What Are Listing Agreements?
A listing agreement is a contract between the real estate agent and the owner of the property, in this case, a home. The real estate agent agrees to attempt to sell the owner’s home for an agreed price and in an agreed amount of time. The owner agrees to compensate the agent (generally with a commission) and let the agent show the home to potential buyers.
An agent can serve the role of fiduciary, which means that the agent must act in the best interest of the owner. A fiduciary relationship carries with it a high standard of care that is intended to prevent the agent from taking advantage of his or her position of power with the owner. As a fiduciary , the agent cannot act against the owner’s interests without the owner’s consent.
In Texas, the listing agreement is generally carried out on a "Texas Real Estate Commission Exclusive Right to Sell Residential Listing Agreement (TXR 1101)." The Listing Agreement defines the relationship between the agent and homeowner and sets forth the rights and responsibilities of the parties. It allows the homeowner to terminate the agreement if the agent has not performed his or her obligations, but, absent such a basis for termination, the agreement terminates after the period specified in the listing agreement.
Common Reasons for Terminating a Listing Agreement
There are many different reasons that a Listing Agreement in Texas can be terminated. In some instances, the listing is being presented concurrently to a competing broker and the seller has already entered into a subsequent listing with the competing broker. The subsequent listing agreement will terminate the first listing agreement.
Most commonly, if a sale is consummated during the term of the Listing Agreement, the Listing Agreement will be terminated by virtue of the commission payable to the broker upon closing and funding of transaction. The Seller will receive commission information from the broker at closing and is under the impression that the Listing Agreement has been fulfilled.
In other instances, the seller and the broker will agree, in writing, to the early termination of the listing agreement. This can include situations where the property goes under contract and is not able to close for one reason or another. In that scenario, the seller and the broker will put in writing their agreement to terminate the listing agreement without any further obligation to pay a commission.
Parties involved in a real estate transaction must act in good faith in dealing with the other parties to the transaction. If an agreement exists that has not been expressly terminated in writing, the parties to the transaction must perform under the contract. Therefore, the parties cannot unilaterally terminate the Listing Agreement, they must have an agreement from the broker that the Listing Agreement can be terminated under the circumstances.
Legal Rights and Responsibilities
A seller and a real estate agent have both legal rights and obligations with regard to the termination of a listing agreement in Texas.
A seller does not have an absolute right to terminate a listing agreement even when there are defects in the property that were not disclosed by the agent. In a subsequent lawsuit involving the sale of real property, the court of appeal held that the listing agreement was not voidable. Instead, it was enforceable and the owner was entitled to enforce the written agreement against the listing agent.
As stated by the court, "The question before us is whether the trial court erred to the extent it ordered the owner to forfeit the benefit of the listing agreement even though the only actions of [the agent] that party claimed constituted fraud were post-execution actions."
The buyer was told by the agent that there were no defects in the property, and the property was sold. The owner later discovered there were serious defects in the property and brought a lawsuit against the agent who breached his fiduciary duty by hiding known defects from the owner. The jury received an instruction to find a fiduciary duty was breached only if the agent "actively designed to conceal defects." The owner asserted the instruction incorrectly added an intent element to the breach of fiduciary duty. The owner also contended he was entitled to stop the listing agreement from being enforced because it was voidable as a result of the fraud. However, the court of appeals held the jury found that the agent’s conduct was not fraudulent, and the owner took an unclean hands approach since his damages were self-induced by his failure to ensure the agent complied with the listing agreement.
Under the terms of a typical Listing Agreement, a real estate agent has a fiduciary obligation to the client, which is usually the seller, of utmost good faith, trust and confidence, full disclosure, obedience, loyalty, reasonable care and service, accounting and due diligence in representing the interests of the owner. These duties take precedence over the duties the real estate agent owes to the buyer. The fiduciary relationship can be terminated by the principal. A principal may revoke the authority of a real estate licensee before the completion of the assignment, provided that the revocation is in writing. If the principal unlawfully revokes the licensee’s authority, there would be a breach of contract. If the licensee breaches his or her fiduciary relationship with the principal, the principal has a cause of action against the licensee for breach of fiduciary duty and for negligence.
Legally Terminating a Listing Agreement
To terminate a listing agreement legally in Texas, the principal or the broker must deliver a written notice to the other party. Termination of a listing agreement is different than an amendment like extending the listing term. However, because the negotiation of an amendment may involve the same circumstances that surround a termination, I will address the amendment procedure in this blog post. The reasons to end a listing agreement before its expiration should be carefully considered, and a decision for the termination should not be made hastily because of something small. Both decision makers should take the opportunity to fully discuss the reason termination is being considered with the goal of resolving the problem. If, after this process, the parties still want to end the listing they should each sign a termination and release form, which is available as a TREC form.
Consequences of Terminating a Listing Agreement
Termination of a listing agreement in Texas may have several unintended consequences. For a seller, the primary concern is whether the commission will be owed to the broker. For a broker, it is absolutely essential that no licensed salespersons contacts be made with sellers or buyers of those property types for which you have been engaged as a broker. Premature, unauthorized contact by a licensed salesperson can destroy the property’s value and prevent recovery of a commission.
A seller who pursues termination of a listing agreement, with or without cause, faces several potential consequences. First, the seller could create an action for breach of contract, for which the seller must pay damages to the broker. Damages for breach of contract in Texas, as in most states, are synonymous with the contract price as loss. There can be additional consequential damages awarded, such as those supported by a special relationship between the parties, like partnership or lender/borrower. Other recoverable damages could include reasonable attorney’s fees.
