If you're in the market to sell your home, one of the first choices you'll need to make is how (or whether) to list it for sale. Most people hire a real estate agent and trust them to do the work for them. There are many options as to what type of agent you work with, how your house will be listed, and the terms you agree to follow during the sale. You may also decide to go the "for sale by owner" route, which won't limit you to list with a specific firm.
There can be many reasons for opting for an exclusive real estate listing and many ways to do so. We'll cover the basics here.
- The major difference between an open listing and an exclusive listing is that in the latter, a broker will act on behalf of the seller.
- If the house is sold fully through the efforts of the seller, the seller does not have to pay a commission to the listing broker.
- The brokerage firm will try to manage all contact with other brokers and buyers to prove that the future buyer came about through its efforts.
The Two Main Types of Listings
When an owner acts as their own agent or on their own behalf when selling their home, this is called an "open listing." The home is listed for all to view, and the owner may have crossed paths with many real estate agents or brokers in the process of placing ads, showing the home, and getting offers, but they are in control of running the process.
If an agent or broker is helpful in selling their home (such as if a real estate agent comes for a showing with their buyer), then a contract may follow. Still, there are no contracts with agents upfront that promise their sole right to show the home or with brokerage firms for the sole right to list the home for sale.
Exclusive Agency Listings
An exclusive agency listing differs from an open listing because the broker will represent the seller by default. There are a few ways this contract can be set up. The seller may still reserve the right to sell the home on their own and, in that case, avoid paying a commission. The broker may also be free to work with other firms, meaning a second or third firm could bring an able buyer whose offer the seller accepts. In most cases, the broker is paid a listing commission that is shared with the selling broker, so the seller pays both sides of the commission (listing and selling).
Who Is an Exclusive Agency Best For?
In some cases, an exclusive agency listing can work as a sort of compromise between a broker and a seller. For the broker, it might be as simple as having some claim to the sale (rather than no claim at all). For the seller, there is a good chance they won't be able to sell the home without help. In that case, a seller will gain traffic in exchange for the promise of a fee. It suits the For Sale by Owner (FSBO) seller who says to a broker that if they were to hire a real estate agent, then it would be theirs.
Exclusive agency listings give both parties a bit of what they want. Perhaps the seller fully expects to sell the home on their own. Perhaps the firm fully expects an exclusive right to sell and wants to be paid for its efforts. It is not unheard of for a real estate firm to desire an exclusive listing agreement, a contract that will pay only them, and a broker who won't compete. If a competing broker brings the buyer, the party with the exclusivity contract will pay that broker.
In both 2019 and 2020, the number of homes for sale by owner (FSBO) was low at 8%, which marks the lowest rate since 1981. These FSBO sales happen much more quickly than sales that get help from agents, but perhaps this is because 77% of FSBO sellers report selling to a friend or person they knew prior.
The Inner Workings of an Exclusive Agency Agreement
An exclusive agency listing means only one brokerage firm can represent the seller, and the home cannot be listed anywhere else. That, in itself, is a win for the brokerage. But by giving the seller the right to sell the home on their own as well, it gives the FSBO seller a way to get out of paying a commission if they should find their own buyer. So the seller wins too.
In that event, the seller would receive no help or representation from the firm. (It's common here for the buyer to go without an agent as well.) This trade forms the basis of a contract that feels fair to both parties because they each receive perks and payoffs based on their own views. As a bonus, it also creates the urge for both parties to compete to sell the house on their terms and quickly.
In practice, an exclusive listing involves some work behind the scenes, such as keeping detailed records, checking in with the other party, and event monitoring. Under this type of listing, the firm prefers to manage all contact with other brokers and home buyers, so when a buyer is found, they can prove that the buyer came from their efforts. This is part of the term of their claim to payment, and it leaves room for doubt.
Since it's not always clear how a buyer arrives on the scene, many mainstream brokerage firms demand an extra clause to protect their earnings. This clause ensures that the seller pays the listing broker no matter how the buyer found out about the sale.
How Agents View Exclusive Agency Listings
Detailed monitoring is one of the reasons that very few exclusive listings are signed. If you asked a real estate agent to explain an exclusive agency to you, many could not (or perhaps would prefer not to). An exclusive agency listing presents the chance that an agent might expend a lot of effort for which there is no reward.
One way that some agents have been able to work with firms that use exclusive listings is to set a time frame to try a standard listing first. If the seller is unable to produce a buyer through their own efforts within, say, 30 days, it would trigger a second phase (as written into the sales contract), where the parties could convert the listing to an exclusive right to sell listing at that time.