Real Estate Law Answers Regarding Cancellation of Listing Agreements
There is some confusion about the cancellation of real estate listing agreements. Is a listing agreement signed by both spouses cancelled if one spouse dies? Is a spouse liable for a commission to a listing broker under a listing agreement signed only by the other spouse? If a seller wants to cancel the listing agreement, but the listing broker does not, is cancellation by the seller allowed? And if so, what are the obligations of the listing broker? This article will attempt to answer these Arizona and real estate law questions.
Most listing agreements for residential property are exclusive. An exclusive listing agreement (whether exclusive representation or exclusive agency) is a bilateral contract. What does that mean? A bilateral contract is a contract that requires performance by both parties. In other words, both the seller and the listing broker in a listing agreement agree to do certain things, e.g., the seller agrees to pay a commission, and the listing broker agrees to put the property in the MLS.
On the other hand, an open listing is commonly used for commercial property, and is generally a unilateral contract. The seller agrees to pay a commission to any buyer produced by the listing broker, but the listing broker does not agree to do anything. In fact, under MLS rules a listing broker is prohibited from placing an open listing in the MLS.
A listing agreement is a personal services contract, not a contract for real property. The general rule is that any personal services contract terminates upon the death of either party. Therefore, upon the death of the seller or the listing broker (or the bankruptcy of a listing brokerage firm) the listing agreement is cancelled, and neither the seller nor the listing broker have any remaining obligations. For example, if the listing broker produces a buyer during the remaining term of the listing agreement after the seller dies, the seller’s estate does not owe a commission even after the Seller “cancelled” the listing agreement.
The more troubling “cancellation” problem is when one party to a listing agreement, usually the seller, demands that the listing agreement be “cancelled.” If the listing broker does not acquiesce in this cancellation demand, and wants performance by the Seller under the listing agreement because the listing broker may have incurred significant time and marketing expenses, what is the listing broker’s obligation? Specifically, what does the listing broker do if the seller demands that the “For Sale” sign be removed from the front lawn, and demands that the listing be taken out of the MLS?
In general, the listing broker is required to comply with the seller’s instructions, inasmuch as the listing broker still has a fiduciary duty to the seller because the listing agreement, as a bilateral contract, can only be cancelled by the mutual agreement of both the seller and the listing broker. The listing broker should memorialize all correspondence by the listing broker with the seller to comply with the seller’s requests, and that the listing broker is ready and willing to comply with the obligations of the listing agreement until the termination date. If there is a sale of the property during the term of the listing agreement, the listing broker should be entitled to a commission.
Finally, what happens if only one spouse signs the listing agreement? Is the listing agreement enforceable by the listing broker? Inasmuch as the listing agreement is a personal services contract, and not a contract for real property, the signature of one spouse binds the community of both spouses. Simply put, the community property of both the husband and the wife is liable for the commission due on a listing agreement, even though only one spouse signed the listing agreement.
Similarly, if the listing agreement has been signed by both spouses and one spouse dies, the listing agreement is still enforceable against the surviving spouse. If only one spouse signed the listing agreement, however, the listing agreement is cancelled upon that spouse’s death.