Contract Closes After Listing Expires

 

Question: My listing expires at the end of this month. My seller just entered into a contract to sell the property that is scheduled to close after the expiration of my listing. Does the seller have a need to extend my listing agreement so that I am obligated to continue to service the deal through closing? Do I have a need to extend the listing agreement to document that the seller has an obligation to pay a commission for continuing to work on this transaction?

Quick Answer: The answer to both of these questions is “no.”

It is not unusual for a property to go under contract prior to the expiration of the listing agreement, with a scheduled closing date after the expiration of the listing agreement. The Real Estate Commission’s seller listing agreement essentially provides that the listing agreement is extended for the closing of this transaction. Section 7.2.1 of the current listing form provides that the listing broker earns a commission for “any Sale of the Property within the Listing Period.” The term “Sale” is a defined term under the listing agreement. Section 3.5.1 defines the term Sale as a “voluntary transfer or exchange of any interest in the Property or the voluntary creation of the obligation to convey an interest in the Property, including a contract or lease.” [Underlining added by author.] Therefore, if the property goes under contract before the listing has expired, the listing broker has earned a commission. The commission is not payable, however, until the deal closes or until it is defeated by the seller pursuant to section 7.3.

The seller does not need an extension because part of section 3.6 of the listing agreement provides “Broker shall continue to assist in the completion of any sale or lease for which compensation is payable to Brokerage Firm under § 7 of this Seller Listing Contract.”

In spite of the automatic extension, sometimes brokers have an instinct to try and extend the listing agreement beyond the scheduled closing date of the purchase contract. If the seller signs such an extension, it does no harm to the broker, and provides the benefit that for the listing is expired for any buyer. The purchase contract that motivated the extension might fail. A new buyer might surface before the extended listing term expires and having an extension would therefore help the broker receive a commission for the buyer who was unknown at the time the extension was executed. Asking for the extension, however, is not without risk. The request for the extension might cause a seller to think that the seller is not obligated to pay the listing broker a commission for a buyer who closes outside of the initial listing term. Why would a listing broker ask for an extension of the listing agreement if one is not needed?

Whether the listing broker asks for an extension of the listing agreement for the situation described in the question above is a strategic decision which should be made based upon the circumstances of each situation.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN