Many (many) Realtors and their clients think that once a listing agreement (for sellers) or exclusive buyer representation agreement (for buyers) is signed, they are bound to the agreement until it expires. This is, in fact, not true. If you tell this to many Realtors, they won't believe you, but here's why we are right, along with proof you can provide them:
I, right along with all those other Realtors, originally thought that the agreements were binding until their expiration date, until a colleague told me that was incorrect. I didn't believe him, so I asked the general counsel for the Virginia Association of Realtors, a gentleman named Lem. Here's what I wrote Lem:
Subject: Lem - true that buyer rep agreements & listing agreements can be cancelled by the client at any time???
Lem - true that buyer rep agreements & listing agreements can be cancelled by the client at any time???
Danilo mentioned this today but I had never understood this to be true.
And here's what Lem wrote me back:
Yes, an agency agreement may be terminated at any time. After all, agency is consensual, and when the agency is withdrawn, the agreement dies.
However, most of our agreements provide that termination before the term has expired is an event of default, with most agreements stating that certain damages result. That will depend on the agreement.
I still didn't believe Lem, and thought he surely must be wrong! Maybe I asked the question incorrectly? So I wrote him back:
Subject: Re: Lem - true that buyer rep agreements & listing agreements can be cancelled by the client at any time???
Lem, this is very interesting.
I looked over the standard NVAR buyer representation agreement we use, and I don't see any provisions for damages should the buyer terminate the agreement early, other than a provision for the agent to still be compensated on any property that was shown to the buyer by the agent.
So, is it then true that if a buyer enters into a 90 day buyer representation agreement, he can cancel it on day 2 without any compensation due to the buyer agent, under the standard buyer rep agreement (excluding any properties the agent may have shown the buyer).
I believe it's popular myth among realtors that the agreement is binding for the entire 90 day term, and the buyer needs to wait for it to run out before he can contract with another realtor. Obviously NAR code of ethics bars realtors from soliciting the business, but the buyer can drop an agent he signed an agreement with?!
And the same thing goes for the listing agreement??? The broker can't do anything about it if the seller cancels the listing agreement???
buyer & seller compensation sections attached.
Lem wrote me back saying:
But it has to be, no? If the seller decides not to use you anymore, you you can't very well continue to market on his behalf, can you? Once he severs the ties, it's done. If he tells you to stop acting on his behalf, to stop marketing, to take the property out of the MLS, you can't very well ignore his instructions and continue to market on his behalf. His grant of agency to you is revocable whenever he wishes. But if he has entered into an agreement that provides for damages or consequences should he do that, he's bound by those consequences.
To make it as simple as possible, if seller says, "Take it out of the MLS and stop action on my behalf," it just can't be the case that we're free to ignore that and continue to market the property. He says stop, we stop. He bears any consequences he's agreed to.
So there you have it, straight from the mouth of the General Counsel of the Virginia Association of Realtors.
The only caveat to this discussion is that some listing or buyer representation agreements may in fact have provisions for damages if the agreement is terminated before the expiration date. For example, it may say, "If terminated before expiration date, Seller to pay Listing Agent $500", etc. So read your agreement carefully for that language.
Another caveat is that our Realtor code of ethics prevents us from soliciting the business of anyone who already has an agreement signed with a different Realtor. So if you're reading this, and you already have a signed agreement with a different Realtor, please understand that we are not soliciting your business, because we're not allowed to, and that would be a violation of our code of ethics!