What is an Open Listing in Real Estate?
Definition: An open listing lets an owner sell her home by herself as a For Sale By Owner. It is a non-exclusive agreement, meaning the owner may execute open listings with more than one real estate broker and pay only the broker who brings an able buyer whose offer the owner accepts.
The big difference is an owner will probably pay only a selling broker's commission, which is about one-half of typical fees. The reason is because the owner is unrepresented. Therefore, owners do not pay a broker to represent the owner, but do pay the broker to represent the buyer. However, the kicker is if the owner finds the buyer herself, the owner will not owe a commission to anyone.
Why Would a Seller Use an Open Listing?
Sellers might consider an open listing over an exclusive-right-to-sell, for example, if there are a lot of buyers in the marketplace. That's because an open listing can be negotiated separately with each real estate broker, and the commissions can all be different from each other or identical, whatever can be negotiated. It gives the seller more flexibility, although it can limit the number of buyers who might want to buy the home.
However, if there are more buyers in the marketplace than sellers with attractive listings, the seller is not exposing herself to a lot of risk by giving an open listing to several brokerages. The main risk might be lack of exposure to all real estate buyers. Not to mention, the seller also retains the option to sell the home herself. If she finds her own buyer, she doesn't owe any agent a commission.
Some sellers believe they can advertise a home adequately and reach buyers through the internet, so they don't see a reason to hire an agent. They sometimes overlook the fact that agents bring a lot more to the table than simply an ability to find a prospective buyer. An experienced real estate agent, for example, can offer a seller the opportunity to avoid common mistakes. Sellers, having not made any mistakes yet, don't always recognize that value until they make a mistake and it's too late.
Why Would Agents Agree to an Open Listing?
Agents who work with a lot of buyers might agree to accept the terms of an open listing if they want to guarantee that they will get paid for bringing a buyer to the seller. With an open listing, agents generally don't advertise the property or spend money on promotion unless they are fairly assured that the buyers who respond will contact only that agent.
The property might be unique, very special, that will appeal to a large number of buyers, and an agent might see an open listing as the only solution because the seller will not agree to an exclusive right-to-sell listing. It is very uncommon to see open listings in the MLS where I work in Sacramento, and I have never written an open listing throughout my vast career in real estate, but it doesn't mean they are not a viable option.
I suppose in some rural settings, open listings might hold value for sellers who do not want to commit to one single real estate brokerage. Rural listings tend to cover large areas, and word of mouth travels fast. Sellers in the country can list with every broker in the area, if the brokers are willing, and pay only the brokerage who ultimately presents the winning offer.
The downside is the seller typically has no representation. No agent to act as fiduciary for the seller or to help the seller with negotiations, home inspections nor disclosures. There is no fancy photography, aerial tours, 3D enhancements, professional marketing nor negotiations. In fact, the seller is actually paying another agent to negotiate for the buyer.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
Examples: Mary gave an open listing to three real estate companies: Smith Brokerage, Allen Realtors and All City Agents. Smith Brokerage brought her a buyer who submitted an acceptable offer, so Mary paid Smith Brokerage a commission for representing the buyer. The other two brokerages got nuttin'.