Blog Series: Listing Contracts

While there are alternative sales methods, the first step for many sellers is to find and sign a listing contract with a realtor; most often the standard WB-1 “Residential Listing Contract – Exclusive Right to Sell” approved by the Wisconsin Department of Regulation and Licensing.[1]

As the name implies, by signing the listing contract you are promising that your realtor is the only one who will be able to list your home for sale during the period of the contract (hence the importance of finding the right realtor for you).  You are also promising that, if the realtor is able to procure a ready, willing, and able buyer, that you will work in good faith to close on the sale.  In return, the realtor promises to market the property and use his/her resources to bring you a ready, willing, and able buyer.

In exchange for their services, the realtor will earn a commission consisting of a percentage of the purchase price (typically 6.0%).  Notably, they may be required to share this commission with another realtor, especially a realtor who represents a ready, willing, and able buyer.

The standard listing contract states that the commission is earned if, during the term of the contract,

  1. Seller sells or accepts an offer for the sale of all or part of the property;
  2. Seller grants a buyer an option to purchase all or part of the property;
  3. Seller agrees to exchange property with a buyer;
  4. A transaction occurs which causes a change in ownership of the property; or
  5. The realtor procures a ready, willing, and able buyer who offers to purchase the property at the listing price and terms set forth in the listing contract and standard WB-11 Residential Offer to Purchase.

As you can see, under the standard contract the realtor may sometimes earn their commission even if the transaction does not close.  A ready, willing, and able buyer is defined as one who “has the ability to complete the buyer’s obligations under the written offer” delivered to you or your realtor.  If your realtor’s efforts result in the delivery of the offer, he/she will be due a commission.  The only buyers that do not result in the payment of a commission must be identified to the realtor in writing upon execution of the listing contract.

Even if no offer occurs during the term, in some circumstances you may be required to pay your realtor a commission down the road.  All potential buyers who (1) deliver an offer, (2) negotiate directly with you; or (3) attend a showing or discuss potential terms with your realtor during the term of the listing contract are “protected buyers.”  If, during a period (usually one year) after termination of the listing contract you make a deal with a protected buyer, your realtor will be due a commission.  This clause protects realtors against clients “running out the clock” on their listing contracts in hopes of not paying a commission.

If along the way you decide not to sell your property or that your realtor is not the right fit, you and your realtor may agree to terminate the listing contract.  Upon termination you will want to make sure to receive a list of any protected buyers so that you are not surprised by your realtor at closing looking for their commission.

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[1] There are too many important considerations in selecting a realtor to mention in this post; however, the three most important (to this author) are: motivation, personality, and experience.

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