What is a Car Listing Agreement?
A car listing agreement is a legally binding document between a seller and a vehicle listing service or agent which outlines the exact terms of agreement between them. For example, it will stipulate that a car listing service will charge a certain amount for any vehicle sold . There are many kinds of different car listing agreements, from free services, to paid services. Typically, when dealing with a car broker, the broker will charge a percentage of the sale price of the vehicle, and it is up to the seller to determine what sort of car listing agreement they would like to enter into.
Essential Components of a Car Listing Agreement
Car listing agreements are legally binding contracts between a seller and a car dealer or other third-party. In these agreements, the seller grants another the right to buy and sell or to distribute. The agreement outlines the obligations of both the seller of the vehicle and the agent undertaking the sale, also referred to as "the listing agent." Different types of listing agreements exist, but one common form is the right-to-sell agreement. When enlisting a dealership to act as an agent, the seller does not receive the right to cancel the contract prior to the end of the contract term. With a non-exclusive listing agreement, alternatively, the seller has the right to cancel the agreement at any time. The key elements of a car listing agreement include:
- Terms of Service: Terms of service provisions generally address how long a listing will remain in effect and when the seller is entitled to end the contract.
- Tenure of Listing: Listing agreements address how long the seller would like the listing published by the agent. This period is usually expressed as the number of months the agreement will remain in force.
- Commission: The listing agreement details the reward for the efforts of the listing agent. The amounts detailed are typically based on the type of sale the agent makes, e.g., if the agent brokers the sale then the commission would be higher than if the agent merely distributed the car.
- Obligations: Both listing agents and the seller have obligations under the terms of a listing agreement. The listing agent is usually required to publish sales materials such as advertisements, brochures and other information about the vehicle. The seller is usually expected to honor their commitments such as making the vehicle available for the agent to show buyers.
How to Select an Appropriate Listing Service
A key factor in the success of any corporate car sales program is the selection of the proper listing service(s) for your used fleet assets. This section will discuss the safeguards and information that will help you select the right listing service for your needs.
As an initial step, do your homework and be sure to check on the reputation of a potential listing service with industry insiders. You may also request references or testimonials from satisfied sellers and buyers. The good reputation of a listing service is one of the most important things to look for.
You also want to check its fees, commissions and standard terms. While firms want your business – and are often willing to reduce fees to get it – make sure you compare apples to apples with respect to all of the fees a listing service will charge for using their platforms. Make sure you understand the charges you will incur, and check to see if there are any additional services that the listing service provides that will make the deal a better or easier deal, such as shipping services, inventory financing, title clearing, consignment inventory, or other related corporate asset services.
Legal Context of a Car Listing Agreement
Before entering into a car listing agreement, the parties must be certain that everything is in order. The contract for your potential buyers or sellers needs to be airtight so there is no room for dispute and both parties are well aware of their legal obligations. The listing agreement should be prepared by the broker who has possession of the vehicle until it is sold. This is meant to protect both the seller and the broker.
It should also be stated in the listing agreement that it is non transferable and conditions must be set outlined in order to modify the contract. Considering the number of people taking advantage of the simplicity which a car listing agreement provides, it is no wonder contracts are being broken. Unlike real property contracts, car sales agreements are not enforceable through the specific performance remedy, and therefore the parties can be caught in limbo regarding their obligation to enter into a contract if the sale is stopped prior to finding the buyer.
The seller must be aware that they could be liable for any damages caused by the listing agreement. If the person offering to purchase was serious and a deal was cancelled, the seller could be held liable for loss of business for a reasonable period of time. In the event of fraud on behalf of the agreement the rescinding party can sue for damages.
Pros and Cons of Car Listing Agreements
Given the increasingly widespread commercial availability of car listing agreements, their advantages and disadvantages are important. Car listing agreements are advantageous where the potential net after sale amount (where the salesperson’s commission and other costs of sale are deducted from the proceeds) underlying contemplation of a sale is such that it makes economic sense for the seller to pay a reasonable commission to an agent to market the vehicle. But if the anticipated net is low or the anticipated listing costs are excessive, the seller is better off trying to sell the vehicle on his or her own.
