Special Agreements and your Listings

The following article was circulated by the K-W Real Estate Board

What is a Special Agreement?
The term is defined in the Bylaw: “Special Agreement” means any arrangement or agreement between the Listing Brokerage and the Seller relating to the commission or other remuneration payable to the Co-operating brokerage other than the commission or other remuneration as published by the Board, and includes any circumstances under which the commission or other remuneration payable to the Co-operating Brokerage may be paid or mot paid, or that affect a Member’s or Co-operating Brokerage’s ability to complete the Trade or earn the commission or other remuneration. (Article 1.01 [u], MLS Rules and Regulations)

Does a Special Agreement have to be in writing?
Absolutely! A Special Agreement forms part of the listing agreement and must be documented. There can be no verbal agreements, or under-the-table arrangements. All of the seller’s “understandings” based on any discussions you have had with him/her must be in writing and must form part of the listing agreement.

Both the RECO Code of Ethics and the CREA Code of Ethics include requirements that all real estate agreements must be in writing. The Board’s listing agreement also speaks to the requirement to commit the entire agreement between the parties to writing: This Agreement constitutes the entire agreement between the parties to this Agreement and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no warranties, representations, terms or conditions in connection with the subject matter of this Agreement except as specifically set forth herein whether they be contained in any sales material, brochures, or alleges against any Brokerage, or otherwise. (Clause 21 – Entire Agreement)

Why does the Special Agreement rule exist?
The premise of the Multiple Listing Service is that the playing field is level for all members. You submit your listing to a shared database and every member has an equal opportunity to co-operate on the sale. When one member – unknown to all other members – has a potential advantage, the system is no longer fair to all. That’s why it has been a requirement for many years to disclose to other members the existence of any agreement made between the listing brokerage and the seller that could create a possible advantage for the listing brokerage or a disadvantage for another member or his/her client.

How is a Special Agreement disclosed?
Disclosure of the existence of a Special Agreement take the form or responding to the mandatory question on the date form: Seller and L/Br Have Special Agreement – Yes/No. If the listing member/brokerage has responded with Yes, it is the responsibility of other members to determine whether/how the Special Agreement may affect them or their buyers.

If a co-operating member or brokerage requests details of the Special Agreement, they much be provided: Special Agreements shall be disclosed on the MLS Listing, and the precise terms of a Special Agreement shall be provided in writing to other Members and Co-operating Brokerages immediately upon request. (MLS Rules and Regulations, Article 2.11). The co-operating agent may be willing to accept the information verbally, but he/she has an absolute right to require that full details of the Special Agreement be provided in writing.


Is every change to the listing agreement a Special Agreement?
Not necessarily. Striking a clause that is not applicable to that particular listing is not a Special Agreement. The Board’s standard listing agreement form is used for all types of listings, and there are clauses that may be required for a commercial transaction that would not apply to a residential listing. Striking a clause that relates to a lease provision when the property is only being offered for sale is not a Special Agreement. Attaching a rent schedule or a marketing plan also would not be considered a Special Agreement.

Special Agreements generally relate to circumstances where a co-operating brokerage’s commission or ability to complete the transaction could be affected, or where the seller might be inclined to favour an offer from the listing brokerage’s buyer over other offers.

The MLS ® system is based on trust. Members must be able to rely on the information submitted by the listing brokerage. They must be able to work with the confidence that their buyer’s offer will be viewed in the same light as any other offer, and if theirs is the accepted offer the commission or other remuneration published by the Board will be earned. The rule of thumb is that if the Special Agreement could have any effect whatsoever on another member or co-operating brokerage or his buyer, it must be disclosed. Far better to err on the side of caution than to have an undisclosed Special Agreement come to the attention of the Professional Standards Committee.


What are examples of Special Agreements?
While the following is not an exhaustive list, it represents the types of situations under which a Special Agreement must be documented and disclosed:

• An agreement is made with the seller to reduce commission under certain circumstances. This would ordinarily be a “double end” situation, where the commission might be reduced if no other brokerage were involved in the transaction. The existence of this type of agreement must be disclosed up front – by responding Yes to the Special Agreement question on the data form. It does not matter that at the time of the offer the listing brokerage’s offer may be the only one on the table. It does not matter that if there are competing offers the seller will pay the full commission. The agreement relating to commission must be in writing and forms part of the listing agreement, and is therefore a Special Agreement. As well, just fact that the listing brokerage indicated a willingness to reduce commission might lead the seller to believe that accepting his/her/its buyer’s offer could be to his.

• An agreement is made with the seller to cancel the listing at any time. When a listing agreement is cancelled using the Board’s cancellation form, both parties are fully released from any and all obligations and duties imposed on them under the agreement – including the holdover clause. Do other members have the right to know that this seller is just “test driving” the listing brokerage, just “dipping a toe” in the MLS®? If you’re the co-operating brokerage, do you think it’s important to know that this listing agreement might vaporize at any time? A promise to cancel must be in writing and forms part of the listing agreement, which makes it a Special Agreement.

