If you plan to sell a house, you might consider hiring a real estate agent to help you through the home-selling process. According to NAR, 89% of home sellers used a real estate agent or broker to sell their homes in 2021.
You will need to sign a Listing Agreement if you choose to hire a broker. A Listing Agreement is a contract between you and the agent that grants the agent to market your property and find potential buyers. It outlines the commission the agent will receive after the property is sold.
In this blog, we will discuss everything you need to know about the Listing Agreement.
- Listing Agreement are legal binding contracts between you and a real estate agent. It grants the agent the right to market and sell your property.
- Listing Agreements are categorized into 2 types: Exclusive Listing Agreements and Open Listing Agreements. There exists a third type- Net Listings but it is only available in states of Florida, Texas and California.
- Exclusive Right to Sell is the most common type of Listing Agreement used by agents to list and market your property.
- According to the National Association of Realtors (NAR), a typical Listing Agreement lasts for an average of six months.
What is a Listing Agreement?
A Listing Agreement is a legal contract between you and a real estate agent. The contract grants the agent the right to market and sell the property. It is a binding agreement that outlines the terms and conditions of the sale.
A Listing Agreement includes the asking price, the commission percentage, and the duration of the contract. It specifies the responsibilities of the seller as well as the agent during the sale process.
Pros and Cons of A Listing Agreement
A real estate Listing Agreement is a legally binding contract between you and a real estate agent. It outlines the terms and conditions of the agent’s representation in the sale of your property. Here are some pros and cons of signing a real estate Listing Agreement:
A Listing Contract does have certain advantages that work in your favor. They are:
- Professional Expertise of an Agent: You will have the assistance of an experienced real estate agent to guide you through the complex home-selling process.
- Maximum Exposure to Your Property: By listing a property with a real estate broker, it will be marketed through various channels. It includes multiple listing services, online advertising, and social media. They can increase the property’s visibility to potential buyers.
- The Agent Will do the Heavy Lifting: You receive personal assistance from the agent. They will be responsible for scheduling showings, offer management, and also negotiating offers.
A Listing Contract has certain drawbacks. They include:
- Commission fees: Real estate agents typically charge a commission fee of 5-6% of the sale price. You might have to shell out the commission even if the buyer came through you (in case of an Exclusive Right to Sell Listing Contract).
- Long-term Commitment: A Listing Agreement binds you to the agent for a certain period (typically 6 months). It means that you cannot sell the property to a buyer without the agent’s involvement for that duration.
- No Guarantee of Sale: Signing a Listing Agreement does not guarantee the sale of the property. Working with top Realtors or agents might limit your property’s exposure to potential buyers (if not listed on the MLS).
Types of Listing Agreements
Listing Agreements vary from each other on the basis of the seller-agent relation dynamic. There are four main types of listing agreements:
1. Exclusive Listing Agreement:
Exclusive Listing Agreements are the most common type of Listing Agreements, according to NAR. An Exclusive Listing Agreement is a contract between you and a real estate agent.
It grants the agent the sole right to market and sell your house. It states that till the end of the contract, you cannot work with another agent or broker. Instead, you are able to bring in a buyer yourself. You may or may not have to pay the agent’s commission.
There are two types of Exclusive Listing Agreements. They are:
- Exclusive Right to Sell Listing: In an Exclusive Right to Sell Listing Agreement, you grant the agent with absolute authority to market and sell your house. But you have to shell out the agent’s commission regardless of who brings in the buyer.
- Exclusive Agency Listing: In an Exclusive Agency Listing, you allow the agent to have sole rights to market your property. Also you can bring in the buyer yourself and avoid paying the agent’s commission.
2. Open Listing Agreement
An Open Listing Agreement is a non-exclusive contract between you and multiple real estate agents. It allows you to work with multiple agents.
The agent who brings in the buyer is entitled to a commission. This type of agreement is the least common and provides the least protection to the agent.
3. Net Listing Agreement
In a Net Listing, you can set a minimum sale price for your property. Any amount exceeding this price limit goes to the agent as a commission.
Net listings are very uncommon as they can lead to conflicts of interest between you and the agent. Hence they are just legal in 3 states: Florida, Texas, and California.
Important Factors of a Listing Agreement
It is essential to consider the following factors before signing a Listing Agreement:
- Rate of Commission: The agreement must consist of the agreed-upon real estate agent commission fee. The average real estate commission ranges between 5% to 6% of the sale price. You can negotiate the commission percentage with the agent before signing the agreement.
- Duration of the Contract: The agreement typically lasts between 30 days to 6 months. However, you can discuss the contract duration with your agent according to your need.
- Listing Price of Your Property: You should set a realistic listing price based on the current real estate market conditions. An overpriced property may sit on the market for a long time. Whereas an underpriced property may significantly cut down your profit.
- Marketing Plan: The agent uses the marketing plan to market your property to potential buyers. It is vital to discuss the marketing strategy with the agent and ensure that it aligns with your goals. The marketing plan should include online and offline marketing strategies.
- Clear Communication Between You and the Agent: Effective communication is very crucial during the sale process. The agent must inform you about your property’s status.
- Termination Clause: The termination clause specifies the conditions under which you can end the contract. If the agent fails to fulfill their duties, the seller may have the right to terminate the contract without penalty.
What Happens After a Listing Agreement Expires?
When the Listing Agreement expires, the agent’s authority to act on your behalf ends. Here are a few things you can opt for after the agreement expires:
- You can renew and extend the Listing Agreement with the same listing agent or sign a new contract with a different agent.
- Your property listing could be removed from the market. In such a case, you could wait for the housing market conditions to improve or relist immediately.
- You can flip your house or can make minor repairs, before relisting it with an agent.
It’s important to note that some Listing Agreements contain a “holdover period” clause. According to this clause, if the property is sold within a certain period after the contract expires, the original agent may still get a commission.
Hence, you should review the terms of the agreement carefully. Make sure you understand any post-expiration obligations, if present.
Can You Terminate a Listing Agreement?
Yes, you can definitely terminate a Listing Agreement of your property. If you wish to terminate the agreement, you should communicate with the agent or broker in writing.
You should state the reason for termination and the date on which you want the termination to take effect. You should consult with a real estate attorney to ensure that you’re complying with the terms and laws of the contract.
However, you might have to pay fees or damages to the agent or broker as a severance if any such clause is mentioned in the contract. So you must carefully consider your options before taking any action.
A Listing Agreement is crucial if you need a real estate agent or broker to handle your home-selling business. A good real estate broker will provide valuable guidance and support throughout the sale process.
You can choose to sign an Exclusive Listing Agreement or an Open Listing Agreement. Exclusive Listings allow you to work with a specific agent whereas you can hire multiple agents in an Open Listing.
Before signing a Listing Agreement, it is important to consider various factors. These factors include the commission rates of the agent, the duration of the contract, the termination clause, and other such factors.
Frequently Asked Questions
1. What is included in a Listing Agreement?
A Listing Agreement includes the asking price, the commission percentage, and the duration of the contract. It also specifies the responsibilities of the seller as well as the agent during the contract period.
2. What is the most common real estate Listing Agreement?
Exclusive Right to Sell is the most common type of real estate Listing Agreement sellers opt for while selling their property.
3. What is the difference between Open Listing and Exclusive Listing?
In an Open Listing, you can work with multiple agents for the sale of a house and only pay the commission to the agent that brings in the buyer. However, in an Exclusive Listing, you are tied to only one specific agent for the sale of your house. You may or may not be subjected to pay the commission, depending upon the type of exclusive contract.