Real estate listing agreements are the foundation that establishes the relationship between a real estate broker and a property seller.
Basically, there are four types of listing agreements. The choice of listing will depend on the situation of the seller, the condition of the real estate market, and the type of property being sold.
In this article, we will take a closer look at the four types of listing agreements.
An open listing is not the most popular choice and is usually done under special circumstances. The most significant aspect of such a listing is, it’s a “non-exclusive” agreement with a real estate broker.
That means the owner can work with multiple brokerage networks at the same time. In addition, they can also sell the property on their own, through a “for sale by owner” (FSBO) listing.
When the sale is made through an open listing, the seller needs to pay a commission to the real estate agent who makes the sale. The other brokers receive no payment.
If the seller finds the buyer through his own efforts, there’s no need to pay any commission at all. This makes open listings an economical option for sellers.
Open listings are a good option for sellers who want to sell the property in a short time. With multiple brokers marketing the property, the chances of a quick sale are higher. It's also a good solution for selling properties that are difficult to market.
However, an open listing may not help the seller to get exclusive support from the brokers. Many agents may refuse to work with an open contract and prefer working through an exclusive contract.
Exclusive Right to Sell Listing
This is one of the most widely used forms of a sales agreement between the homeowner and the real estate agent or broker. This agreement gives the broker an exclusive right to earn a commission, irrespective of who finds the final buyer for the property.
That means, even if the homeowner finds the buyer, the agent still collects the commission. Note, there might be other fees related to the sale that a seller may have to cover. These may include listing fees or maintenance issues.
An important aspect of any exclusive right to sell listing agreement is the duration of the contract. This is the time period within which a seller is financially obligated to pay the commission to the broker.
If a buyer has not been found within this period, the property can be sold without paying the necessary commission. Sometimes, the agreement may mention that a commission is still due after the closing period. The window for this is usually between 30 to 60 days after the end of the contract. This may happen when a buyer brought forth by the agent decides to buy the property even after the contractual period.
This type of agreement safeguards the interests of both the parties involved. While the seller gets professional representation from an expert, the agent gets guaranteed compensation for the services offered.
Exclusive Agency Listing
In this type of legal contract, the seller gives an exclusive right to a particular real estate agent for selling a property. The seller retains the right to market and sell the property through his or her own efforts.
In case the seller finds a buyer independently, there’s no need to pay a commission to the broker. With an exclusive agency agreement, the agent gets the sole right to market the property. This results in a better working relationship between the seller and the agent.
Through this arrangement, a seller can save some money by finding the buyer independently. On the downside, without a guaranteed commission, the agent might be less motivated to market the property. Without the full efforts of an experienced agent to support the seller, finding the right buyer can be difficult.
For any brokerage, an exclusive listing is better than an open listing. But if they find the seller has a good chance of finding a buyer through their own efforts, they can lose interest.
The listing will have the term of the contract and the commission percentage of the agent clearly mentioned in it. For the seller, it’s best to put together a potential list of buyers and present this as a part of the listing agreement. That way, any disagreements about who actually found the buyer can be avoided at a later date.
In a net listing agreement, the seller fixes a particular amount that they will receive from the sale of a property. Any amount above this mixed limit goes to the broker as a commission.
The net listing definition may make it seem like a win-win situation for both parties. Since agents earn more with a high sell value, it gives them the right motivation for marketing the property.
But in reality, a property may sell at a lower value than the listed price. Without any surplus amount, the agent stands to earn no commission at all. On the other hand, if the property gets sold at a very high price, the seller may feel that the brokerage has placed their needs above the client. In such cases, they can take legal action against the agent.
Due to the controversial nature of net listings, they are avoided by many brokerage firms. This is also the reason that net listings are considered illegal in many states. While they are legal in California, Florida, and Texas, the procedure is guided by strict regulations.
No matter the type of property a seller is trying to sell, the support of an experienced real estate brokerage can help in avoiding the pitfalls in the process. Choosing the right listing is crucial in that aspect.
For any new real estate agent, it's necessary to learn more about the challenges related to these listing agreements and how to deal with the prevailing market conditions.
To learn more about becoming an agent with Christian Saunders Real Estate, visit our careers page to see why our agents are happy they chose us.