Similarly, it is often advantageous to use a car listing agreement when you have a higher-value vehicle to sell. For example, if your car is one of a limited number of like vehicles and where comparable vehicles are comparatively scarce, then the anticipated net on the deal should allow for use of a car listing agreement or equivalent. Similarly, consider using a car listing agreement where the car is a unique vehicle not likely to be commercially available, such as a vintage or otherwise highly collectible vehicle.
On the downside, there can be significant sales or marketing costs associated with listing an automobile for sale. These listing costs can be high, and as the old adage goes, "You get what you pay for." A low-cost listing may or may not promote interest in your vehicle . Low commission percentages without the right engagement or marketing profile are unlikely to promote sales. In addition, commissions paid on car sales can be high. Often they exceed that which would be incurred to sell a house.
Given the above, consideration should be given to using an unbundled or reduced pricing structure where the listing agent only gets paid a commission for potential buyers who visit your home to view the vehicle, rather than a commission for what was sold for delivery—where the deed is done, so to speak. Alternatively, see if your listing agent will waive its commission if you conduct the deal directly with the buyer pursuant to a sales contract provided to you by the agent.
Generally, it is wasteful to pay commission on a deal made directly between you and a potential buyer where the agent was not instrumental in the deal. As a result, if you had a deal before you engaged the agent, consider telling the agent to leave and call on the next day, as all it is likely to do is have you pay it a large commission while you could easily handle the sale directly with the buyer.
Under the circumstances above, most agents will likely decline to pursue you as a client, because the benefit for them is too low. Other agents may pressure you to sign, and you should consider walking away if you have a deal before you engage the agent.
Advice on Securing an Equitable Listing Agreement
This seller’s guide would not be complete without some strategies to ensure that you’re negotiating a fair listing agreement. Your negotiator may tell you that the deal is non-negotiable, but in reality it is negotiable, and you should not shy away from asking them to make fair adjustments.
First, we want to know that we do not have any buyer’s agents as a special favor, so we want a 4% commission. Above that, we really don’t trust your company to sell our car or at least don’t have a lot of confidence unless maybe we are "in your face" all the time with an offer. As a seller, especially when you’re negotiating one-on-one with a commissioned salesperson, you are at a big disadvantage, and you can’t trust their intentions. In negotiating the best and final offer term sheet, you should always ask for a minimum of 5% commission and request a cap on that commission based on the selling price. In either case, you should expect a split in the 80/20 or 85/15 range, meaning the rep receives 80% of the commission, with 20% going to the listing company. When you walk out of that meeting, you should have a clear understanding of what your car is going to cost you to sell it, netting you what you agreed to, less commission.
Next, we need to make sure that the rep is not going to be a mystery to us. He or she has to be someone we can always call directly for answers, or at the very least, their direct extensions. Putting the company’s main number on as the contact number sends the wrong message. That gets for us a 2:00 am call from a direct line into the company. If you don’t feel comfortable giving your cell phone, give your local office’s fax line, which is answered 24/7. This will allow you access to the other party, while giving you peace of mind when the phone rings.
Finally, if we want to terminate an agreement with your company, you have to pay us a termination fee. That’s unacceptable. Who knows what agenda the rep has by putting this in there? It is a bold move that shows just how motivated he or she really is to make sure your company is doing business in good faith. If the seller does not perform on the listing agreement due to circumstances beyond their control, any rep you hire should not hold them responsible. Good luck getting this one removed, but keep fighting or go with another company.
Reps may try to tie dealers up with long term listing agreements. Once again, we have to push back, and not be intimidated by "my firm’s gonna get ya if you don’t sign this." Long term agreements are the kiss of death for a seller because it ties you up with one company instead of allowing you to shop around for the best deal. As a rule of thumb, we like to sign agreements no longer than 30 days maximum.
