The Different Types of Listing Agreements For Selling a Home
Types of Real Estate Listings, Terms, Conditions and Fees
If you're considering putting your home or property up for sale, it may be beneficial to learn about listing agreements. You may have found a real estate agent and are beginning to put together a list of questions for them. While gathering your thoughts, taking inventory of the market and trying to sell your home, consider the types of listing choices available.
The most common listing agreement choices are open listing, exclusive agency listing, and an exclusive right-to-sell listing.
The best choice for you will depend on your willingness and ability to tackle some or all of the home selling duties and the overall real estate market climate in your area.
An open listing lets owners sell their homes by themselves. It is a non-exclusive agreement, meaning the owner may execute open listings with more than one real estate broker. They then pay only the broker who brings a buyer with an offer the owner accepts.
The one major advantage to an open listing is the owner will probably pay only a selling broker's commission, which is about one-half of typical fees. This is because the owner is not represented, so does not need to pay a seller agent.
If the owner finds the buyer themselves, the owner will not owe anyone a commission. Closing costs will need to be addressed, and real estate lawyer fees paid, but no agents will receive 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 similar to an open listing except the major difference is the broker will represent the owners. The owners still reserve the right to sell the property themselves and not pay a commission.
The broker is free to cooperate with another brokerage, meaning the second brokerage could bring in a buyer. Typically, the buyer broker is paid a listing commission that is split with the selling broker, which means the seller pays both fees (payment to the brokers is generally negotiable; more often than not the seller comes out of negotiations with the responsibility for both).
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 owners and bringing a buyer, either through another brokerage or directly.
The owner pays both the listing and selling broker fees. The owners cannot sell the property themselves without paying a commission unless an exception is noted in the contract.
An exception to the contract allows for the owners to sell the house themselves. If your next-door neighbor expressed an interest in buying your house, the broker might give the seller 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 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.
The commission you pay is an important consideration. When there are more available houses then 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 and negotiate for your interests.
As an example, 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, because buyer's agents are generally compensated according to market norms. If you try to change the compensation distribution, the listing agent might refuse to take your listing.
A broker or agent may not let you cancel a contract. You should inquire before signing a contract whether you are able to be released from it if you are not happy with the services being provided.
If the broker will agree to let you cancel at any time, setting the duration of the contract is not relevant. However, you should be aware of hold-over 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 the owner with a list of names of prospective buyers the broker produced.
If any buyers listed by the previous agent approach the owner within the time period specified in the hold-over portion of the contract and successfully purchase the property, the owner could owe a commission.