The Most Important Document You Need Before Selling Any Real Estate

Documents create a paper reality we call proof.

– Mason Cooley, American literary academic and aphorist

By Realttorney^®

This is an article that was first published last April 22, 2015, before I lost my domain name in April 2020 at the start of the pandemic. But now it is back. And I am slowly uploading the various articles that were previously published and updating them. The updates are in green font.

Last January 2015, I got a text message from two colleagues about a similar concern. Both of them were having a problem with the exclusive authority to sell extended to them by their respective owner-sellers.

MHS was upset that a licensed broker refused to acknowledge her exclusive authority to sell signed by the owner of the property. The buyer of MHS got outbid by a higher purchase price of the buyer of this broker. The other broker said that there was nothing in the law that would dictate how they would share the commission.

Meanwhile, VB mentioned that she has exclusive authority to sell a property signed by the owner. But she asks what is the arrangement if the owner himself finds a buyer for the property? Her authority does not contain any provision on such an instance.

The problems of MHS and VB are quite the norm concerning the exclusive authority to sell. However, most licensed real estate brokers in the Philippines overlook or forget to undertake certain steps to protect themselves from unscrupulous owner-sellers and unethical brokers.

A dutiful real estate broker should always execute a Listing Agreement with the owner-seller before exerting any efforts to market and sell the property. This is the most important document that needs to be secured first and foremost. Numerous licensed real estate brokers forget this very important piece of document that governs the relationship between the licensed real estate broker and the owner-seller.

I have overlooked this document several times in the past in my eagerness to market, advertise, and put up for sale a particular piece of property. Most often, this happens when the owner-seller is a good friend or a close client of mine.

But I would say now that no matter what your relationship is with the owner-seller, the number one order of the day for all licensed real estate brokers is to draft a Listing Agreement and have it signed by the owner-seller. This becomes especially important when the owner-seller is a stranger to the broker.

A Listing Agreement is a binding legal document executed by and between the owner-seller and the licensed real estate broker that governs the relations of the parties regarding the marketing and sale, lease, or mortgage of a property and the professional fees due to the latter when there has been a successful consummation of the transaction.

It is a contract whereby there is a meeting of the minds between the owner-seller and the real estate broker, and the former binds himself or herself to pay the agreed-upon professional fee while the latter renders the service enumerated in the agreement itself.

There are several types of Listing Agreements as to exclusivity. The first is open listing or non-exclusive. This type is where the seller lists the property to several or many brokers. This type also allows the owner the right to sell the property himself without paying any professional fees to brokers who have already exerted efforts to market the property and find buyers for it.

The second is an exclusive agency where the owner-seller agrees to list the property to only one broker during the listing period but reserves the right to sell his/her own property without the obligation to pay a professional fee to the said exclusive broker. During the initial meeting with the owner, the real estate broker must be able to determine if the owner-seller is unwilling to give up the right to sell the property by himself or herself.

If this is the case, then my advice would be not to take on the task of marketing and selling the real property. Oftentimes, owner-sellers who are unwilling to let the real estate broker perform the services he or she enumerated on the exclusive agency are a control freak. As such, this translates into misunderstandings between seller and broker regarding compensation. 

Finally, we have the exclusive listing (or exclusive authority to sell) which is the agreement that grants a particular real estate broker the right to sell the property during the listing period and payment of the professional fee is absolutely due to the broker in all instances when the property is sold, even if by the owner himself.

Unfortunately, there are owner-sellers out there who do not honor their agreements with their licensed real estate brokers. On the other end of the spectrum, you have licensed brokers who likewise do not honor the terms of the exclusive authority to sell, like in the case of MHS.

Here is a practical and ethical tip. As a buyer’s broker, you should inquire from the seller’s broker what type of agreement he or she has with the owner-seller. And please, ask for a copy for your study and reference. Thereafter, respect the agreement because that is the legal and ethical thing to do. [See Section 2, Article II and Section 4 (a), Article III, Code of Ethics and Responsibilities for Real Estate Service Practitioners – PRBRES Resolution No. 39, Series of 2019]

But, oftentimes, the owner-seller and the rival brokers take a chance to disregard the exclusive listing simply because the said agreement was not properly explained by the exclusive selling broker to the owner-seller. Hence, real estate broker must be able to fully explain to their clients what type of agreement and the various nuances behind each.

In the past, I have been approached by a lot of licensed real estate brokers asking if they can sue the owner-seller for reneging on the obligation of the exclusive authority to sell. My advice is always to dissuade that colleague from filing a case against the owner-seller because most often the listing agreement is not airtight or there is no agreement to begin with.

The Supreme Court has promulgated several cases where exclusive listing agreements and simple contracts have been upheld and owner-sellers have been directed to pay the outstanding professional fees due to the real estate broker.

But that would be another article for the future. I am also writing a book entitled “The Law & Jurisprudence on Compensation in Real Estate Brokerage in the Philippines” which will be published in the second quarter of 2024. It gives the history of how real estate brokerage began in the 1900s under the American colonization period, what laws regulated the practice from the 1900s to the present, and the right to compensation of licensed real estate brokers. Let me know if you desire to have a copy of the book. Leave a comment. Thank you.

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Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.