Guide to CRE Listing Agreements

Breaking down the most essential information about commercial real estate listing agreements, affecting both property owners/sellers and their broker/agent representatives

The sale of a commercial property typically begins with a property owner (the seller) retaining a commercial real estate broker. The relationship between the seller and the broker must be carefully outlined in a written agreement which supports a successful transaction; this agreement is called a “listing agreement” within the real estate industry.

Many residential property sales in Oklahoma also utilize a listing agreement, such as the template provided by the Oklahoma Real Estate Commission (OREC). However, the standard OREC template listing agreement is not specifically designed for use in a commercial real estate (CRE) sale. This means both property owners and their agents are not sufficiently protected when using state-provided forms.

Crucial Terms in Commercial Real Estate Listing Agreements

What written agreement clauses should be included in a strong and enforceable commercial real estate listing agreement? Here are some of the top concerns:

1. Duration of the Agreement: Properly setting the duration, or term, of a CRE listing agreement is a central factor to all parties having success in the representation and sale of the property. Depending on the unique characteristics and location of the subject property, a duration of many months, if not years, may be necessary in a CRE listing agreement.
2. Anticipated Price Range: Setting a realistic price range for the commercial property is essential for attracting potential buyers and maximizing the seller’s returns. The listing agreement should clearly outline the anticipated price range based on thorough market analysis and valuation assessments. Additionally, it may include provisions for adjusting the price based on market fluctuations or changing property dynamics.
3. Broker’s Compensation: One of the most critical aspects of a commercial real estate listing agreement is the broker’s compensation. This section specifies how the broker will be compensated for their services upon the successful sale of the property. Common compensation structures include a fixed commission, percentage of the sale price, or a combination of both. It’s essential for sellers to carefully negotiate and clarify the compensation arrangement to avoid misunderstandings or disputes later on.
4. List of Included and Excluded Broker Services: The CRE listing agreement should specify the scope of services that the broker will provide throughout the marketing and sale process; this helps ensure all parties’ expectations are aligned. These services may include conducting market research, developing a marketing strategy, creating professional marketing materials and listings, proactively driving interest in the property, conducting showings and making the property information accessible, negotiating with potential buyers, etc.

Non-traditional Transaction Structures

Unconventional deal structures have gained popularity in both residential and CRE transactions across multiple asset classes in recent years. Lease-purchase agreements, lease-to-own agreements, joint ventures, and other options may complicate the broker’s involvement in the transaction and require attorneys, accountants, and additional supporting advisors; this also means the seller’s broker should be careful to clarify their commission requirements in transactions that are not a fee simple sale or standard multi-year commercial lease. If a commission payment tail is part of the financial model for the deal, how will it be enforced?

Disputes and Indemnification

Despite best efforts to perform according to the terms of a CRE listing agreement, disputes may arise between sellers and brokers during the course of the transaction. The listing agreement should include provisions for resolving disputes through mediation, arbitration, or other alternative dispute resolution mechanisms, which can help mitigate conflicts and protect the parties from high litigation fees.

Indemnification clauses are designed to protect contracting parties from potential liabilities arising from the listing agreement or sale. Sellers may seek indemnification from brokers for any losses or damages resulting from the broker’s negligence, misrepresentation, or breach of contract. Brokers may require sellers to indemnify them against claims brought by third parties related to the property or the transaction. It is crucial for all parties to carefully review and negotiate indemnification provisions to ensure their adequate protection.

Commercial Real Estate Transaction Attorneys and Listing Agreement Counsel

Commercial real estate listing agreements are the first of many essential documents in a successful CRE purchase and sale. You can rely on Avenue Legal Group; we are trusted commercial real estate attorneys, with experience representing both large scale commercial property owners as well as the industry’s top brokers, and help facilitate successful commercial transactions throughout Oklahoma. Contact the firm to discuss your transaction, including the preparation, negotiation, or enforcement of your commercial real estate listing agreement.