Consider this: a listing agent can earn about $12,930 per property sold. One way they do this is through an exclusive right-to-sell agreement. It changes how much you earn from your home sale and the level of control you have over the transaction.
Entering into an exclusive right-to-sell contract means committing to a binding arrangement. It tends to lock you into specific commission rates as well. This could potentially reduce the financial benefits you receive from the sale of your property.
As a result, it is important to carefully weigh your options before entering this agreement.
Do You Need an Exclusive Rights Agreement?
- Homes sold under an exclusive rights agreement sell 15% times faster and fetch a 10% higher price than those that are not.
- However, an exclusive rights agreement restricts your options, flexibility and control in the sale process.
- Under this agreement, the real estate agent is entitled to a commission regardless of who finds the buyer.
What Is the Exclusive Right to Sell?
The exclusive right to sell is an agreement where you give one real estate agent exclusive rights to sell your property. This means that you will not engage with other agents for the duration of the agreement.
During the agreement, you will not be able to sell your property on your own or engage another agent. Even if you do, the agent is guaranteed commission through the contract.
The exclusive rights agreement usually has a set time frame. The agent is responsible for all marketing, pricing, negotiation, and legal responsibilities. If the property sells during the contract period, the agent earns a commission.
How to Enter an Exclusive Right to Sell Agreement
Let’s now explore how to enter an exclusive rights-to-sell agreement:
- Find an Agent: Choose an agent you trust and feel comfortable with. Consider the agent’s experience, market knowledge, and track record. Additionally, you can schedule a consultation before discussing the contract.
- Negotiate Terms: The agent will provide you with an agreement that outlines the terms, including factors like commission rates, duration, and cancellation policy. Familiarise yourself with legal terms so that you can understand and negotiate for yourself.
- Sign: After negotiating the terms, sign the agreement. Remember that it is legally binding. The agent then takes over all sales-related activities.
In some cases, you may be bound by a protection clause that allows agents to claim commissions. So, we recommend consulting a lawyer if you are planning to enter an exclusive rights-to-sell agreement.
How Does Exclusive Right to Sell Agreement Compare to Other Listings?
» Jump to: Exclusive Agency | Open Listing | Net Listing
Let’s now compare different listing options in terms of how the agent earns commission and what conditions the seller is bound by.
Exclusive Agency vs. Exclusive Right to Sell
In an exclusive right-to-sell agreement, the agent earns a commission regardless of who finds the buyer. In an exclusive agency agreement, the agent only earns a commission if they find the buyer.
The exclusive right to sell gives agents exclusive representation rights and guarantees them a commission regardless of who found the buyer. In an exclusive agency, you get more flexibility with the selling process.
Open Listing vs. Exclusive Right to Sell
In an open listing, multiple agents can market the property, and only the one who brings a buyer earns a commission. In an exclusive right to sell, a single agent gets the exclusive rights and earns a commission.
Open listings offer more flexibility for the seller to market the property independently without owing commission. In the exclusive right to sell, a commission is due even if the seller finds the buyer.
Net Listing vs. Exclusive Right to Sell
In a net listing, the seller agrees to a set price. Anything above that price goes to the agent as a commission. This can create a potential conflict of interest, as the agent might prioritize a higher selling price over a quick sale.
Conversely, in an exclusive rights-to-sell agreement, the agent gets a commission regardless. This provides more incentive for the agent to sell the property quickly and at the best possible price.
Pros and Cons of an Exclusive Right to Sell Contract
âś… Pros
- Dedicated Service: Since the agent is guaranteed a commission if the property sells, they would be motivated to put in their best efforts.
- Professional Marketing: The agent will typically invest more time and effort in marketing the property since they have a higher chance of earning the commission.
- Expertise and Experience: Sellers benefit from the agent’s guidance in pricing, negotiation, and understanding of the market.
- Network and Resources: Agents often have a network of potential buyers and fellow agents. This increases the property’s exposure and chance of sale.
❌ Cons
- Commission Cost: You would have to pay the agent’s commission, which is typically 2.5-3% of the sale price. This can be significant, especially in high-value property sales.
- Less Control: You would be bound to the contract. As a result, you cannot sell the property on your own or enlist another agent.
- Potential for Conflict: If you find a buyer independently, you still owe a commission to the agent. This often leads to conflicts.
- Locked-In Agreement: The contract binds you to a single agent for 1-6 months. It limits your ability to switch agents if you are dissatisfied with your agent’s performance.
How to Cancel an Exclusive Rights Agreement?
If you have entered an exclusive right-to-sell agreement and realize that it is not working for you, you can always cancel it. To cancel this agreement and adopt an alternative selling strategy, here’s what you can do.
- If you’ve signed the agreement for a short duration, say 1 month, it’s easier to wait it out.
- However, if you have an extended agreement, start by reading your contract for information on cancellation policies.
- You can speak to your agent about this and explain why you want to terminate the agreement. If your agent agrees to mutually end the contract, you may be able to waive the cancellation fees.
- Make sure to get everything in writing to avoid conflict later. You may also consult with a real estate attorney to ensure all formalities are taken care of.
Alternative Ways to Sell Your Property
An exclusive right-to-sell agreement is not for everyone. However, you don’t have to worry. There is a better and more effective alternative for selling your home.
Multiple Listing Service
MLS platforms such as Houzeo allow you to list your property based on a flat-fee structure. This can save you a significant amount in terms of agent commissions.
Additionally, these platforms use advanced technology that ensures your property gains maximum exposure. They also give you complete control over your listing and streamline the selling process.
Should You Sign an Exclusive Right to Sell Agreement?
Remember, entering any type of agreement requires careful consideration. An exclusive rights-to-sell agreement requires you to trust the agent fully and give up control over your property.
Commissions are a non-negotiable part of the exclusive rights agreement. So, you would be losing out on about 2.5% to 3% of your property value in the form of commissions. Additionally, this agreement binds you to one agent for a long duration.
Houzeo offers a compelling alternative way to sell your property with our flat-fee listing service. It streamlines the real estate process by leveraging technology and helps you save significantly on commissions.
Eager to Know More?
We’ve got you covered. Check out the following video to understand why Houzeo is one of the best for sale by owner websites in the U.S.
» Need More Clarity? Read these exclusive Houzeo reviews and learn why it is one of the best FSBO sites in America.
Frequently Asked Questions
How long does an exclusive right to sell agreement last?
Typically an exclusive rights agreement lasts between 1 to 6 months. When you enter the agreement, you can decide its duration after discussing with your agent. Make this decision based on market conditions, your goals and the agent's experience.
Can you cancel an exclusive right to sell agreement?
Yes, you can cancel an exclusive right to sell agreement, but it typically involves negotiation with your real estate agent. The process and potential consequences, like paying a cancellation fee, depend on the specific cancellation terms of your contract. Always review your contract carefully and consider legal advice.
What happens when an exclusive right to sell agreement expires?
When your exclusive right to sell agreement expires, you can either continue working with the same agent or choose another one. However, each agreement will have unique terms and conditions regarding what happens after it expires.
In some cases, you may be bound by a “protection clause” that extends the agent’s claim to commission after the agreement expires. Seek alternative ways to sell.
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