Chapter 8: Agency Contracts and Related Practices

Introduction

• Presenter: Sean Kelly
• Topic: Agency contracts in real estate
• Focus: Calculating commission, agency contracts, and related practices

Key Resources

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Types of Agency

• Universal Agents: Have unlimited power
• General Agents: Limited power, e.g., property managers
• Special Agents: Limited power, act as advisers (real estate agents)

Listing Agreements

• Characteristics:

  • Must be in writing and signed by both parties
  • Includes licensee's license number, expiration date, and a non-discriminatory clause
  • Oral agreements are invalid

• Types of Listing Agreements:

  1. Open Listing:
     • Seller pays only the broker who brings the buyer
     • Seller can bring their own buyer without paying commission
  2. Exclusive Agency Listing:
     • Seller works with one firm
     • Seller can find own buyer and avoid paying commission
  3. Exclusive Right to Sell Listing:
     • Most common
     • Agent gets commission regardless of who finds the buyer

Commissions

• Negotiation Between Parties:

  • Firm sets rate, usually listed in MLS
  • Seller typically pays the commission
  • Commission passes through the firm before reaching the agent

• Entitlement to Commission:

  • Agent entitled when they bring an offer from a ready, willing, and able buyer
  • Must have an active license, written agreement, and produce a ready buyer

• Suing for Commission:

  • Possible if seller backs out after an offer is accepted

• Referral Fees:

  • Possible when referring a client to another agent in a different area

MLS and Advertising

• MLS:

  • Lists available properties, syndicates to sites like Zillow, realtor.com

• Advertising Rules:

  • Must get approval from Broker in Charge or firm
  • Include firm's name/logo
  • For limited commercial brokers, must state status

Termination of Listing Agreements

• Reasons for Termination:
  • Completion of duties
  • Mutual agreement
  • Expiration of agreement
  • Breach of contract
  • Bankruptcy
  • Destruction of property
  • Death of client (not the agent)

Solicitations

• Do Not Call Laws:

  • Check do not call lists every 31 days
  • Allowed calls:
    • Business relationship in past 18 months
    • Inquiry in past 3 months
  • Violation penalty: $11,000 per call

• Sherman Antitrust Act:

  • Prohibits price-fixing
  • Avoid terms like "usual" or "customary" in relation to commission rates

Commission Calculations

• Examples:

  • Property sells for $100,000 with a 6% commission
  • Divide commission 50/50 between listing and selling firms
  • Selling firm splits commission with agent

• Calculating Sales Price for Seller's Desired Profit:

  • Add desired net amount to closing costs
  • Subtract commission rate from 100%
  • Divide total by remaining percentage

Profit and Loss Math

• Profit:

  • Add profit percentage to 100%
  • Multiply by original cost

• Loss:

  • Subtract loss percentage from 100%
  • Divide sales price by remaining percentage

Recap

• Important Points:
  • Listing agreements must be in writing, include essential information, and have non-discriminatory clauses
  • Commissions are negotiable and involve multiple parties
  • Understand solicitation rules to avoid penalties
  • Advertisements must be approved and adhere to specific standards

Note: For detailed explanations and examples, refer back to specific sections as needed for clarity.