An agency relationship lasts for a stated term, for a reasonable time in the circumstances if no term is stated, until the object of the agency is accomplished or otherwise ceases to exist, or until terminated by the parties. On the listing side, the term of the agency is stated – it’s the term of the listing. If the property sells before the listing “expires” (or the house burns down), the agency will end because the object of the agency is accomplished (or rendered impossible). That leaves only “terminated by the parties” to cause trouble on the listing side.
Agency relationships are just that: relationships. Although agency relationships can be established by contract, the relationship itself is not a contract. This is where the difference between agreement and consent comes in. One person cannot force another to consent. It follows that either party to an agency relationship can terminate the agency relationship unilaterally at any time by simply withdrawing the consent to act.
The ability to terminate an agency relationship unilaterally does not mean there may not be legal consequences, contractual or otherwise, for ending the relationship. In real estate, such consequences often become an issue when the seller wants to terminate the listing before it expires. The seller’s right to terminate the listing agreement as a contract is not the same as their right to terminate the agency relationship by withdrawing consent. The agency relationship itself will end the moment the seller withdraws their consent to act on their behalf, but doing so, depending on the circumstances, may also breach the listing agreement.
Real estate agents often confuse termination of the agency relationship with performance or breach of the listing contract. There are usually provisions in the listing agreement about damages if the seller breaches the agreement by withdrawing consent to act as the seller’s agent. Breach of contract issues, however, have nothing to do with whether or not the broker can continue to act on the seller’s behalf to market the property. An agent cannot continue to represent a seller without the seller’s consent even if withdrawing that consent breaches the listing agreement and entitles the broker to damages.
The breach of contract issues created when a seller terminates a listing before the expiration date can be very complex legally. Click here for a legal analysis of these issues in Oregon. What is not complex is the effect of the seller’s withdrawal of consent to act on their behalf. Without that consent, the agent can no longer market the property or hold themselves out as the seller’s agent. Attempts to force the seller to continue the agency once the seller gives notice of termination of the agency relationship are common in the industry but very dangerous legally.
Brokers will sometimes try to force the seller to allow them to continue with the agency relationship by threatening the seller with the liquidated damages clause in listing agreements. Such clauses often purport to entitle the listing broker to a full commission if the seller terminates the listing. Whatever the enforceability of such clauses, the use of them to threaten clients raises serious agency duty issues. The problem with threatening your own client is that if you are successful they remain your client. If they remain your client, you have an obligation not to threaten them, especially if the threat involves the agent making statements about the client’s legal rights.
Because of the problems associated with trying to force a seller to continue a listing against their will, some brokers attempt to avoid dealing with “termination” of the listing altogether. Rather than terminate the listing, they merely “withdraw” it from the MLS by having the seller sign a listing withdrawal form. If the distinction between termination and withdrawal is not carefully explained, most sellers will assume the listing is being terminated when they sign the withdrawal form. If the seller does not understand fully what is actually going on, this manner of doing business places the broker’s interest in direct conflict with their client’s, can involve misrepresenting the seller’s options and harms the seller by continuing the listing (and agency relationship) while seriously diminishing exposure to the market.
Bluffing a seller (even innocently) into continuing a listing is asking for trouble. That trouble often starts when the seller approaches another broker and tries to list the property. Simply put, trying to hold onto a listing in the face of a seller’s desire to terminate is a poor business practice. When a client seller wants out of a listing agreement, the real issue is damage to the broker. And it is by focusing on damages that the broker can determine their best course of action.
Damages in listing termination cases depend mostly on how long the listing has been active, the broker’s expenses in marketing the property and the likelihood of a sale during the remaining listing period. A seller who terminates a listing near its end, trying to avoid a commission on a likely sale, is not the same as a seller who terminates because there have been no offers for months is not the same as a seller who terminates within a week of creating the listing because they want to stay in the house and care for their sick spouse. Each of these situations is different. Unfortunately, the liquidated damage clause found in most listing contracts treat each of these situations exactly the same by demanding the full commission as damages.
When faced with a listing termination issue, the broker should first look at the situation, not the termination clause of the listing contract. Is the issue seller greed? Is it changed seller circumstances? Is it dissatisfaction with service? If the issue is greed, a hard line and a demand for a full commission might be the best course of action. If changed circumstances, a no cost release might preserve the business relationship so that when circumstances change again, the listing might come back. If the issue is services, an honest assessment of the seller’s perspective is in order. It is only after that honest assessment that the broker can begin to consider negotiating a settlement with the seller. It is in these negotiations over the cost to the broker that the liquidated damage clause in the contract becomes important.
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