What’s A Listing Agreement?
Listing agreements are one of the first documents you’re going to sign if you want to sell your home. They’re documents that give a realtor the right to list your house on the market. They also confirm that you agree to work with them and permit them to market your home.
A listing agreement will tell you the responsibilities your broker has, the commission you’ll pay, the terms of your agreement to work with them, the price to list your home, and other details about your relationship to the broker. It’s good to think of it as a hiring contract.
When you sign a listing agreement, you’re giving a realtor the right to act as an agent in the sale—and that means giving him or her the right to do what they need to do to market your home. The most common type of listing agreement is an exclusive right to sell, which is generally best for the real estate agent as it ensures they get paid if the home sells. But what most people don’t realize until later is that there are multiple types of listing agreements.
Types Of Listing Agreements
If you’re wondering what kind of agreements you can forge with a realtor over real estate, it’s good to do your research so that you know what you’re dealing with. This guide will walk you through the most common types of listing agreements you’ll see in modern markets.
Exclusive Right To Sell
The vast majority of realtors will insist on an exclusive right to sell listing agreement. As the name suggests, signing this listing agreement means that you are giving a broker the exclusive right to sell your home.
With an exclusive right to sell, owners will pay the brokerage regardless of who sells the home. Unlike other contracts, the agent will have to get paid a commission upon the sale of the home, even if you sell it independently. Unless the listing expires, or the home doesn’t sell, the broker will get a commission, period.
One of the key benefits of going with an exclusive right to sell is that your realtor won’t hold back on spending and investing marketing dollars into photos and online ads for your home. This is due to the fact that they are certain they’ll be paid once the property sells.
Most real estate agencies will offer potential clients this listing agreement if they feel like a seller is reticent to work with them. With an exclusive-agency listing agreement, brokers will represent you, the property owner, but you also still retain the right to sell the home yourself.
In a nutshell, this means that you will only hire one brokerage to work with you. In many ways, exclusive agency is very similar to an exclusive right to sell. The main difference is that with exclusive agency, the broker only gets paid if you sell it through them or another broker. If you sell your home on your own, there’s no need to pay a commission.
Open listings are essentially the opposite of exclusive right to sell agreements. Open listings are often used when someone prefers to go the for sale by owner route. They let the owners sell the house on their own, while also letting multiple brokerages market the home for sale. Essentially, the listing is open to whoever wishes to market it. The owner also doesn’t typically pay a seller agent with this route, simply offering a commission to the agent who brings the buyer, which cuts closing costs.
Another perk for owners is that if someone comes directly to them, they retain the right to sell the house themselves. If that happens, they pay no broker fees at all.
However, there’s a pitfall here. Most brokerages don’t feel comfortable using these contracts. Since that is the case, you might have a hard time finding brokerages near you that are willing to work with this option. Additionally, some multiple listing services might prohibit brokers from listing open listing homes. That means you lose a lot of the marketing power that comes with listing with a broker.
How Long Do Listing Agreements Last?
The length of a listing agreement can vary based on the location of your home, local laws, as well as the realtor’s unique protocols. That being said, most agreements are done in either 90-day, six-month, or one-year spans, but you can always negotiate a shorter listing agreement. The more expensive the home, the longer the agreement tends to be as luxury homes typically require more effort to sell. Realtors that use exclusive right to sell agreements also tend to ask for longer terms to protect themselves.
Can You Cancel A Listing Agreement?
Let’s say that you have a bad experience with a realtor or change your mind about selling the home. You want out. Of course, there are ways to cancel a listing agreement, but they need to be known before you bail on a realtor.
Most listing agreements will have a couple of standard cancellation notes at the bottom, but it’s important to read them. Some of the more common stipulations you might find include:
- Giving you the right to cancel anytime- This is quite rare if you’ve signed an exclusive right to sell, but it can happen with other types of listing agreements. If your contract has such a clause, the amount of time you are expected to stick with a broker will not be all that relevant as you can cancel anytime. As long as you feel like you want to switch brokerages or choose to end the agreement, you get the right to end it.
- Giving you automatic renewal- Let’s say that you do not sell your house in the time frame that the agreement is stipulated for. Automatic renewal means that your contract will stay in play for as long as necessary, or until you demand it end.
- Requiring that renewal is mutual and non-automatic- Some brokerages want to make sure that their real estate agents are actually giving you value as a seller. To make sure that you’re happy with their work, they may ask you to come in and mutually agree to extend the contract. If you don’t renew, the brokerage might supply you with a small list of potential buyers and brokers who can help you out.
- Giving you early ending terms- Most listing agreements will not allow you to cancel willy-nilly. To give fair ways to cancel a contract, they’ll outline what has to happen to cancel without legal recourse. Common requirements may include:
- Mandatory Minimum Times. If you want to cancel in a week, you probably won’t be able to. However, each contract will be different.
- No Sale Clause. If you don’t get a sale after a certain number of automatic renewals, some agencies might allow you to break the contract whenever you feel like it afterward.
- Duty Breach. Every listing agreement will mention what your realtor will do for you. If they don’t do that, then they may offer you an “out” for their lack of service.
- Protection Clauses. This states that a buyer brought in by the broker can still be cause for a commission payment for a set time after the contract lapses.
- Advance Notice. A lot of contracts will require you to notify the realtor or brokerage in writing, in advance. They will outline how to do it correctly so that it can hold up in court.
- Adding a mediation and dispute clause- Let’s say that you signed an agreement, but it became clear that your realtor was not holding up their end of the deal. In fact, they did something pretty awful, and you want to take them to court. The mediation clause will say that you need to talk to a mediator to resolve things before a lawsuit ensues.
Do You Have To Sign A Listing Agreement To Sell Your Home?
If you want to work with a real estate agent or a brokerage, you will need to sign at least one listing agreement. Otherwise, they legally are not allowed to list your home and won’t be able to collect their commission.
The only time where you won’t have to sign a listing agreement is if you choose to do a FSBO (“For Sale By Owner”) setup. Since FSBO sales don’t involve a brokerage, you don’t have to sign a listing agreement. This can be more work-intensive, but it will also save you a lot of money in commissions.
If you are going to try to sell your house through a brokerage or a real estate agent, there’s no way to get around signing a listing agreement. The good news is that you have options and that this contract protects both parties—you and the realtor.
Whether you prefer to be hands-off and sign an exclusive right to sell or you want to maintain the ability to find a buyer yourself without having to pay a broker fee, you’ve got options.
It’s important to note that each brokerage will have its own standard contracts, and getting too picky can make it hard to find a real estate agent to work with. Of course, if you don’t want to work with a broker, it’s always possible to get an FSBO sale underway.