Part Three(a) of Five: Residential Listing Contract

The National Association of REALTORS® settlement in the Sitzer-Burnett class action lawsuit includes significant practice changes that will be implemented in mid-August 2024.  To assist its members prepare for practice changes and be successful in the new environment, the Arizona REALTORS® has created and revised eighteen (18) forms.  The new/revised forms, redlines, videos and articles on their use are available here.  This article and frequently asked questions (FAQs) is part three “a” (3a) of a five part series that will introduce the forms prior to their publication on August 1, 2024.  This article will discuss the revisions made to the Residential Listing Contract Exclusive Right to Sell/Rent.[1]  Please note that substantively identical revisions for consistency were made to the Residential Listing Contract Exclusive Agency, Vacant Land/Lot Listing Contract Exclusive Right to Sell/Rent and Vacant Land/Lot Listing Contract Exclusive Agency forms.

The redline of the revised Residential Listing Contract Exclusive Right to Sell/Rent (ER) can be found here.

The PARTIES Section of the ER now defines the broker that represents the seller as “Listing Broker” instead of “Broker.”  The change is made throughout the ER.

The LISTING PRICE AND TERMS Section now uses the term “buyer” instead of “purchaser.”  Similarly, the ER now uses the term “compensation” instead of “commission” when referring to amounts paid to the Listing Broker.  The change is made throughout the ER.

Significant changes were made to the COMPENSATION Section.  First, the disclosure language was revised to comply with the practice change to conspicuously state that broker compensation is not set by law and is fully negotiable.  The disclosure is now in bold to make it more prominent and includes the Buyer’s initials to confirm they have read the disclosure.

Next, the Retainer paragraph was revised to include: a click box if a retainer fee is agreed to; an optional timeframe available for payment; and a second click box to indicate whether the retainer fee will be credited against the Listing Broker’s compensation.  The workgroup wanted the Retainer Fee paragraph to match the same paragraph of the Buyer-Broker Exclusive Employment Agreement, so it combined the best parts of each.

Finally, the Commissions paragraph was renamed Listing Broker Compensation and was heavily revised to unbundle the Listing Broker’s compensation.  Instead of a “TOTAL COMMISSION” being negotiated with the seller as in the existing ER, the Listing Broker will now negotiate their compensation independently of cooperative compensation offered to a potential buyer broker.  For a SALE, the Listing Broker will input the compensation owed to them for a sale based on a __% of the full purchase price or a $_______ amount.  The Listing Broker can then negotiate additional compensation should the buyer be unrepresented in a transaction.  Finally, the seller, in consultation with the Listing Broker, can decide whether or not they will authorize an offer of compensation to a potential buyer broker (off of an MLS).  Both scenarios include a click box if agreed upon with the rate or amount to be input.

Lines 52-55 provide specificity should the seller offer compensation to a potential buyer broker.  The language includes the seller’s authorization for the Listing Broker to enter into an agreement to compensate the buyer broker and pay the agreed upon amount in such circumstance.  Finally, it clarifies that the Listing Broker is entitled to the offered amount if it also represents the buyer.

Lines 56-58 provide the seller’s acknowledgement that the buyer broker only represents the interests of the buyer (unless the Listing Broker represents both seller and buyer under Limited Representation) and that the buyer broker may credit part, or all, of their compensation to the buyer.

For a RENTAL, compensation was similarly unbundled and substantively mirrors the language of the SALE subparagraph described above.

The REMEDIES Section requests the seller to waive their right to be a member of a class action lawsuit.

FREQUENTLY ASKED QUESTIONS

Q1. Why does the ER now refer to the seller’s broker as the Listing Broker?

A1. The workgroup felt the change helped clarify which broker was being discussed, especially in the COMPENSATION Section.

Q2. Why is Listing Broker compensation unbundled?

A2. To provide the parties flexibility and choice.  Compensation terms were always negotiable, but the new format identifies all possible scenarios for full transparency.

Q3. Why is additional compensation available for an unrepresented buyer?

