Multiple Choice Question: We are taking a new listing for a home that was previously listed with Previous Brokerage (“PB”). PB’s listing has just expired. The owner wants to know what happens if one of the prospective buyers on PB’s exclusion list purchases the property during its safe harbor period. Pick the best answer:

A. PB would act as the listing broker, and PB would be entitled to the commission.
B. We would act as the listing broker, and we would be entitled to the commission.
C. We would act as the listing broker, and the seller would be obligated to pay both PB’s commission and our commission.
D. None of the above.

Answer: Answer A could be the correct answer. However, it assumes that PB’s exclusion list is valid which is often not the case. For PB to be entitled to its commission, PB’s exclusion list must contain prospective buyers who were shown the property or wrote an offer during PB’s listing period under paragraph 3A(2) of the C.A.R. Residential Listing Agreement (RLA). PB must have also given the seller the written list in a timely manner before PB’s listing expired. Answer A also assumes that we will exclude those buyers in paragraph 3F(2) of our RLA. If we do, we would not be entitled to compensation nor obligated to represent the seller, according to paragraph 3F(3). If an excluded buyer does buy the property, a seller typically ends up working with the previous broker as the listing broker. However, oddly enough, the RLA itself merely states that the previous broker is entitled to commission, and it does not specifically state that the previous broker must act as the listing broker.

Answer B could also be the correct answer, because oftentimes, the previous broker fails to get a proper list of names to the seller before the expiration of its listing period.

Answer C could also be the correct answer if, for example, we fail to exclude PB’s list from our listing agreement. Also, in some rare instances, sellers refuse to work with their previous broker and they instruct us not to exclude anyone from our listing agreement or they agree to pay us a reduced commission if an excluded buyer purchases the property. These sellers are generally very confident that they will successfully defend themselves if the previous broker makes a claim for compensation. In this situation, make sure you indicate in our listing agreement that the seller understands and agrees that the seller (and not our company) may be responsible for paying the previous broker if someone on its exclusion list purchases the property.

Answer D is the best answer. Whether PB or our company will act as the listing broker or be entitled to compensation for an excluded buyer depends on the validity of PB’s list of excluded buyers, how we complete our listing agreement, and which listing broker the seller wants to work with.

-Thank you to Patty Cohen (La Jolla Prospect Office) for suggesting this week’s legal tip.

Copyright© 2018 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of November 5, 2018. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.