When working in real estate, you are going to deal with cases where your real estate listing agreement or the contract expires before all the paperwork goes through or before a sales offer comes in from an interested buyer. But exactly what happens when a real estate contract expires?
There are a number of reasons why this happens, but if it does, it can leave you in a pinch. A listing agreement is an agreement between the home seller’s agent and the seller about the home’s sale. It has a date on it, and if the home is not sold by that date, the contract is considered expired.
If you find yourself facing an expiring real estate contract, you need to understand what happens when a real estate contract expires, why this happens, and what you can do to rectify the problem. Failing to avoid this in the future can lead to lost clients.
Why Real Estate Contacts Sometimes Expire
For most home sales, the seller’s agent will request an exclusive listing agreement. This is a type of contract that states the name of the listing broker and the seller’s intent to work with that real estate broker and no one else. If the home does not sell by the date set in this document, it becomes an expired listing.
So why do real estate contracts sometimes expire before you can reach a closing date? Thankfully this scenario is rare, but it does occasionally happen. There are several reasons why a listing contract may expire, and these include:
1. Lack of Communication
If a contract expires because the home doesn’t get offers and sell, it is usually because the agent and seller are not communicating well. A listing agent’s job is to help the seller understand why the home isn’t selling, and that requires communication after every showing.
2. Home Priced Too High
A listing agreement can also expire if the home is listed too high. This usually happens because the seller has an idea about the price and is not willing to listen to their broker. It can also happen with an inexperienced broker who is not well-versed in the prices in the current market.
3. Poor Pictures
A real estate agent should understand the value of pictures in a listing. The National Association of Realtors indicates that 87% of buyers list photos as important in their home search. Quality photos sell houses, so don’t skimp here.
Problems That Arise After a Prospective Buyer Signs a Purchase Contract
Sometimes a listing will expire because of poor pricing or marketing plan on the broker’s side, but sometimes it will expire after an offer comes in. While an offer makes it highly likely that a sale will happen, it is not a guarantee. There are many things that can go wrong between the initial contract with the earnest money deposit and the closing date.
Most sales contracts have some sort of contingency built-in. After the buyer agent and seller agent work out the terms of the sales contract and the earnest money goes to the escrow agent, a series of events begin that lead to the closing of the real estate transaction, and these are often contingencies of the sale.
Contingencies protect the buyer and the buyer’s agent, but they can create problems for the seller and the listing broker. Common contingencies include:
- Appraisal contingency
- Financing contingency
- Inspection contingency
If any of these contingencies fall through, such as if the loan approval falls through, the buyer can’t finance the closing costs, or the home fails to appraise high enough, the potential buyer is no longer required to make the real estate purchase. This can cause the listing to expire without a successful real estate sale.
What Happens for the Broker if the Listing Agreement Expires?
If a listing agreement expires, the broker or real estate agent does not have the agent’s commission. It is the broker’s job to sell the home before the date on that contract.
That said, if a seller chooses to sell the home out from under the Realtor to a buyer whom the agent introduced to the property, even if it was after the listing agreement expired, the homeowner usually must still pay a real estate commission to the agent. This is due to a safety clause that most brokers will put in their listing contract.
Agents with homes nearing the end of the listing period have a few options to discuss with their buyers. These are:
- Extending the existing agreement
- Making a new agreement with a new price
- Creating a withdrawn listing so that the seller can choose a new Realtor
A skilled real estate professional will know how to negotiate with a seller in this situation to keep the contract, but sometimes an expired listing means the seller will move on to a new Realtor or a new brokerage.
What Happens When a Seller Breaks a Real Estate Agreement
Sometimes real estate contracts fail not because of the agent, but because of the seller. However, a real estate contract with an exclusive agency or broker clause is legally binding, so it is vital to do this properly.
First, after signing a sales contract, both the home buyer and the seller usually have a 5-day review period where they can have a real estate attorney take a look at the agreement. During this five-day period, they can back out without consequences.
Second, sellers can also add contingencies to the purchase contract, which can give them the chance to break the agreement as well. Sometimes a home purchase contingency will allow them to back out if they aren’t able to find a home to buy, for example.
Finally, a seller may back out of an agreement with a purchaser if any of the buyer’s contingencies are not met. Rather than making the home comply with the contingencies, the seller can simply back out.
Otherwise, walking away from an open listing or a home that is in escrow can lead to legal consequences for the seller. The agent or the buyer has the right to work with an attorney to sue for lis pendens.
The Bottom Line About Real Estate Sales Contracts
So what happens when a real estate contract expires? If the contract expires because the listing never received offers, the seller has the right to start over with a new agent or the existing agent.
If the contract expires during the escrow period, the seller may have a way out, but working with a real estate attorney to understand the terms of the listing and sales contracts is vital protection during this time frame.
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