Types of Listing Agreements to Sell a Home
Types of Real Estate Listings, Terms, Conditions and Fees
If you're looking to learn about listing agreements, it's likely that you've already found a good real estate agent and have had a lengthy discussion with this agent. You've noted the agent's responses to your 10 interview questions, and you're now ready to think about listing your home for sale.
The most common, top three listing agreement choices are:
- Open Listing
- Exclusive Agency Listing
- Exclusive Right-to-Sell Listing
The best choice for you will depend on your willingness and ability to tackle some of the home selling duties and your overall real estate market climate.
An open listing lets an owner sell her home by herself. 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 that 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, if the owner finds the buyer herself, the owner will not owe anybody a commission. Open listings are not popular with many full-service real estate brokers.
Exclusive Agency Listing
An exclusive agency listing is similar to an open listing except the major difference is the broker will represent the owner. The owner still reserves the right to sell the property herself and not pay a commission.
The broker is free to cooperate with another brokerage, meaning the second brokerage could bring an able buyer whose offer the owner accepts. Typically, the broker is paid a listing commission that is shared with the selling broker, so the owner pays both fees.
Exclusive Right-to-Sell Listing
An exclusive right-to-sell listing is the most commonly utilized instrument. It gives the broker the exclusive right to earn a commission by representing the owner and bringing a buyer, either through another brokerage or directly.
The owner pays both the listing and selling broker fees. The owner cannot sell the property herself without paying a commission unless an exception is noted in the contract.
Exception to the contract: Say that your next-door neighbor has expressed an interest in buying your house. Often a listing broker will give the seller X number of days to produce a contract with the neighbor without owing a commission.
Other Terms & Conditions to Consider
- Length of Listing: The duration of the listing agreement is negotiable. Common terms can be 30 days, 90 days, six months, one year or more. Ask about cancellation rights. If you can cancel at any time, the length of the listing contract may not matter. I take my listings for 6 months. When I tell my sellers I will cancel at any time and they instead ask for a 3-month listing, it tells me they do not trust agents.
- Selling Commission: How much will you pay the selling agent? When there is a lot of inventory on the market and fewer buyers, to generate traffic, you might want to consider paying the selling agent more than you would in a market where inventory is tight and a lot of buyers are vying for few listings. For example, if the total commission is 6 percent, and the listing broker wants to offer 2.5 percent to the selling office, you could instead insist on paying 3 percent. Be careful with this demand, though, because buyer's agents are generally compensated according to market norms and if you try to change the compensation distribution, the listing agent might refuse to take your listing.
- Cancellation of Contract: Will the broker/agent let you cancel the agreement? Why would you want to do business with a broker who would not release you from the contract if you were unhappy or dissatisfied with their service? If the broker will agree to let you cancel at any time, that broker is giving you a guarantee. In that instance, the duration of the contract is not relevant.
- Expiration of Contract: If the contract should expire without mutual renewal or the parties elect to cancel the contract, the listing broker might supply the owner with a list of names of prospective buyers the broker produced. If any of those buyers approach the owner within the time period specified in the listing contract and successfully purchase the property, the owner could still owe a commission. In California, this is called a hold-over clause.