Case Examples and Practical Applications
As with any legal or transaction related topic there are examples of situations that illustrate some of the points made in this article. Here are a few representative samples: A recent case study of a car listing agreement dispute emphasizes the importance of understanding all the details before agreeing to a contract. A seller who complied with his contractual obligations was faced with a situation that turned his expectations upside down. He got exactly what he paid for but it was not worth the price he paid. The seller initially believed he had signed a car listing agreement with Company A. Company A completed a dealer exchange for the seller. The seller secured a reasonably good price for his Cadillac vehicle. However, it did not sell and was eventually sold by Company B after some time and more value depreciation. What happened? While the seller believed he had signed a contract with Company A, it was actually a Company B agreement that his car would be for sale on their lot. So, after company A completed the dealer exchange they took the Cadillac vehicle to another mall to be sold by Company B – their second mall. As if that wasn’t enough complication, an agent from Company A’s second mall sold his Cadillac vehicle in an apparently unauthorized transaction that paid to another mall, Company C. What happened to the money for the sale? Company A said it never got any. Neither Company A nor Company B went looking for it. The Cadillac dealership owner believed that since the alleged unauthorized transaction took place at Company B’s location, his Company B contractual agreement insurance should cover the theft. He told his agent at Company B to have their insurance company take care of it. The big problem is this: despite the fact that under the terms of the contract, the Cadillac vehicle was supposed to be sold by Company B, it turned out that it was sold by Company A’s agent in an unauthorized dealership agreement transaction. The second example is unflattering to Company B. A Company C agent sold a truck for the client and kept the profits. The incident commenced with the client approaching his Company C agent. In contrast to the previous example where the Company A agent at Company B sold his Cadillac, the Company C agent who worked with the client on the sale of a truck, almost immediately solicited the client to consider an arrangement other than having it listed on the lot. The potential breach of the Company B exclusive listing agreement for the truck was obviated when the original listing agreement with Company C was forwarded to Company A for its files. Within a relatively short time, the Company C agent asked the client to come to his office. The agent had a truck deal that he thought the client would be interested in. The client and his son met with the company agent. They saw the truck deal and verbally approved it. The client remarked to his son that they could close on the deal "right away" with the Company C agent. They were told that they could, except the Company C agent was not working with that vehicle’s dealership. The client was surprised and alarmed but went ahead and bought the vehicle. Shortly after the client translated his dismay into a dialect of indignation with the Company C agent alluding to the unauthorized listing agreement, he learned that the Company C agent had sold the truck and had kept the profits. These situations are common. They show the importance of getting the contract terms right. Car dealers need to know all the details and make sure that the right forms, like VSA forms, get completed. A good result for a client begins with a detailed review of the applicable forms.
Common Questions
What exactly is a car listing agreement?
It usually is a contract between a person who owns a car and a dealer that details the terms of the dealer’s rights to sell the car and when and how the dealer should pay the first owner.
My dealer told me he’ll take care of everything. Why do I need an agreement that uses so much legalese?
No reason; you can opt out of making one. The agreement just lays out details of things like when your dealer will be allowed to sell the car, when he can issue price reductions, and the mechanisms for getting you paid as quickly as possible for your car when it sells. Without it, those things can’t happen in any orderly manner.
How much will a car listing agreement cost me?
Nothing. You’ll pay a fee up front and your dealer will more than likely try to convince you to set your price high enough to leave enough money for his commission . However, when you agree to a car listing agreement, the cost of selling your car will become nothing if the agreement is structured correctly.
I heard that I will get skewered over the coals if my car gets wrecked while it’s in the dealer’s hands. Is that true?
Not if the dealer intends on making you whole again. It is true that contracts with dealers can vary and some have bad terms. While it is quite unusual to have a contract that restricts your car dealer from covering your repair costs without making you whole, those agreements should be avoided. Look for a car listing agreement with a limitation on liability of the dealer if a "total loss" occurs.
Is there anything else I should watch out for in a car listing agreement?
Definitely. You should make sure that the dealer is responsible for the payment of sales tax if that is applicable to your state.