Choosing a listing broker and negotiating the listing agreement

Choosing a listing broker for an apartment building means hiring someone to run the sale and signing a contract with them. The listing presentation is about the person. The contract decides what you owe, when you owe it and how you get out, and you can negotiate nearly all of it before you sign.

Get your own numbers together before either conversation. A broker can only price what you show them, and preparing to list is mostly paperwork and a short list of repairs.

What does a listing broker do in an apartment building sale?

On a multifamily sale the listing broker's work runs from the first spreadsheet to the recorded deed, and putting the building online is a small part of it. The rest looks like this:

• Rebuilding your income from the rent roll and expenses, adjusting for rent control and deferred work, and comparing the result with sales of similar buildings.
• Deciding whether to take the building to the whole market or quietly to a short list, which trades competition among buyers for privacy.
• Screening buyers for whether they can close, which means how they will pay, whether a lender is lined up, and whether they have bought a building like yours before.
• Negotiating everything past the price, including the deposit, the inspection period, the loan terms, the closing date and the credits a buyer asks for after inspections, where a sale can be won or lost.
• Holding the deal together through tours on the notice tenants are owed, answers to buyer requests, and steady pressure on the lender, the escrow officer and the title company until the deed records.

In all of it the broker works for you. The state's agency disclosure form, set out in Civil Code section 2079.16, says a seller's agent under a listing agreement "acts as the agent for the Seller only and has a fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller."

Exclusive right to sell, exclusive agency or open listing?

The Department of Real Estate's reference book lists these three among the listing agreements most commonly used, along with the net listing. What separates them is who can sell the building and when the broker earns a fee.

The DRE calls the exclusive right to sell the arrangement that gives the broker the greatest protection. That protection is what a broker wants in exchange for spending money to market your building, so expect to be asked for it. An open listing costs you nothing to grant and buys you little effort in return. An exclusive agency sits between them, and it suits an owner who already has a likely buyer in mind but wants a broker working the rest of the market.

Both exclusive forms need an end date. Under Business and Professions Code section 10176, the Real Estate Commissioner can discipline a licensee who claims a commission under an exclusive agreement with no definite, specified date of final and complete termination, and in Babcock v. Houston a California court denied recovery under an exclusive sales agreement for that reason. So the agreement should end on a calendar date, and a phrase like "until sold" should come out.

What to negotiate before you sign

A listing agreement arrives as a printed form, and you can still change almost every blank in it before you sign. Raise these terms:

• Term. How long the broker has, and whether you can end it early if the marketing plan is not followed.
• List price. What it is, the reasoning behind it, and who decides on a price change.
• Commission. The amount or rate, and the moment it is earned. A fee earned at closing is a different promise from one earned when a buyer signs, and the difference shows up if that buyer later walks away.
• Buyer's broker compensation. Whether you will offer anything to a broker who brings the buyer, and how much. Since August 17, 2024, NAR's settlement rules keep those offers off the MLS, though a seller may still make one through other channels.
• Protection period. A window after the listing ends in which a sale to a buyer the broker introduced still earns a commission. Ask for the list of those buyers in writing when the listing ends, so the clause covers named people and not anyone who ever heard of the building.
• Exclusions. Buyers you already know, such as a neighbor who asked or a tenant who wants to buy, can be carved out or carry a smaller fee.
• Marketing plan. What the broker will do, when, and through which channels, attached to the agreement instead of promised in a meeting.
• Cancellation. What happens if you change your mind or the broker falls short, and what, if anything, you owe on the way out.

No law sets the commission. Section 10147.5 of the Business and Professions Code makes listing forms for homes of up to four units carry a boldface notice that says so and that the rate may be negotiable. A form for a building of five or more units may leave that notice out, and the rule behind it still holds. Read the listing agreement term by term before you negotiate, starting with the commission trigger and the end date.

Agency disclosure and dual agency in California

California's agency rules reach apartment buildings of any size. Civil Code section 2079.13 defines the property they cover to include "multiunit residential property with more than four dwelling units," along with houses, commercial property and land, when it is offered for sale or sold through an agent.

