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Orders that Conflict with Listing Agreements



A situation come up this weekend and thought it was a good learning lesson I could pass along.

The case involves the sale of the property. There is an order for the house to be sold with a “first right of refusal” clause, whereby the wife has the option to buy-out husband at the value established by the offer instead of accepting the offer and selling the property. This causes a few problems:

1)  The Listing Agreement:

In a Residential Listing Agreement provided by California Association of Realtors (the one most commonly used in CA), there is verbiage that provides for a Realtor to be due a commission whether or not the sale completes, so long as they’ve procured a ready, willing and able buyer, and the Seller prevents the transaction from completing. See paragraph 3A(1) & (3) taken from C.A.R.’s RLA:

When my office is appointed to list a property, we request a copy of any orders regarding the sale of the house. If there is this “first right of refusal” clause in an order, unless there is a compelling reason not to, we advise the parties and their attorneys to explore the buy-out option first before signing a listing agreement so as to avoid potentially unnecessary commissions.

2)  The Listing Agent:

Once a listing agreement is signed, Realtors start spending money – in staging, photography, open house marketing, for sale sign installation, and a whole host of other marketing efforts that cost money, in addition to time that the office puts in. My office has a 112-point checklist that we run through from the time we do an intake to the time we receive an offer; we invest weeks getting houses prepped for the market, as well as all-day open houses, and several meetings with the clients to coordinate this process.

3) Buyers:

This kind of order is unfair to buyers who are being used essentially as a trigger for a “first right of refusal” for the wife, in this case, without their knowledge. This actually triggers a disclosure requirement to buyers, which may artificially depress offers.

You can see why a first right of refusal in an order throws a big wrench in the process and causes a lot of wasted time, money and frustration. For this reason, it is strongly advised that the buy-out option is exhausted before ever signing a listing agreement so that your client isn’t potentially on the hook for commissions.