Multiple Choice Question: You are taking a new listing on a home that was just previously listed with another company. The previous listing agent gave the seller a list of 7 names of prospective buyers to be protected under his safe harbor clause (or paragraph 3A(2) of the C.A.R. Residential Listing Agreement). Are you obligated to exclude those buyers from your listing agreement? Pick the best answer.

A. Yes, as a matter of law.
B. Yes, under the NAR Code of Ethics.
C. Yes, under both legal and ethical requirements.
D. No. 

Answer: Answer A is not the best answer. The law imposes upon you, as the new listing agent, a fiduciary obligation to do whatever is in your client’s best interest. That obligation would likely include discussing this situation with the seller upfront when you take the listing. However, whether you are obligated to exclude those names depends on what you and the seller decide at the end of that discussion.

Answers B and C are also not the best answers. Under the NAR Code of Ethics, before you enter into a listing agreement, you have an affirmative ethical obligation to make reasonable efforts to determine whether the seller is subject to a current, valid exclusive agreement to provide the same type of real estate service (Standard of Practice 16-9). You’ve done that. Of course, the rule could easily be interpreted to also include a requirement that you discuss the list of 7 names with the seller, but again, depending on the circumstances, you may not necessarily be ethically required to exclude those names from your listing agreement.

Answer D is the best answer with one very big caveat (discussed below). It’s true that sellers typically want the new listing agent to exclude the names of the previous agent’s prospective buyers to avoid an obligation to pay 2 sets of commission if one of those buyers end up buying the property. However, in some rare instances, a seller may not want to exclude the names. The most likely scenario is when a seller is so upset and unhappy with the previous listing agent that the seller refuses to work with that agent again. Perhaps the seller decides not to exclude those buyers from the new listing agreement because the seller does not intend to sell to any of those buyers. Or perhaps there are only a few days left before the safe harbor clause expires. Or maybe the seller does not care if the previous listing agent makes a claim for compensation against the seller, because the seller is moving out of the country or is otherwise judgment-proof, as is common when we do short sales and foreclosures. Or perhaps the seller welcomes the previous agent’s claim for compensation because the seller want an opportunity to tell a judge or arbitrator what a terrible job that previous agent did.

The one big caveat is that, if you do not exclude those names from your listing agreement, you should explain the exact situation in writing in your listing agreement. For example, under “Other Terms,” you could say something like: “Seller has a list of 7 prospective buyers protected under a previous listing broker’s safe harbor clause expiring on August 3, 2019. Seller understands and agrees that Seller may be obligated to pay compensation to both Broker and the previous listing broker if one of those buyers purchases Property. Seller has nevertheless instructed Broker not to exclude those names from this Agreement because [insert reasons].”

-Thank you to Chris Fryson (San Diego Central and La Mesa/El Cajon Manager) for suggesting this week’s legal tip.

Copyright© 2019 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 July 29, 2019. 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.