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Listing Protection Clause Has Its Limits

Written by on Monday, 31 October 2011 7:00 pm
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Probably most real estate brokerages include a protection clause in their listing agreements. The purpose of such a clause is to protect the listing agent from having a prospective buyer "go around" him or her by waiting for the listing period to expire and then dealing directly with the seller - thereby taking the commission out of the transaction. It has even been known to happen that such a stratagem has been pursued by a buyer in collusion with the seller. Believe it or not.

Some protection provisions are highly specific; some are not. Sometimes they may be subject to differing interpretations. An example was recently provided by a National Association of Realtors® (NAR) legal notice regarding a Tennessee case (Crye-Leike, Inc. v. Sarah A. Carver).

The seller had entered into an Exclusive Right to Sell listing agreement with an associate broker of the Crye-Leike firm. The listing agreement had an expiration date of August 21, 2007. The agreement had a protection clause which had been drafted by Crye-Leike. It said that the brokerage would be entitled to a commission if, within 90 days after the contract terminated, the property was sold "to anyone to whom this property was shown or submitted or to any person to whom CRYE-LEIKE shall have offered the same during the term of this contract…". The listing agreement also contained a provision that "Any amendments to this agreement shall be made in writing."

Shortly before the listing expired, an Alabama couple, who had learned of the property through an Internet site, expressed interest in seeing it when they contacted a Memphis area co-op broker to schedule a viewing of homes. On August 21 (the day of listing expiration), the co-op broker scheduled an appointment through the listing office for a showing on August 22. The buyers were shown the home both in the morning and, later, in the afternoon of that day. They did not make an offer.

Later, the buyers terminated the services of the co-op broker. Then, on Sept. 12, they contacted the owner directly. The home had not been relisted. In October the buyers and the seller, both without broker representation, closed a sale for $460,000.

Upon learning of the sale, the listing firm sued for a commission. It argued that "it was entitled to a commission because its associate broker…participated in or caused the Property to be shown." It further argued that, through conversations between the listing agent and the seller, the listing had been orally extended, and also that, through the (showing) actions taken, the listing had been extended.

The listing firm lost at the trial court and then appealed. The Court of Appeal at Jackson, Tennessee upheld the trial court’s ruling. No commission.

The listing firm had argued that "the Property was shown, submitted, and offered to the [buyers] through the listing of the Property on various internet websites prior to the expiration of the Agreement." The appellate court noted that the language of the protection provision "is susceptible to more than one reasonable interpretation," and that "The display of a detailed internet advertisement arguably satisfies the contractual requirement that the Property be shown, submitted, or offered to an eventual purchaser where modern technology permits one to see or examine residential properties without being physically present at the property."

Nonetheless, as the NAR analysis points out, "When a contract is ambiguous, courts construe the language against the party that drafted the agreement. The Brokerage drafted the agreement and so the court read the contract in the narrow manner advanced by the seller." That is, there was no actual showing of the property during the listing period. Simply being on the internet was not sufficient.

As to the other arguments of the brokerage: there was no evidence that the seller had waived the requirement that any amendment to the listing had to be in writing. Hence, there was no extension.

Often, real estate brokerages want contracts to be construed narrowly and literally. They don’t want the courts to indulge in broad and sometimes imaginative interpretations. In this case, that principle favored the seller and not the broker.

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  About the author, Bob Hunt

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.