Signing a Listing Agreement

Signing a Listing Agreement

There are different types of listing agreements to consider when working with an agent

Once you've chosen the real estate professional you prefer, it's time to sign on the dotted line. When it comes to signing an agreement with your listing agent, the most common one you will encounter is the 
"Exclusive Right to Sell."

This type of listing provides your real estate agent the "exclusive right to sell" your home. This means your listing agent is guaranteed to earn compensation once the house is sold, however if another agent represents the buyer the commission is shared between the two agents. This does not mean you pay more in commission. It simply means you pay the contractually agreed upon percentage of the sales price when the house sells, and the agents involved share the commission in some manner.

Why is an Exclusive Right to Sell the Most Beneficial?

This is the best option for a home seller who wants to receive a full service from their listing agent and the real estate company they are associated with. Since your agent is guaranteed to be paid for their efforts under this type of agreement, they will likely invest a great deal more time and effort in the sales process and marketing your home. Furthermore, your agent will advertise your home, place it in the Multiple Listing Service, circulate your home through-out the internet and directly to other agents via email broadcasts, and host open houses.

You may come across options for open listings and "One Time Showings." A one-time showing is similar to an open listing since it's often used when a buyer's agent wishes to show a home "For Sale by Owner (FSBO)". If the seller agrees to pay a commission, he/she will sign a one-time agreement that identifies the specific potential buyer viewing the home and the agent's compensation if that specific buyer purchases the home. This signed agreement also inhibits the seller from attempting to bypass the agent by negotiating a deal directly with the buyer in order to avoid paying the agent's commission. Real estate agents agreeing to an open listing arrangement would not likely devote a great deal of time and effort into the sales process and marketing the home or post it on the MLS.

Paying Your Agent

When selling your house your real estate agent acts as a professional extension of you as the seller, and strives to sell your home for the highest price possible in a reasonable amount of time. An experienced agent understands contracts and disclosures and possesses the knowledge to guide you through the entire process from listing to closing. You may wonder, how is an agent compensated for their work?

You pay your agent via a commission, which is stipulated in your listing agreement. The commission is based upon a percentage of the final selling price that you and your agent agree to prior to listing.

You should keep in mind that two agents are usually involved in the majority of real estate transactions. In most cases, a portion of the commission paid by you goes to your listing agent's company and your agent with the other portion going to the buyer's agent and buyer agent's company.

At what point has an agent earned their commission?

Your listing agent's job is to bring a "ready, willing, and able" buyer to the table with an offer. If you reach an agreement with the buyer and the deal closes, your agent has done their job and earned the commission. After you close the deal, your agent and his/her agency get paid their share of the commission out of the proceeds of the sale.

However, say for example the buyer's financing falls through or the buyer simply chooses to back out of the deal; your house goes back on the market and you then start the sales process all over again. Even though your agent may have put a great deal of time and effort into a failed deal, the commission is still not earned yet. In general, your agent is only compensated if a deal closes.

However, if you as a seller chooses to back out of a deal in progress or not accept an offer that meets the price and terms of the listing agreement; under these circumstances, your agent still earns the commission.

For obvious reasons, it's extremely important to make absolutely sure you are committed to selling your home for the price and under the conditions you agreed to in your listing agreement.


Other Types of Uncommon Listing Options

Exclusive Agency Listing: a broker has the right to market and sell a property for a specified time period, while the owner retains the right to find a buyer and sell the property without owing the broker a commission. The seller must pay a commission only if the home is sold by the broker or an authorized agent or subagent of the broker. This type of listing is not very common in residential transactions because it increases the chances of a dispute between the broker and the seller over who was actually the procuring cause of the sale.

Open listing: a non-exclusive contract. This type of listing gives the seller or buyer the right to engage any number of brokers as agents. With an open listing, all contracted brokers can market the property or search for property at the same time, but only the broker who brings the ready, willing and able buyer to the seller, or who finds the desired property for a buyer, will receive a commission. However, if the client ends up buying or selling property on their own, they don’t have to pay any commission to the broker. For this reason, open listings are rare since they offer the least assurance that the broker will receive compensation for his or her efforts.

Net Listing: technically it's not a type of listing agreement at all. In a net listing, an owner sets a minimum amount that he or she wants to receive from the sale of the property and lets the broker have any amount over and above the minimum as commission. While in this type of situation the seller may receive what he or she wants from the sale, the agent's motivation is likely about the amount of compensation he or she can generate, therefore potentially creating a conflict of interest for the broker by violating the broker's fiduciary responsibility of putting the client's interests above his or her own. For this reason, net listings are generally viewed as unprofessional and are illegal in many states.

For-sale-by-owner: refers to a home that the owner is selling without the services of a licensed real estate agent. In the industry, a for-sale-by-owner home is known as a FSBO (pronounced FIZZ-BO). Not only does the owner avoid paying a listing agent to sell his/her own home, but may also opt not to pay a commission to a buyer's agent. As a result, buyer's agents don't have an incentive to show the property to their clients, and the home is not posted on the Multiple Listing Service (MLS) since it's a broker-maintained real estate sales database. This also means that for-sale-by-owner listings don't appear on most brokerage websites, which are populated directly from the MLS.

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