Getting to Informed Consent: Explaining Listing Agreements to Clients #551

Jul 28, 2022

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Posted by
Peter Borszcz
Montgomery Miles & Stone Law Firm

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When REALTORS® connect with clients in a listing contract, the clients often tend to only focus on one or two key details, such as commission rates or purchase price. As good practice, REALTORS® must remember to slow down and adequately explain the finer details to ensure that clients fully understand the nature of the document(s) they are asked to sign.  

It is a part of a REALTORS®’s duty to be “acting in the best interest of the clients includes obtaining informed consent … outlining the exact nature of the real estate services being provided” (Emam (Re), 2012 CanLll 26111 (BC REC) and Chonn (Re), 2021 CanLII 89767 (BC REC)).

In order to do so, here are some key details about listing contracts to fully understand and thoroughly explain to clients before they put pen to paper.

Explaining Key Areas of the Listing Contract

  • Term of Agreement (Section 1)
    • Point out the length of the agreement, as well as connect this with the cancellation/release options that you discuss in Section 14. It is a good practice to have the client’s initial beside the Expiry Date.
  • Listing Price (Section 3)
    • Review the Comparative Market Analysis, the client’s motivations for selling and preferred timelines with the client. (Remember, the Comparative Market Analysis should form part of your file).

      If the pricing is aggressive or the market is shifting, consider a preliminary discussion of listing price amendments and when those will be considered. Additionally, ensure that you discuss both positive and negative outcomes, as these conversations allow the client to get a sense of what the range of outcomes is likely to be in the local market.
  • Cooperating Brokerage (Section 4)
    • Explain that the seller’s commission payable to the listing brokerage is shared between the listing brokerage and cooperating brokerages representing buyers. Importantly, clarify that although the commission is split, the buyer’s Realtor is NOT working for the seller in any way and no confidential information will be shared with Buyer’s REALTORS®.
  • When Commission Gets Paid (Section 5A)
    • Explain that commission is payable once the client enters into a legally enforceable or subject-free contract with a buyer. Also, explain that commission can be payable even after termination of the listing contract in the event that a buyer who was introduced to the property during the term of the listing agreement purchases the property within 60 days after termination of the listing contract.
  • How Much Commission is Paid (Section 5D)
    • Using the list price, explain the calculation of commission and that GST is payable in addition to this amount.

      This is a perfect opportunity to explain and review the Disclosure to Sellers of Expected Remuneration form with the seller.
  • Designated Agency (Section 7) and Your Services (Section 9)
    • In addition to your marketing plan, remember to cross-reference the duties in this section which are owed to clients under the Disclosure of Representation in Trading Services form. Explain to your client that your duty is to represent their interests throughout the process. However, a client should understand that you cannot follow any unlawful instructions.
  • Seller Agreements (Section 10)
    • Explain that while you, the REALTOR®, are working for the seller, you expect the seller will work with you to assist in the sale and keep you informed of any material changes with the property or their capacity to sell. If the seller is not the title holder, ensure you have a certified, true copy of any power of attorney or the probated will.
  • Conflict of Interest (Section 12)
    • Review what an example of a conflict of interest is. For instance, if your buyer client is interested in this listing and how you would practically deal with that conflict, emphasizing communication, transparency and your duties to each party.

      This is a great time to review the protocol for conflicts and the Agreement Regarding Conflicts of Interest between Clients.  
  • Termination (Section 14)
    • The client needs to understand what happens if they request to terminate the listing contract prior to the expiry date.  Be specific with your own business practices here and write it down clearly. Is the client free to hire another agent immediately? If not, what are the conditions of early termination? Cross-reference this back to the term discussion in Section 1.

Using Electronic Signing Programs Effectively – Review Then Sign

Electronic signatures are fast and legally binding but can often lead to arguments over “informed consent” between REALTORS® and clients. More so, as electronic signing programs are becoming more frequently used, it is often the case that clients electronically sign on mobile devices and often cannot effectively read the document.

Here is a suggested three-step process when using electronic signatures:

  1. Send the client a copy of the document not set up to sign, such as a locked PDF or Word file.
  2. Call the client over the phone to review the document or detail your comments or concerns in an email.
  3. Once it is clear that the client understands the document, then send the client the secure document for electronic signature.

Have a Checklist

Ultimately, clients may forget the details of listing agreements and other important details in the excitement of the deal. To prevent potential conflicts, you should have a checklist for both listing presentations and offer presentations, which will ensure you have covered all the relevant points with your clients. Keeping a marked-up version of this checklist in your file is a great way to keep notes.

Remember that although you work with real estate transactions on a regular basis, this will often be an occasional or a new experience for your clients. Therefore, providing clients redundant or repetitive information they may already be aware of is much better than failing to disclose a key term that will later become detrimental to your client’s position.

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