Whether you are a prospective real estate agent learning the ropes of the real estate business or a prospective homeowner looking to hire an agent or broker, understanding some of the industry jargon is essential. Not only will it keep you informed throughout the process, but it will also help you understand your options, no matter what side of the transaction you are on.
One of the core operations of real estate is listing a property. But what does that really mean? A listing agreement is “a legally-binding contract that creates an agency relationship authorizing a broker to serve as the agent for a principal in a real estate transaction.” In other words, a listing agreement is an employment contract between a client and a broker that spells out what the broker is responsible for in the real estate transaction and how the client will compensate them. Breaking this agreement can have legal consequences for either the broker or the client depending on who breaks what part of the agreement. However, listing agreements must be in writing in order to be enforceable.
The Four Common Types of Listings
There are four common types of listings: open listings, exclusive right to sell listings, exclusive agency listings, and net listings.
An open listing is 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.
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Exclusive Right to Sell Listing
An exclusive right to sell listing is the most widely-used listing agreement. Under this agreement, the broker has the exclusive right to market the property for a specified period of time. If the property sells while the broker has the listing, the seller must pay the agreed-upon commission regardless of who actually procured the buyer. This limits any conflict with the seller over who was responsible for procuring the buyer.
Exclusive Agency Listing
An exclusive agency listing agreement 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.
A net listing is 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.