Thinking about putting your home up for sale? It's a good time to learn about the different types of listing agreements.
The best choice for you will depend on your situation. It will also vary depending on your ability to tackle some or all of the home-selling duties. The state of the real estate market will be a factor as well.
What Are the Different Types of Listing Agreements?
The most common listing agreement choices are open listing, exclusive agency listing, and exclusive right-to-sell listing. Here are the major differences between them.
An open listing lets you sell your home by yourself. It is a non-exclusive agreement. This means that you may place open listings with more than one real estate broker. You then pay only the broker who brings a buyer with an offer that you are willing to accept.
The one major advantage to an open listing is you will likely pay only a selling broker's commission. This is about half of the typical fees.
If you find the buyer yourself, you will not owe anyone a commission. You will still need to pay closing costs and real estate lawyer fees. But you will not be on the hook for an agent's payment.
Since real estate agents rely on commissions, open listings are not popular with many full-service real estate brokers.
Exclusive Agency Listing
An exclusive agency listing is like an open listing. The major difference is the broker will represent you. As the owner, you will still reserve the right to sell the property yourself and not pay a commission.
The broker is free to cooperate with another brokerage. This means that the second brokerage could bring in a buyer. Typically, the buyer broker is paid a listing commission that is split with the selling broker. This means that you would pay both fees.
The broker's payment is often negotiable. As the seller, you may come out of negotiations paying both fees.
Exclusive Right-to-Sell Listing
An exclusive right-to-sell listing is the most common type of listing. It gives the broker the exclusive right to earn a commission by representing the owners and bringing a buyer, either through another brokerage or directly.
As the owner, you pay both the listing and selling broker fees. You cannot sell the property yourself without paying a commission unless an exception is noted in the contract.
But, an exception to the contract might allow you to sell the house yourself. For instance, let's say that your next-door neighbor expressed an interest in buying your house. In this case, the broker might give you a set number of days to produce a contract with the neighbor without owing a commission.
Other Terms & Conditions to Consider
The duration of the listing agreement is negotiable. Common terms are 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.
The commission you pay is an important consideration. When there are more available houses than buyers, you may want to consider paying the agent more than if there were more buyers than houses available. This is because the agent will be working much harder to find you a buyer. They will negotiate for your interests.
For instance, if the total commission is 6%, and the listing broker wants to offer 2.5% to the selling office, you could instead insist on paying 3%. Be careful with this. Buyer's agents are generally paid according to market norms. If you try to change the formula, the listing agent might refuse to take your listing.
Pay Attention to Contract Terms
A broker or agent may not let you cancel a contract. Before you sign a contract, ask if you will be able to get out of it if you are not happy with the services being provided.
If the broker will agree to let you cancel at any time, the term of the contract won't matter. But, you should be aware of holdover agreements or other post-contract responsibilities of both parties.
If a contract expires without mutual renewal, or the parties elect to cancel the contract, the listing broker might supply you with a list of names of prospective buyers the broker produced.
If any buyers listed by the previous agent approach you within the time period specified in the holdover portion of the contract and successfully purchase the property, you could owe a commission.
Frequently Asked Questions (FAQs)
How do you terminate a real estate listing agreement?
To terminate a real estate listing, you should reach out to your agent as soon as possible and ask for a release from the contract. This release should be in writing. If you are unable to completely cancel your existing listing agreement, you may be able to negotiate new terms, so ask your agent what options you have.
Who must sign a listing agreement?
The people required to sign a listing agreement may vary from agreement to agreement, but you can always expect the homeowner and the broker to need to sign. Keep in mind that your real estate agent may not necessarily be your broker, but they may sign the agreement as an authorized representative of the broker (depending on local laws and customs).