What Is a Listing Agreement?
Embarking on your real estate journey can be overwhelming; you’re looking to get into real estate for the flexibility and financial security, but there are so many confusing terms to learn. Not to fear: Whether you’re just starting out as a new agent or you’re simply looking to get into real estate, The CE Shop has everything you need to succeed.
One of the most confusing terms to unpack is the listing agreement. You’re likely wondering: What is a listing agreement?
How Listing Agreements Work
A listing agreement is a contract between the seller of a home and a real estate agent. This contract authorizes the broker to work with third parties to help the seller find a buyer for the home.
Understanding how listing agreements work is essential to create a good relationship with the seller of the house. These listing agreements need to be put in writing, which is a law in most U.S. states. Even if you live in a state that doesn’t require a written listing agreement, avoid making verbal agreements or it could lead to serious legal issues later.
By law, only the broker can act as a real estate agent as well to legally sell one's home. Brokers have the power to be agents if they want to since they own the real estate brokerage.
Remember that once the listing agreement is in writing, it needs to be signed by the seller and agent. These signatures seal the deal, even if the listing is expected to take a significant amount of time to sell.
Listing agreements include a description of the property and personal items that may be included/left behind once the property is sold. Other essential things listed in a listing agreement include:
- Listing Price
- Broker Duties
- Seller Duties
- Broker Compensation
- Mediation Terms
- Termination Date
- Additional Terms and Conditions
Let's look at these individually for a deeper dive:
Along with a description of the property, the listing price needs to be clearly stated in the agreement. Disputes can easily occur with house selling price if this piece isn’t negotiated and placed first in the agreement.
You can include a section in the agreement on how you handle any disputes should they still occur. You can indicate whether mediation or litigation are the best steps toward a settlement.
What will the broker do to make sure the house sells? They should list all the things they do to bring about a sale, including establishing property listings or enacting duties as an agent.
The seller needs to read through the duties section carefully to ensure they understand what the brokerage will do to support the sale.
Outlining what the seller can or can't do is just as important as establishing what the broker will do. Some sellers want to exert more control over how their home is sold. Brokers or agents should allow the seller to do what they wish if the agent involved will still earn a commission for their involvement.
The commission is a vital part of the real estate process. All commissions are explicitly outlined in the listing agreement to prevent legal disputes. Typically, agents receive 5-6% commission, though they have to split this figure numerous ways, including with the broker and the buyer's agent.
Should there be any legal issues involved, the listing agreement needs to lay out exactly how mediation would work. Would it involve lawyers, or will third parties be involved to resolve any disagreements not immediately negotiable?
Indicating when the agreement is officially terminated is just as important in a listing agreement as it is in any contract. An agent may want to negotiate to make a longer contract since that would give them more time to make the sale and win the commission. A seller might want a shorter termination date so they can have the power to find another agent if the first agent doesn't sell the home within a few months.
Additional Terms and Conditions
Anything else pertinent to the listing agreement should be added. These real estate agreements have no set templates, and almost everything is negotiable before being made official.
Types of Listing Agreements
Now that you understand what goes in a listing agreement, you’ll also need to know that three different types of these contracts exist. Each type factors in how much control the seller or broker has during the selling process.
The three types of listing agreements are:
- Exclusive Right to Sell Listing
- Exclusive Agency Listing
- Open Listing
Each type of listing agreement has distinctive aspects. Let’s look at each type individually to differentiate between these listing agreements.
Did You Know?
Real estate listing agreements can be terminated if the agent does not perform up to expectations. For example, poor communication, no showings, minimal marketing, and overall unethical behavior gives a seller freedom to cancel the contract.
Exclusive Right to Sell Listing
An Exclusive Right to Sell listing agreement means the contract gives the broker or agent all control over the home transaction, including the commission.
When the broker also acts as an agent, this means they have all power to list the home on places like MLS.com and set up all the necessary marketing, plus they’ll split the commission with the buyer's agent. In fact, the broker receives a commission no matter who sells the property while this type of listing agreement is in place.
Most brokers/agents want this kind of listing agreement since it assures that they’ll receive a commission when the house sells. Exclusive agreements like this may require some negotiating tactics with the buyer first to ensure the agreement is fair both ways.
Exclusive Agency Listing
Through an Exclusive Agency Listing, the seller hires just one broker who acts as the agent in selling the home. Unlike the Exclusive Right to Sell listing agreement, this one allows the seller to sell the home on their own if need be.
Sometimes a person selling their home happens to find a buyer on their own while working with a broker. With that in mind, the sole broker receives a commission only if they are the procuring cause of the sale. Because brokers aren’t guaranteed a commission under this type of listing agreement, an Exclusive Agency Listing is not something most brokers want.
An Open Listing agreement allows the seller of the home to hire multiple brokers to take part in the sale of the home. When this happens, this group of hired brokers go into competition with one another to see who can sell the home first. Only the broker who sells the home is entitled to the commission, and the seller has the right to sell the property themselves if they choose.
Now that you understand listing agreements, you’re ready to learn how to become a real estate agent. Don’t worry — we can help you every step of the way!