• Before you sign the listing. Under Civil Code section 2079.14, the listing agent must give you the disclosure form headed "Disclosure Regarding Real Estate Agency Relationship" before you enter into the listing agreement, and get your signed acknowledgment that you received it.
• When you sign a purchase contract. Under section 2079.17, your agent must tell you whether it is acting only for you or as a dual agent, and that is confirmed in the purchase contract or a separate writing you sign by the time you sign the contract.

A dual agent is one who acts for both seller and buyer, and the definition in section 2079.13 reaches an agent doing it "directly or through a salesperson or broker associate." Two agents at the same brokerage, one on each side, can therefore make that brokerage a dual agent. The disclosure form says an agent can legally represent both sides "only with the knowledge and consent of both the Seller and the Buyer." A dual agent may not tell the buyer confidential information about you without your express permission, and section 2079.21 gives as an example that you would accept less than the listing price.

Settle your position on dual agency while you are negotiating the listing, because once the brokerage's own buyer has an offer on the table, the question arrives with a price attached. It comes up most in a quiet sale, when the listing brokerage already knows the buyer. The listing agreement can allow it on terms you set or rule it out, and either answer belongs in writing.

How do you check a broker's license?

Look the broker up on the Department of Real Estate's public license lookup, by a person's name, a company name or a license number. The record shows whether the license lets the person do work that requires one, whether a salesperson is affiliated with a responsible broker, and any disciplinary action. A license in a non-working status does not allow real estate work at all.

You should not have to hunt for the number. Business and Professions Code section 10140.6 requires a licensee to show their name, license number and responsible broker on business cards, flyers, advertisements and other first-contact materials, and on purchase agreements. Know who the responsible broker is, because under section 10137 a salesperson can be paid only through the broker they are licensed under, so your commission is paid to that brokerage. Shaya's license is DRE #01942326, his responsible broker is Lyon Stahl Investment Real Estate, and you can look him up the same way.

How to compare brokers

Interview at least two, and ask each for the same things in writing so the answers line up side by side:

1. A pricing opinion that shows its work, with the rents and expenses it used, the sales it compared, and how it treated rent-controlled units.
2. A marketing plan with dates, channels and the materials you will see before launch.
3. A draft listing agreement with the term, commission, protection period and cancellation terms filled in.
4. The names of the people who will handle your sale day to day.

Then compare how each broker got to their number. A price opinion well above the others is a reason to ask for the math. By itself it is no reason to sign, because buyers decide what the building sells for and a list price binds none of them. The questions to ask a listing broker are the ones whose answers you can check against a document.

If your current listing is not working

Read the agreement before you act. Its end date, its cancellation clause and its protection period decide what you can do, and a second exclusive listing signed while the first is still running can leave two brokers with a claim to one commission.

• Ask the broker, in writing, what has been done against the marketing plan, which buyers have looked, and what they said about price.
• If the plan was not followed, see whether the cancellation clause lets you end the listing early, and put any request to end it in writing.
• If you let the listing expire, ask for the written list of buyers the broker claims under the protection period, and show it to the next broker before you sign again, so those names are handled in the new agreement.
• Interview replacements with the same care as the first time, and ask each what they would do differently and why.

Before you sign the listing agreement

• You received the agency disclosure form and signed for it.
• You checked the license and the responsible broker on the DRE lookup.
• The agreement is in writing. Under Civil Code section 1624, an agreement to pay a broker to sell real estate is invalid unless it, or a memorandum of it, is in writing and signed.
• An exclusive listing ends on a specific date.
• The commission, when it is earned and any buyer's broker compensation are spelled out.
• The protection period, the exclusions and the marketing plan are attached or written in.
• You know how to end the agreement early and what that would cost.
• You will get a copy, because section 10142 of the Business and Professions Code requires the licensee to deliver one as soon as reasonably practicable after you sign.

Put the agreement in front of a real estate attorney before you sign, and bring your CPA in on the tax side of the sale at the same time. Shaya can tell you which terms are worth pushing on. He is not an attorney or a CPA, and a listing agreement reaches past its own end date through the protection period.