These 2 Hidden, Seemingly Innocuous items in your Listing Agreement can Cost You Thousands

You would think that after all of these years renovating properties to sell to retail buyers that I would have come across this before.  But either my Listing Agents were reasonable people (recommended names below) or I just experienced the unthinkable.

Anyone in real estate investing has experiences with problem properties.  If they haven’t, then they are new to investing, or they are lying to you.

All states have a regulating board that approve “promulgated” contracts for use in each state.  Each contract is viewed, scrutinized and approved by this “committee”.  Note that these contracts are written to favor the Brokering Agency, as that is who funds the effort of the committee.

That being said, all Brokers must warn consumers and recommend they get the advice of an attorney prior to signing the listing agreement.

 Much like you, I went forward thinking that standard listing agreements would satisfy me…until recently.

The First Gotchya in the Fine Print

Let’s say your property is on the market and doesn’t sell.  You decide take it off the market and rent it until conditions change. You start to market the property, advertise, put up signs and solicit for potential renters.

Well, SURPRISE – That listing agreement assures that selling broker gets a certain percentage of the lease, usually anywhere between 10-20%.

The intention is understandable.  The Listing Broker/Agent pays for photos, ad space, MLS fees and general operating costs to promote your listing.  Should you decide to take it off the market and list it, they still want to be compensated for thier efforts.

But let’s say you want to rent it out AND keep it listed.  And you find a renter that wants to stay for 2 months, and agrees to allow for showings.

Yep, you guessed it, the Broker is entitled to that percentage that you had hoped would ease your pain of extended holding costs.

You will notice that this listing agent tried to go with a 20% fee, which is absurd as most property management companies hover around a 10% fee.  Therefore I insisted on a 10% fee.

Naturally, I thought if I took it off the market they should be compensated for their efforts – which is the intention of that paragraph.

What happened really surprised me.  I rented the unit out to short term renters wanting to vacation in Sunny Florida for 2 months.  I recruited them via VRBO and advised my agent that I would have guests for those 2 months, but they wouls allow for showings and still hope to sell the unit.

Given the property was on the market longer than expected, I was desperate to mitigate my losses.

You can imagine my surprise when he told me that his brokerage is due 10% of that fee.

Luckily we were at the end of that listing agreement.  I refused to sign an extention with this same agent unless he forgave that 10% fee for the 2 month stay and we renegotiated the future listing to comply with its original intention.

Retained Deposits

I’ve had many deals fall through for various reasons, but all were during an inspection period or a valid contingency.

Recently I had that same property under contract.  The inspection period has passed and the buyers changed their mind.  In addition, the buyers wanted half of their deposit back.

Needless to say this was a clear cut case of the buyer’s intent not to follow through with their obligation according to the contract.  They then agreed to lose their Earnest Money Deposit to get out of the contract.  

In addition to having the property locked up, not active during a highly active market season that Earnest Money Deposit didn’t compare to the loss of marketing time for that property.

Again, you can manage my surprise when presented with news that the Broker is entitled to 50% of that deposit.

True, the broker put in some effort to negotiate the pricing and conditions on my behalf, but that paled significantly to my financial risk, the renovation costs, the lossed opportunity costs and all the other efforts to get the property to a point where an EMD could be collected.

Similar Issue on a Chicago Property

I remember a problem property in Chicago that was on the market longer than expected.  I don’t remember, nor want to view the listing agreement I had, but my Chicago Agent, Karen Pence from At Properties and I agreed to take it off of the market for a few months, rent it out via AirBNB, then relist it as a fresh new listing.

The strategy worked fine, as I was able to augment my holding costs, and the property sold quickly as it appeared as a new listing.

I was never presented with an invoice to pay any percentage of my short term rental earnings owed to the listing broker.  It could be it wasn’t in the listing agreement, but more likely it was because I was dealing with a reasonable person at a reasonable company.

I never encountered anything like this with my other primary investor friendly agent, Nancy Krause located on the West Coast of Florida.  I’m confident had an issue like this come up, reason would prevail as she recognized the benefit of our long term business relationship.

Needless to say…

These 2 paragraphs in future listing agreements will result in my total and complete scrutiny.  There are plenty of listing agents out there that think they can “list it and forget it” and get paid no matter what, but it’s the “investor savvy” agents that understand the benefits of a business relationship.