Net Listing Agreement: Read BEFORE Signing

In 2023, nearly 25.5% of homes have sold above the listing price, which is a 2.5% YOY increase. In light of this trend, your real estate agent might propose a net listing agreement as a strategic move.

When you sell a house through an agent, you must sign a listing agreement with them. But unlike regular agreements, net listings don’t require you to pay 5% to 6% of the sale price as the agent’s commission.

Instead, their compensation is any amount exceeding the agreed-upon listing price. So, you may have to pay more than the standard commission. However, your proceeds remain fixed regardless of the final selling price.

If an agent proposes a net listing, you must know that they come with many red flags. Additionally, for sellers, there are many better alternatives to net listings.

How Does a Net Listing Work?

A net listing agreement is where you specify a minimum amount you wish to receive from the property’s sale. The agent or real estate broker retains any amount the property sells for above your asking price.

Usually, the agents work on a pre-negotiated commission, which is often 5% to 6% of the sale price. The seller’s and buyer’s agent split this commission equally.

On the contrary, you don’t exactly pay a commission to your agent in net listings. Instead, your agent’s commission is the difference between the listing price you set and the actual sale price.

Moreover, these are exclusive contracts. So, you can’t work with any other agent until the contract expires or the agent sells your property.

Example of a Net Listing

Suppose you plan to sell your house. Your listing agent approaches you with a net listing and guarantees to get you at least $300,000 from the sale.

• If the agent sells the house for $350,000, their commission is the difference, i.e., $50,000. And you’ll receive only $300,000.
• The agent’s cut depends entirely on their ability to sell the house above your set minimum price.
• Assuming that the buyer also had an agent, then you’ll have to pay their 3% commission from your $300,000, i.e., $9,000.
• So, ultimately you’ll take home only $291,000 from the sale of your property.

Now, think of a standard listing agreement where an agent receives 6% of the sale price.

• Let’s assume your property still sells for $350,000.
• But in this case, the Realtor’s commission would only be 6% of this amount, i.e., $21,000.
• Your agent and the buyer’s agent will divide the $21,000 commission among themselves equally.
• So, your proceeds from the sale will be $329,000.

As you can see, a net listing puts sellers at a clear disadvantage. The agent may undervalue your property and market it for a higher price to earn a bigger cut. And that’s one of the many reasons why net listings are not so popular.

Why Are Net Listings Illegal in Most States?

Net listings are illegal in almost every state in the USA except for Florida, Texas, and California. While Florida is slightly more lenient towards these listings, the other two states maintain reasonable restrictions.

California only allows agents to offer net listings to “highly sophisticated clients” or “clients who are independently represented”. It also requires agents to disclose in full all the conflicts involved with the net listings.

As for Texas, brokers can’t enter into a net listing agreement unless sellers specifically request it. Moreover, sellers must be familiar with the real estate market to sign a net listing.

📝 Tip: Always consult an attorney when considering a net listing to sell your house.

Why You Should Avoid Net Listings?

The guaranteed minimum amount from the sale may look like a good deal, but there are more valid reasons to avoid net listings. Here’s why:

• Legality: Net listings are only legal in California, Texas, and Florida. But they are only for experienced sellers who specifically want a net listing.
• No MLS Listings: Houses listed on an MLS sell for 17% higher than non-MLS homes. However, net listings are banned from MLS databases.
• Lack of Realtors: Out of all 2 million agents in the country, over 70% are members of NAR. The organization forbids Realtors from offering net listings.
• Unfair Advantage to Brokers: Agents may undervalue the house to set a lower minimum price. So, they can market the house for a higher price and earn a hefty commission.

Pros and Cons of Net Listing

✅Pros

• Guaranteed Amount: In net listings, agents commit to selling a house for a minimum price. So, negotiating a higher minimum amount can increase your profit.
• Committed Agents: The agent’s commission depends on a higher selling price. This can motivate them to use aggressive marketing and negotiation strategies.

❌Cons

• Conflict of Interest: In net listings, agents may try to earn a higher commission instead of prioritizing the seller’s best interest.
• Unfair Commission: Unlike the fixed commission in traditional listing agreements, your agent gets to keep any amount that exceeds the listing price you set.
• Lower Profits: Sellers also have to pay the commission to the buyer’s agent. So, their proceeds from the sale are often less than what the property is worth.
• Legal Challenges: If the agreed-upon price is deemed unfair or illegal, it can result in costly legal battles for both you and the agent.
• Exclusive Contract: A net listing gives the sole right to sell your house to one agent. So, you can’t work with multiple agents simultaneously.
• Time-bound Contract: These are time-bound agreements. So, they can only be terminated upon the property’s sale or contract’s expiration.

Net Listing Alternatives

It is evident that if you want to get the maximum value from a property’s sale, net listing is not a viable option. So, here are some alternatives you must explore:

1. Open Listing

In an open listing, you can work with multiple real estate agents. You only pay a commission to the agent who brings a buyer. If you find a buyer yourself, you won’t owe any commission.

2. Exclusive Right-to-Sell Listing

An exclusive right-to-sell listing grants an agent the exclusive authority to market and sell your property for a specified period. The agent earns a commission regardless of who finds the buyer — you or the agent.

3. Exclusive Agency Listing

An exclusive agency listing also gives a single agent or broker the right to sell the property. However, you don’t have to pay a commission if you find a buyer on your own.

Alternative Ways to Sell: Net Listing vs. MLS Listing

A net listing is an agent-exclusive agreement that grants your agent the sole right to market and sell your property. The agent earns a commission by selling the property for above the listing price you set.

On the other hand, an MLS listing refers to a house being listed on the MLS (Multiple Listing Service), a database of properties for sale. It is one of the most common methods agents use to list a house for sale.

Here are some reasons why an MLS listing is better than a net listing:

• Availability: Agents can’t list net listings on an MLS. However, they do offer MLS listings for an open listing, exclusive agency, or exclusive right-to-sell agreements.
• Faster Sale: An MLS is a local database of all properties for sale that every Realtor can access. This improves your listing’s visibility, allowing you to find buyers quickly.
• Predetermined Commission: Agents only charge a 2.5% to 3% commission to list a house on an MLS. So, there are no conflicts of interest like in net listings.
• Non-Exclusive Listings: You don’t necessarily need an agent to get an MLS listing. Instead, you can list FSBO and save on the listing agent’s commission.

To get an MLS listing without an agent, list your home on Houzeo, the leading FSBO site in the country. For a small flat fee, Houzeo gets you an MLS listing in less than 24 hours.

Say No to Net Listings!

We do not recommend sellers to get net listings because they give an unfair advantage to brokers. Their exclusivity, time-bound nature, and conflicts of interest can put your best interests at risk and limit your options.

Furthermore, they are illegal in almost every state in the country. And that leaves you with one choice, i.e., to find alternatives.

Consider getting an exclusive agency or exclusive right-to-sell listings to negotiate more favorable terms with the agent. Or, you can list FSBO. This way you can get an MLS listing without an agent and save on commission.

To stay up to date with all real estate trends and learn what’s in your best interest, check out our newsletter!

Subscribe to our newsletter

Please provide your name

Please provide your Email

Subscribe

Don’t worry, we won’t spam

FAQs

Listing Agreement Net Listing