Listing Contracts 101

When selling your home, one of the first things that you need to determine is the type of listing contract that you wish to establish with your listing agent.  You will most likely be presented first with an exclusive right to sell agreement. Know that there are other listing agreement options available to sellers who want to work with a realtor to facilitate the sale of their home.

Let’s take a look at the alternatives to the exclusive right to sell first.

Open Listing
An open listing is one of the least common types of listing agreements for sellers.  This type of listing agreement is used primarily by sellers who have opted for a “For Sale by Owner” sale. 

An open listing gives the listing agent permission to show your home to potential buyers.  With an open listing, the agent earns a commission only if the buyer is a person to whom the agent has shown your home. It is uncommon for an agent in an open listing agreement to agree to post your home’s information on the MLS or to market it in any way.

You are permitted to have open listing agreements with as many agents and brokerages as you would like, but understand that unless you home is exactly in line with the desires of a specific client, an agent may be unwilling to show your home.

Under some circumstances, an open listing agreement is perfect for both the seller and agent.  For example, in a one-time showing, the agent and seller sign a detailed agreement specifying that a specific buyer will be looking at the home on a certain date. If that buyer decides to purchase the home, then the agent is eligible for a listing-agent commission at the rate defined in the agreement.

Exclusive Agency Agreement
Sellers are rarely willing to make an exclusive agency agreement with a realtor, because this type of agreement provides little incentive for the agent to work to make your home competitive with comparable homes on the market.

Regardless of how the home is sold, the agent earns a commission at an agreed-upon rate.  This means that if your agent is the one to show the home to a potential buyer, he or she earns the profit.  If YOU show your home to a potential buyer, your agent still gets the commission.  Consequently, there is little incentive for the agent to hold open houses or to go out of his or her way to market your home.

Exclusive-Right-to-Sell Agreement
As stated earlier, this is the most commonly used type of listing agreement and is generally the only type of agency agreement that you can expect a large brokerage to agree to sign.  Another term for an exclusive-right-to-sell agreement is a full-service agreement, so named because the listing agent is responsible for placing your home’s information on the MLS service and for advertising the home to other agents.

The listing agent’s job is to market your home to other realtors, but not necessarily to potential buyers.  Of course, there is a trickle-down effect because other agents who are interested in your home will pass the information on to potential buyers.

One of the reasons that an exclusive-right-to-sell agreement may be the best possible arrangement for both sellers and agents is that no commissions or fees are paid unless and until the home sells.  This is the incentive that exclusive agency agreements are lacking.  If an agent with an exclusive-right-to-sell agreement does not work hard to get your home listed and seen by other agents, it will take longer for the home to sell and therefore longer for the agent to get paid.

Specific Information Presented in a Listing Agreement
Whatever type of listing agreement you make with your agent, most agreements will contain a core set of information that is critical to making the listing agreement effective.  Here are some of the items that you should expect to include or find in a listing agreement:

Seller and Home Basic Information
Your listing agreement will contain your name and contact information, along with the address of the home that you are selling.

Price/Sale Information
Obviously, you will need to include the listed sale price of the home in a listing agreement, because it forms the basis for all advertisements related to the sale of your home.  You will also need to list any exclusions from the sale.  Exclusions are items that are an integral part of the building itself that will be removed prior to sale.  In most cases, there are very few exclusions, but there are times when you will want to remove or replace a specific feature of the home before the sale is finalized.  An example of this might be stained glass windows that were created specifically for the home.  If you intend to replace the stained glass with traditional windows before you leave the home, you will need to tell potential buyers and your listing agent.

On the other hand, you will probably include some things in the sale of your home that are not directly integrated into the building itself.  These could include kitchen appliances, laundry appliances, a hot tub, or even patio furnishings.  If you will be including any items with the home when it sells, you need to disclose that information in your listing agreement.  You can modify this portion of the listing agreement if you decide to add something else later, but generally you cannot remove anything from the list.

Commission Rate and Timing
Commissions are fairly standard across the real-estate industry, depending on the specific area in which a home will be sold. In most cases, you do have the option of negotiating the agent commission rates prior to finalizing the listing agreement for your home.

The listing agreement also needs to be clear about when the listing agent has earned his or her commission.  In order to protect your interests, be sure to include information about how commissions and sale finalization will be handled.  For example, most listing agreements clearly state that if a buyer presents an offer that meets your requirements and asking price, then the listing agent has earned his or her commission.  Keep in mind that this in no way requires the sale to actually happen. Also, what if you decide not to sell? The listing agreement needs to explain how an agent is to be compensated, if at all, should you decide at some point not to sell.

Conclusion
Armed with this information about listing agreements and what they should include, you are prepared to begin interviewing potential agents to determine which one is best for your situation.  Remember that if you want a non-standard listing agreement, you may not be able to work with an agent who is employed by the top industry brokerages.  Also, if you are selling your home by owner, then know that a listing agreement may give you the ability to get potential buyers in the door.