
Errors and omissions are not usually covered by Insurance unless the amendment is a separate document with its own Docket Number.
Role of Counsel
The question is not so much whether to have a lawyer review an amendment but rather when ought to a lawyer review an amendment. The lawyer’s role cannot be overstated, especially when the original agreement creates ambiguity in the amendment process or the procedure for amending the contract is unclear and could affect enforceability. It is also important to consider the situation in which a lawyer is necessary to properly transfer listing agreements in a merger or acquisition.
Because the procedure for amending and canceling a listing agreement is set forth in the Real Estate License Act and the Texas Administrative Code, if an agent deviates from these procedures, it could result in an unenforceable contract. So, if there is any uncertainty about the process, consulting a lawyer to review a listing contract amendment is a must .
Sometimes a standard form, like the TAR Listing Agreement, has the rare and unfortunate effect of creating an "unwritten" contract. If the agent interprets the contract differently than a judge or jury would, a lawyer should review that amendment and advise the agent.
The lawyer’s job is to read, interpret, and critically review the legal documents, draw conclusions about what will be enforceable if the contract were disputed, and advise the agent on their risks. This includes considering whether to file a Notice of Alternative Dispute Resolution Procedures, a Lis Pendens, or suit or whether to have the contract canceled. In some cases, it may be advisable to consider pursuing a breach of contract counterclaim if the other party’s conduct is significant enough to justify the costs of litigation or a lawsuit is necessary to force that party to comply with the contract.
Impact of Listing Amendments on Real Estate Transactions
Amendments to listing agreements can have significant impacts on a transaction, both in terms of enforceability related to the commission agreement and, as is often the case, your closing protection. The most common violation occurs when a seller has agreed to pay a fee or commission rate and then tries to avoid paying it or get out of the agreement by making a retroactive amendment that alters that amount. If a real estate broker has earned the commission prior to the date of the amendment, this will likely be seen as a violation of the fundamental duty of good faith and fair dealing owed by most Texans to one another. After all, no one likes to share a commission or reduce their paycheck at the pickup window; that is the reality inherent in the commission fee structure of most brokerage relationships. Legitimate reductions in commission rates or changes in sales fees are typically agreed to at the time a property is listed for sale, so amendments to that agreement months later should raise red flags that need to be addressed before closing.
In my opinion, the most serious effect of an amendment to a listing agreement that most buyers and sellers often don’t consider would occur as a result of an invalid or unenforceable listing agreement. As mentioned earlier, the statute of frauds (which applies to most contracts for the purchase and sale of real estate) requires a written agreement and a listing agreement that does not comply with this requirement is unenforceable. In other words, if the listing agreement is invalid, rescinded or otherwise unenforceable, your closing protection may be reduced or eliminated since the agreement you relied on at the time of closing (i.e., the compromised or invalid listing agreement) was no longer in effect when the transaction closed. You may now be liable to the broker for the agreed to commission because that validity of the original listing agreement allows the court to assume that the deal was still in existence at the time of closing. This will reduce the closing protection provided to you since the commission obligation of the seller to the broker created by the listing agreement may now arise from a transaction which was not, in fact, made under the listing agreement relied on in issuing the closing protection. As you can see, the consequences of an invalid listing agreement are potentially very significant to a buyer, and possibly even more so to the seller who may find himself, perhaps for the first time in his life, owing some two or three thousand dollars to a Realtor for a job he never thought he was going to have to pay for.
Conclusion: Tips for Successful Amendments
Best Practices for Amendments
When it comes to amendments, communication is key to having an effective and enforceable document. Whether the listing agreement is in electronic form or hard-copy, you want to make sure all parties have access to these documents at all times. Access to documents is as important as access to your real estate service providers.
If you are using a hard copy you want to make sure all parties have an accurate and clear copy of the amendment . This means that if there are multiple pages per amendment those pages need to be initialed as signed copies would be.
If you are using electronic form, all parties should have access to the contract through their zip logix account.
Once the contract has been amended or terminated you want to make sure you immediately change the status into the appropriate category in your MLS. This will ensure as many people as possible will see the correct status of the property.