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Property II
University of Dayton School of Law
Reilly, Tracy

Property II – Spring 2007
Prof. Reilly

Chapter 1: Contracts for the Sale of Land

Realty transfers usually take place through a series of well-defined steps:
(1) the execution of a contract of sale,
(2) inspections of the property and examination of the seller’s title by the buyer,
(3) the arranging of financing by the buyer,
(4) the closing or “settlement,” and
(5) the recording of the deed and any mortgage or other security instrument which the buyer has executed.

A. Real Estate Brokers

The “listing” process involves the execution by the seller of a contract appointing the broker to be his or her agent in obtaining a buyer.
If the broker is “successful,” the seller will be obligated to pay the broker a commission, usually computed as a percentage of the actual sales price.

The broker cannot usually force the sale to take place if the seller refuses to go forward (although the seller may nonetheless be liable for the commission).
If the language of the listing agreement is specific enough, it may give the broker a “power of attorney” to enter into contract and consummate sales.

If a power of attorney to the broker is desired, it must be very clearly stated.

The Statute of Frauds in nearly all states requires listing agreements to be written.
Common types of listings:
(1) “the open listing” – the property owner agrees to pay to the listing broker a commission if that broker effects the sale of the property but retains the right to sell the property himself as well as the right to procure the services of any other broker in the sale of the property;
(2) “the exclusive agency listing” – for a time certain and authorizes only one broker to sell the property but permits the property owner to sell the property himself without incurring a commission; and
(3) “the exclusive right to sell listing” – the sale of the property during the contract period, no matter by whom negotiated, obligates the property owner to pay a commission to the listing broker.

Class Note: can add “exceptions” to list… i.e. if sold to person, then no commission

Multiple Listing Service (MLS) – operated by a local “board of realtors,” where all member brokers and their salespeople will see listings.

The listing broker’s main function may be to provide access to MLS, since non-brokers and non-members of the local board are not permitted to list property directly with the MLS.

Realtor Commissions Face New Pressure

Basically, commissions are dropping due to competition.

About a dozen states have adopted statutes or administrative regulations which specify the minimum set of services that every broker who obtains an exclusive residential listing must provide.

The DOJ and the FTC have vigorously opposed this legislative trend as anti-competitive.


A commission is earned when the real estate broker fulfills the terms of a written personal services contract.
The traditional rule followed by a majority of jurisdictions is that a broker is entitled to a commission when he produces a buyer ready, willing and able to purchase the property on the seller’s terms, even if the sale is not completed.
Dobb’s Rule [minority view]: In the absence of default by the seller, the broker’s right to commission comes into existence with the contract of sale (i.e. when sold).


The common law rule recognizing the broker’s claim for the commission despite the failure to close is still alive and well, despite the inroads of Dobbs-like cases.

“The broker is not an insurer of the subsequent performance of the contract.”

If the purchase price is to be paid in installments, the seller cannot get out of paying part of the commission even if the buyer defaults. (unless agreed to in contract)
Unless agreed to by all parties after full disclosure, conflicts of interest by brokers can give rise to private liability as well as public discipline from the state licensing body.
In a large number of states, statutes or regulations now require real estate brokers to disclose in writing whether they represent the buyer or seller.
“dual agency” = representing both the buyer and seller.
“transaction broker” or “nonagent broker” = agent who does not represent either party to the exclusion of the other, but has

orrow money. Also, most lenders won’t even consider Buyer’s application for a loan unless she has a signed contract of purchase.
(3) Buyer needs to sell previous home
(4) Seller needs time to buyer another home
(5) Inspections
Contract features in real estate law are often termed the law of “vendor and purchaser.”

Two quite different types of contracts, used for very different purposes:

· “short-term” “earnest-money,” “deposit receipt,” “binder,” or “marketing” contract. Its function is simply to permit the parties to prepare for the transfer of title by making the arrangements described above.
· It usually provides for the closing within a short time after the contract’s signing.
· If the seller is to accept something other than cash for part of the purchase price, such as the buyer’s promissory note secured by a mortgage, this fact will be mentioned in the earnest money contract, but the note and mortgage themselves will be separate documents, usually signed at or just prior to closing.
2. “real estate installment contract,” or (especially in the Midwest) a “contract for deed.”

It contemplates that the buyer will go into possession immediately, make payments to the seller on a regular basis over a long period, and finally receive a deed when the last installment is paid.
The seller is financing the purchase and the contract is being used much like a mortgage.

The Requirement of a Writing

The great majority of real estate sales contracts are in writing.

Broker’s use written contracts for two reasons:
(1) the broker does not want the deal to “fall through,” and he or she knows that there is more pressure on the parties, both legally and psychologically, to complete the transaction if the agreement is written.