Dear Mae,
Minnesota law covers listing contracts in Minnesota Statutes Section 82.66. Realtors are called brokers in the statute. It is true – if you have a valid listing contract, the broker can hold you to the commission price if there is a buyer and you refuse to sell. When you enter into a listing contract, you, as the seller, get a broker who is bound by fiduciary duties to work for you, to sell it at the price you set. The broker wants to get paid for the work they do to sell the property, so they write the contract to cover them when a deal doesn’t happen. For example, if your listing contract says you want the house sold for $175,000 and the broker gets 6% on the sale, if you are presented with a buyer for $175,000 during the contract period and refuse to sell, the broker will say she gets her 6%, or $10,500. If you don’t pay her, her remedy is to sue you.
However, a valid contract can only be entered by a seller that has authority to sell. The first thing to do is to check your ownership status. If you own the house, you have authority to sell and can enter into a valid listing contract. If you don’t yet own the house - say if you are still purchasing it through a contract for deed - you don’t have authority to sell and can argue that the broker’s listing contract is not valid and can’t be enforced by the broker. In most cases, you probably have authority to sell.
Look to see if the listing contract meets all the requirements of Minnesota Statutes Section 82.66. Sometimes the listing contract doesn’t have all the statutory requirements. If that was the case, you could argue that it is void. If there is something missing, because the broker drafted the listing contract, you may also be able to argue that the agreement should be construed against the drafter (the broker) as well as that it fails the statute. All listing agreements must be in writing and must include:
- an expiration date
- a description of the real property
- the list price and any seller’s terms
- the amount of commission or the basis for computing the commission
- a clear statement explaining the events or conditions that will entitle a broker to a commission
- a clear statement explaining if the agreement may be canceled and the terms under which the agreement may be canceled
- information regarding an override clause, if applicable, including a statement to the effect that the override clause will not be effective unless the seller gets a list of prospective buyers within 72 hours after the end of the listing contract
- the proper notice about compensation to be determined between each individual broker and their client
- a "dual agency" disclosure statement for residential property
- a notice requiring the seller to indicate in writing whether it is acceptable to the seller to have the broker to arrange for closing services or whether the seller wishes to arrange for others to conduct the closing, and
- for residential listings, a notice stating that after the expiration of the listing agreement, the seller will not be obligated to pay the licensee a fee or commission if the seller has executed another valid listing agreement pursuant to which the seller is obligated to pay a fee or commission to another licensee for the sale, lease, or exchange of the real property in question.
Please note: the contract can’t have an automatic extension clause, a holdover clause, or an override clause that is more than 6 months.
If the listing contract is valid, the next thing to do is to read the contract. The contract likely has a clause that allows for mutual agreement to terminate the contract. This means that if you and the broker agree, you both can sign a termination of the contract and both go your separate ways. If the broker does not agree to terminate the contract, then the risk is that you will owe the broker the commission agreed to in the contract, if the broker finds a willing buyer for your house before the end of the contract. Also, a typical listing contract will be for a certain period and after that time period, the contract usually will have a window of time (also known as the “override clause”) that says the broker has the right to get paid the commission should you happen to sell the house after the contract ends. The broker can’t enforce the override clause unless she gave you a list of prospective buyers (the people who came to look at the home during the listing contract) with 72 hours after your contract ended.
Thus, for you Mae, your options depend on what’s in the listing contract – it may be missing a statutory requirement. Your broker may agree to terminate the contract. If not, you may get lucky and there won’t be any willing buyers during the contract period. For others, don’t enter into a listing contract unless your mind is made up to sell.