A3. Some brokers feel it takes significantly more time and energy to close a transaction that is not assisted by a buyer broker.  They are further of the opinion that they are at risk for additional legal exposure when a buyer is not represented in a transaction.  For these reasons, the workgroup included space for the Listing Broker to negotiate additional compensation for the added time, energy and/or legal risk potentially expended when the buyer is unrepresented. With that said, compensation is negotiable and any such additional compensation must be agreed to by the seller.

Q4. The seller authorizes the Listing Broker to offer 100 apples to compensate a potential buyer broker.  The Listing Broker enters into an agreement to compensate the buyer broker 80 apples.  Does the Listing Broker get to keep the remaining 20 apples?

A4. No.  Pursuant to lines 50-51, the seller is only authorizing a communication to offer compensation to a potential buyer broker.  Per lines 52-55, the obligation for the seller to actually make payment only arises when the Listing Broker enters into an agreement to compensate the buyer broker and only for the amount actually paid (up to the offered amount).

Q5. Does this mean the Listing Broker needs an agreement to accept the offered compensation when it also represents the buyer?

A5. No. Per lines 54-55, the seller will pay the Listing Broker the offered amount if any agent of the Listing Broker represents the buyer.  Furthermore, it would be unnecessary and superfluous for the Listing Broker to enter into an agreement with itself. 

Q6. What if the offered compensation is less than the amount owed by the buyer in the Buyer-Broker Exclusive Employment Agreement?

A6. The buyer broker can accept the offered compensation through an agreement with the Listing Broker (unnecessary in Limited Representation), at which point the buyer would be responsible for ensuring the buyer broker is paid the remaining amount owed. For example, if the buyer, via the Buyer Broker Exclusive Employment Agreement, agrees to pay their buyer broker 100 apples and the cooperative compensation received is only 80 apples, the buyer would then be responsible to make sure 20 additional apples are paid to their buyer broker as agreed. The buyer can then either pay the 20 additional apples themselves or request the seller pay the additional compensation in an addendum to the purchase contract.

Q7. What if the seller does not authorize the Listing Broker to offer any compensation to a potential buyer broker but the seller wants to advertise his/her willingness to pay compensation based on the terms of an offer?

A7. Best practice would be for the Listing Broker to include the seller’s instructions in the ADDITIONAL TERMS AND CONDITIONS Section, thereby documenting them. Then, if contacted by a buyer’s agent inquiring about cooperative compensation, the Listing Broker should explain, in conformance with the seller’s instructions, that payment of cooperative compensation is dependent on the nature of the offer submitted.

Q8. Can the agent of the Listing Broker offer variable compensation if the same agent of the Listing Broker represents both the seller and the buyer? 

A8. Yes.  Best practice would be for the agent of the Listing Broker to address the variable rate or amount in the ADDITIONAL TERMS AND CONDITIONS Section.

Q9. Does a Listing Broker need to sign a new ER with a seller after the practice changes take effect or when the revised ER is released for use?

A9. No.  However, best practice would be for the Listing Broker to discuss the practice changes with the seller, the removal of cooperative compensation from the MLS, confirm their consent to offer compensation to a potential buyer broker, and consider how to address the possibility of an unrepresented buyer.  If the Listing Broker and seller mutually agree to alter the terms of their existing ER, they can either sign an addendum to the ER on the Listing Contract Addendum or sign a new ER using the August 2024 edition of the form.

Aaron M. Green, Esq., a licensed Arizona attorney, is the General Counsel for the Arizona Association of REALTORS®.  This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

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[1] Thank you to the ER/EA workgroup for their efforts to revise the forms.  The workgroup was chaired by Jim Sexton.  Other workgroup members were John Barile, Laurie Beischel, Jen Bergamini, Eric Davis, David Dynes, Jay Eckhardt, Cathy Erchull, Kim Everett, Serena Jones, Jennifer Kiley, Paul Kriewall, Mimi Lundy, Jim Nuth, Carol Pinciaro, and Mike Porter.

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