Signing a Listing Agreement
Once you've chosen the real estate professional you prefer, it's time to sign on the dotted line. When it comes to signing a contract with your listing agent, the most common one you will encounter is the "Exclusive Right to Sell."
This type of listing provides your real estate agent the "exclusive right to sell" your home. This means other agents representing potential buyers may also be involved, but even if your listing agent ends up sharing the commission with a buyer's agent, he/she is still guaranteed to earn compensation once the house is sold. This does not mean you pay more in commission. It simply means you pay the contractually agreed upon percentage when the house sells, and if more than one agent is involved the total commission paid is simply split between them.
Why is an Exclusive Right to Sell the Most Beneficial?
This is the best option for a home seller who wants to receive full service from their listing agent and the real estate company they are associated with. Since your agent is guaranteed to be paid for their efforts under this type of agreement, they will invest a great deal more time and effort marketing your home and striving to make the listing process successful. Furthermore, your agent will advertise your home, place it in the Multiple Listing Service, circulate your home through-out the internet and directly to other agents via email broadcasts, and host open houses.
You may come across options for open listings and "One Time Showings." A one-time showing is similar to an open listing since it's often used when a buyer's agent wishes to show a home "For Sale by Owner (FSBO)". The seller will sign an agreement that identifies the specific potential buyer viewing the home and agrees to pay a commission to the agent if that specific buyer purchases the home. This prevents the buyer and seller from negotiating with each other on the side later, and inhibits attempts to avoid paying the agent's commission. Real estate agents agreeing to an open listing arrangement would not likely spend money on marketing the home or post it on the MLS.
Paying Your Agent
When selling your house your real estate agent acts as a professional extension of you as the seller, and strives to sell your home for the highest price possible in a reasonable amount of time. An experienced agent understands contracts and disclosures and possesses the knowledge to guide you through the entire process from listing to closing. You may wonder, how is an agent compensated for their work?
You pay your agent via a commission, which is stipulated in your listing contract. The commission is based upon a percentage of the final selling price that you and the agent agree to prior to listing.
You should keep in mind that two agents are usually involved in the majority of real estate transactions. In most cases, a portion of the commission paid by you goes to your listing agent's company and your agent with the other portion going to the buyer's agent and buyer agent's company.
At what point has an agent earned their commission?
Your listing agent's job is to bring a "ready, willing, and able" buyer to the table with an offer. If you reach an agreement with the buyer and the deal closes, your agent has done the job and earned the commission. After you close the deal, your agent and his/her agency get paid their portions of the commission out of the proceeds of the sale.
However, say for example the buyer's financing falls through or the buyer simply chooses to back out of the deal, your house goes back on the market and you then start the listing process all over again. Even though your agent may have put a great deal of time and effort into a failed deal, the commission is still not earned yet. In general, your agent is only compensated if a deal closes.
However, if you as a seller chooses to back out of a deal in progress or not accept an offer that meets the price and terms of the listing agreement, under these circumstances, your agent still earns the commission.
For obvious reasons, it's extremely important to make absolutely sure you are committed to selling your home for the price and under the conditions you agreed to in your listing agreement.
Other Types of Uncommon Listing Options
Exclusive Agency Listing: gives a broker the right to market and sell a property for a specified time period, while the owner retains the right to find a buyer and sell the property without owing the broker a commission. The seller must pay a commission only if the home is sold by the broker or an authorized agent or subagent of the broker. This type of listing is not very common in residential transactions because it increases the chances of a dispute between the broker and the seller over who was actually the procuring cause of the sale.
Open listing: a non-exclusive contract. This type of listing gives the seller or buyer the right to engage any number of brokers as agents. With an open listing, all contracted brokers can market the property or search for property at the same time, but only the broker who brings the ready, willing and able buyer to the seller, or who find the desired property for a buyer, will receive a commission. However, if the client ends up buying or selling property by him or herself, they don’t have to pay any commission to the broker. For this reason, open listings are rare since they offer the least assurance that the broker will receive compensation for his or her efforts.
Net Listing: technically not a type of listing agreement at all. In a net listing, an owner sets a minimum amount that he or she wants to receive from the sale of the property and lets the broker have as commission any amount above the set minimum. While in this type of situation the seller is getting what he or she wants for the sale, it creates a conflict of interest for the broker by violating the broker’s fiduciary responsibility of putting the client’s interests above his or her own. For this reason, net listings are generally viewed as unprofessional and are illegal in many states.
For-sale-by-owner: refers to a home that the owner is selling without the services of a licensed real estate agent. In the industry, a for-sale-by-owner home is known as a FSBO (pronounced FIZZ-BO). Not only does the owner avoid paying a listing agent to sell his/her own home, but may also opt to not pay a commission to a buyer's agent. As a result, buyer's agents don't have an incentive to show the property to their clients, and the home is not posted on the Multiple Listing Service (MLS) since it's a broker-maintained real estate sales database. This also means that for-sale-by-owner listings don't appear on most brokerage websites, which are populated directly from the MLS.