California Real Estate SalespersonContractsHard
A seller instructs a broker to sell a home for $500,000, agreeing the broker may keep any amount received above that price as compensation instead of a stated commission. In California, this type of listing arrangement is:
- AIllegal and prohibited under all circumstances
- BLegal only if approved in advance by the Department of Real Estate
- CAutomatically void because it lacks a fixed commission rate
- DLegal, but the broker must disclose the amount of compensation to the seller
Show answer & explanationAnswer & explanation
Correct answer: D. Legal, but the broker must disclose the amount of compensation to the seller
California law permits net listings, but requires the broker to fully disclose to the seller the amount of compensation the broker will receive before or at the time the transaction closes. Failure to disclose can subject the broker to disciplinary action, but the listing itself is not automatically illegal.
Why the other options are wrong
- A. Net listings are legal in California when properly disclosed, not prohibited outright.
- B. No advance DRE approval is required for a net listing to be valid.
- C. A net listing is not void merely because it lacks a fixed percentage commission.
Net Listing
A net listing sets a minimum amount the seller must receive, with the broker keeping any excess sale proceeds as compensation; legal in California only with full disclosure to the seller.
- Broker must disclose actual compensation received to seller
- Discouraged by DRE due to potential conflicts of interest
- Not illegal, but heavily regulated
- Broker has fiduciary duty to negotiate the best price despite the net listing
Memory trick: Net Listing = 'Transparent Profit'—broker must show the seller the extra cash.