• If a particular buyer with whom the seller has had a discussion prior to the listing makes an offer, no commission will be paid to the listing brokerage. Let’s say the seller has two offers in the same amount on the table – one from this special buyer, another from a different buyer. When the seller “does the math”, does the co-operating brokerage’s offer look as good? Would you as co-operating brokerage want to know in advance that not all buyers will be considered equal? Such an agreement must be in writing, naming the excluded buyers, and forms part of the listing agreement, which makes it a Special Agreement.

• If certain clauses in the Board’s standard listing agreement are modified, other members could be negatively affected. Two such clauses are the holdover clause (Clause 6), where commission would ordinarily be payable on offers accepted up to 60 days after expiry; and Clause 5 that reads: The Seller agrees that he shall pay the Listing Brokerage the commission or other remuneration set out in this Agreement regardless of whether or not the offer for Sale or Lease of the Property is completed. It does not matter that the non-completion is not owing or attributed to the default or neglect of the Seller.

Such clauses are included for the protection of other members; striking them affects the ability of other members to earn commission when they’ve done their job. If the seller signs a listing agreement that has been modified in ways that affect other members, this must be disclosed as a Special Agreement.

Can I create a Special Agreement by striking or modifying any clause in the listing agreement?

Not of the Special Agreement has the effect of contracting out of the terms and conditions of the MLS® system, or of releasing you from a continuous agency relationship and professional involvement with the seller throughout the entire term of the listing agreement, or of relieving you of the obligation of compliance with any rule or standard by which members must abide. You cannot accept an instruction from a seller that would put you in breach of any rule. Clause 19 C. of the Board’s listing agreement reads: The Seller acknowledges and agrees that the Listing Brokerage or any other Brokerage will comply with the Board’s MLS® Rules and Regulations and any applicable law, regulation, code or standard, and the Seller shall not give any contrary instructions.

In choosing the benefits of the MLS® a seller must also accept all the obligations. He/she is not entitled to enjoy the board exposure provided by the MLS® and its marketing adjuncts such as mls.ca/ICX.CA but decline to accept the requirements that make the system fair and equitable for all. Certain listings simply are not eligible to be MLS® listings. The MLS® system does not have to accommodate the listings of sellers who believe they can dictate the terms under which they will list their property.

Discuss…document…then disclose your Special Agreements

Although there are legal and ethical obligations associated with listing agreements, you can take no better guide that the Golden Rule: Do unto others as you would have them do unto you.

March MLS Statistics

Here are March 2007 MLS statistics from our two real estate boards:

	K-W This Month	K-W Last Year	Cambridge This Month	Cambridge Last Year
Avg. Sale Price	$ 246,817	$237,702	$244,465	$234,234
Percentage Change	+3.8%		+4.4%
Properties Sold	612	596	293	291
New Listings/Sales Ratio	64%	60%	68	62%
Properties For Sale Now	1859	1759	802	715

Congratulations, Mary McMurran

Mary McMurran has been selected by Quality Service as their Agent of the Month! You can check out her story and all about Quality Service at http://www.qualitycertified.org

Protecting Your Commission

The issue of a seller’s contractual obligation to pay commission has once again arisen in Ontario’s courts. In the recent case of Gidda v. Malik, the seller had signed a listing agreement with a real estate brokerage, but subsequently sold the home through a private sale. The private sale was singed and dated during the period listing agreement was in effect but did not close until after the expiry of the listing agreement.

The real estate agent who listen the property learned of the private sale, but what is unique is how she obtained details of the private sale. The agent contacted the law office that represented the seller and misrepresented that she was an agent acting for the seller in relation to the private sale. She then asking for a copy of the private agreement, and a secretary working at the law office forwarded a copy of the agreement to the real estate agent. Using this information the real estate agent successfully obtained a judgment against the seller for the commission owing of $10,000.

The seller did not learn from this court decision. He decided to sue his lawyer for the $10,000 on the basis the lawyer had improperly disclosed the private sale agreement. The court ultimately found that, while negligent for disclosing the agreement, the lawyer is not liable for the seller’s “loss”. It was found that even if the agreement had not been disclosed, the sale would have become a matter of public record and the real estate brokerage would have likely pursued the matter.

Most importantly for real estate brokerages, the court went on to note that the seller was the author of his own misfortune. It was found that the seller had entered into a binding agreement to pay commission, and he could not set out to deprive the brokerage of that commission, nor could the seller then blame his lawyer and pass the cost of paying the commission onto his lawyer.
An agent should never involve him or herself in any unscrupulous actions, such as misrepresenting his or her identity or the capacity in which the agent is involved in a transaction. Where a brokerage has a contractual right to a commission, a remedy against the seller can be obtained without engaging in such behavior. The seller and/or lawyer may have referred this matter to RECO. We do not know. The penalties, costs, losses and expenses as a result of a RECO complaint and decision could have been much more than the commission recovered from the seller.

Reprinted from K-W Real Estate Board Legal Update