You are selling your home and have decided to work with a real estate professional on the sale. Now you need to decide what type of listing agreement you will sign. As you make that decision, it is helpful to know what a listing agreement is, the options you have to choose from, and the rights, responsibilities, and services that are associated with each type.
The listing agreement is a binding contract between you, the seller, and the real estate agency or brokerage. It is a written agreement that sets out the conditions of the listing. The details of a listing agreement can be negotiated, but generally it includes provisions covering commission rate, exceptions to the commission, duration of the listing period, and responsibilities of the firm and its agents.
There are three primary forms of listing agreements that vary in popularity, terms, responsibilities, and services rendered:
1. The most common type is the exclusive listing, also known as an “exclusive right to sell” listing. Under this type of agreement, the listing agency is paid a commission when the sale closes no matter who produces the buyer. The listing agent could have made the sale. You may have found a buyer yourself. Or another agent could have brought you a buyer, in which case he/she will split the commission with the listing agency. Regardless of who made the sale, you owe a commission to the listing agency. As you might expect, real estate professionals prefer this type of agreement. After all, they are investing time, energy, and money into marketing, advertising, and showing your home; and they have a reasonable expectation of earning pay for their efforts. This agreement guarantees them their commission.
2. The exclusive agency agreement also gives the listing agency the right to market and sell your home. And it ensures them that they will receive their commission if another agent or company makes the sale. The difference between it and the exclusive listing previously mentioned is that you retain the right to sell your property without paying a commission if the buyer did come through the listing agency. This means that you can seek out buyers on your own. It also means that there is less incentive for the listing agent to actively market your home. Think about it this way, under this type of agreement you are essentially competing with your agent. This makes it a much less popular option for real estate agencies.
3. In an open listing, you are basically saying that you are willing to work with real estate agents if they bring you a buyer, and you will pay a commission if their client buys your home. But you retain the right to sell your home yourself without paying a commission to anyone. No one agency has an exclusive right to sell your property. You can have as many open listings as you desire, and only the agency that produces a buyer receives a commission. This holds even less incentive for any agent to actively market your property. What will most likely happen is that they may be willing to show your home to a client looking for a property like yours.
Keep in mind that many agencies only offer “exclusive right to sell” agreements primarily because it protects their investment of time and money in marketing and selling your home. When agencies do sign an open listing, you should temper your expectations about the amount of marketing and time that they are willing to invest.
Regardless of which listing agreement you settle on, you should pay careful attention to the details. Once signed, it is a legally binding contract — an instrument that you should not take lightly. Make sure you understand all of the terms and conditions before you sign it. If you have any unanswered questions or concerns, you should have the agreement reviewed by a lawyer.