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Summary As a general rule, a broker earns a commission when he finds a "ready, willing and able" buyer, regardless of whether the property is actually sold. However, the seller and broker will have competing interests in when and how a commission is paid and this rule may be modified by the terms of the brokerage agreement. Under an exclusive right to sell arrangement, a commission is earned if the property is sold (no matter who actually procures the buyer). Under an "open listing" arrangement, the seller reserves the right to list with other brokers (whichever broker procures the buyer, gets the commission). Under an "exclusive agency" arrangement, the broker who is the party to the agreement is the only broker who may procure a buyer other than the seller himself. In addition to the terms related to commission, the brokerage agreement details the terms and conditions of how the broker will "list" the real estate. In other words, how the broker will advertise and market the property. It is in the best interests of the seller to specify a term for how much time the broker is given to list the property. Commission & Purchase Price The term should specify the percentage commission and under what circumstances it will be payable. In a "net" listing, the owner specifies a minimum price that is acceptable and the broker's commission is based on finding a buyer willing to purchase at that price or more. Note that some states prohibit such listings in order to protect a seller from offering their property at below market prices. Engagement This indicates the type of listing arrangement and the duration of the listing term. This also grants the broker authority to represent the seller for purposes of procuring a buyer. This term will also detail the methods the broker will implement in order to procure a buyer. In addition, the broker will stipulate that his own agents may be engaged in the effort to find a buyer. Property Description Legal description of the improved real estate and space being leased, if any. Seller's Warranties & Representations Seller warranties as to title, deed and escrow will generally be included in order to expedite the closing process following procurement of a buyer. The broker will also want the seller to promise not to deliberately impede the sale by not cooperating with broker or by discouraging potential buyers procured by broker from purchasing. Extension An agreement may be extended. Proposed seller must receive written notice of intent to extend. Mediation and Arbitration Mediation and Arbitration should always specify a convenient location (preferably, in the same county where the real estate is located). Mediation is a non-binding way to settle the dispute quickly and amicably. If unable to settle in mediation, arbitration is first option available. Arbitration is the preferred alternative to litigation because of speed, cost, and ability to maintain low profile (no info is publicly available). No Modification or Waiver No modifications except those specifically agreed upon by the parties in writing. Any waiver of a term or provision will not act as a waiver of any other provision. Entire Agreement This agreement constitutes the entire agreement of the parties and may be modified only in a writing executed by both parties. Notices Notices should always list the current and best addresses where each party may contact the other for whatever reason.
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