The seller may also be forced to contend with allegations of fraud, negligent misrepresentation, a breach of fiduciary duty, or even trespass to chattels (intentional, unlawful exercise of dominion or control over goods or chattels of another), depending on the circumstances of termination . Finally, the seller may be exposed to a suit for specific performance if a buyer is not fully compensated for the risk of not acquiring the property under the listing. It all comes down to the context of the case.
Among the many potential consequences to a broker, the biggest risk is protracted litigation. The defensible position to take is to hold the listing until it expires before attempting to sell it to another client. In this day and age, however, there are no winners of litigation except lawyers. Even the winning party has to pay those lawyers.
In some cases, brokers may be entitled to lost profits due to a breach of contract by a seller. The measure of those damages is the net profit of the seller if the property had been sold by the broker. If the seller sells to a buyer after termination, the seller will not be able to take advantage of all of the actions taken by the broker without being obligated to pay the commission due.
But worse than losing money is being exposed to liability, because it is extremely difficult to stop the drift toward litigation at any point. The only way to avoid a lawsuit, with all the costs and aggravation, is by acting according to law, according to the terms of the listing agreement, and taking care to create a record of what happened and why.
Frequently Asked Questions about Terminating a Listing Agreement in Texas
Q: How can a seller terminate an exclusive agency or exclusive right-to-sell listing agreement?
A: A seller can terminate the listing by mutual agreement with the broker or by sending notice of termination to the broker. In the latter case, if the broker has procured a ready, willing, able buyer during the term of the listing (the buyer is not the seller or the seller’s family member or some other exempt party), then the seller remains obligated to pay a commission to the broker if the property sells to that buyer within 180 days of the listing agreement’s expiration.
Q: What’s the difference between a voluntary rescission and an involuntary termination of an agency relationship under the 2016 promulgated Exclusive Right-to-Sell Listing and the 2016 promulgated Seller’s Temporary Lease and Exclusive Right-to-Sell Listing Agreement?
A: A voluntary rescission occurs when both the broker and the seller agree to terminate the relationship. An involuntary termination occurs when one party terminates the relationship.
Q: Can I still sell to a consumer if my exclusive listing has expired?
A: Only if the purchaser is not a ready, willing and able buyer who was presented to you and who rejected your counter-offer or the seller. The listing contract includes a protected buyer provision that may result in a commission being owed to the listing broker if the protected buyer purchases the property within 180 days after the expiration of the agreement.
A ready, willing and able buyer is a buyer who:
- is acting through a licensee;
- appears to have sufficient financial resources to close the transaction based on a reasonable evaluation of the buyer’s qualifications to perform; and
- has made a good faith offer to buy the property under terms acceptable to and consistent with the terms of the listing agreement, including price, or in a sum above the listing price. (This language is used in the Real Estate Seller’s Temporary Lease and Exclusive Right-to-Sell Listing Agreement, TREC No. 10-5.)
Q: Can I enforce the exclusive provisions of an exclusive agency or exclusive right-to-sell listing agreement if either agreement has expired?
A: Yes, if the purchaser meets the criteria for a protected buyer.
Q: If my exclusive listing has expired and I get an offer before I receive another listing contract from a different broker, do I have to present it to the seller?
A: If the purchaser is the buyer’s agent’s client or if the purchaser is a ready, willing, and able buyer who was presented to the seller and who the seller rejected, you should present that offer. Otherwise, you aren’t required to present the offer because when a listing contract expires, the exclusive rights to present offers, lease, sell, or otherwise deal with the property generally ceases to exist.
Q: What happens to the brokers’ respective commission entitlements if the buyer submits an offer to the seller’s agent within 180 days after the listing expires and the seller is also represented by the buyer’s agent under a written agreement?
A: TREC’s No. 24-15 Buyer’s Temporary Lease and Buyer’s Agent Exclusive Right-to-Buy Agreement requires a cooperating broker to provide a NOAL to the listing broker. The listing broker has a right to a full 3 percent commission because you do not have to pay two commissions on the same transaction.
Legal Guidance in Terminating Listing Agreements
When issues arise with a real estate listing agreement in Texas, it can lead to the consideration of terminating the agreement. It is always recommended that you first bring the matter to the attention of the professional sales agent with whom you have the agreement. If you are not satisfied with your agent’s response to the issue or if the response is unsatisfactory, you should then seek the help and insight of a Texas real estate attorney to learn how best to proceed. An experienced real estate lawyer will help you understand the consequences (contractual and otherwise) of the termination right you are considering. A listing agreement is a contract – a contractual relationship between you and the agent. One practical approach by a lawyer may include asking whether you have already received a cash benefit from the relationship such as an earnest money deposit representing an offer from a prospective buyer. If so, can you return the deposit? If you have received a cash benefit, from a practical standpoint the agent is likely entitled to the deposit . But did the agent fully disclose to you the right to receive the cash benefit? Did you consent to the release of the deposit – if not, what is the best approach to take to facilitate the release? Your lawyer will also want to feel secure that you have good cause to terminate the agreement. If you are terminating the agreement due to breach by the agent, you have to be prepared to show how the agent’s actions or inactions impaired your ability to buy, sell, lease or exchange the property. And if you are terminating the agreement because you were not satisfied with the service the agent provided, you have to be able to demonstrate how the services were not satisfactory by the standards of care required of the agent. In other words, did the agent fail to meet the minimum standards by acting unprofessionally, violating a local custom or practice, failing to fulfill a request, failing to notify, failing to provide information, or failing to maintain communication regarding the transaction? In circumstances where the relationship is not working out or the expectations have not been met (for example, if the agent did not sell the property after a number of months), the seller and agent should consider the termination of the relationship to be a mutually beneficial event if it is done without malice or ill intent.