The real estate process is very contract-heavy.
This should come as no surprise. There’s a lot of money, time, and stakeholders involved in buying and selling property. Drafting a formal contract is a simple way for everyone involved to protect their assets and set clear expectations for the other parties involved. One important contract that has to be finalized early on in the real estate process is a listing agreement.
What is a listing agreement?
A listing agreement is a formal contract between a property owner and a real estate agent that gives the agent legal authority to represent the owner and help them sell the property.
In this article, we’ll outline all the main components of a listing agreement as well as the different types of agreements that are the most common.
The basics of a listing agreement
A listing agreement exists to protect both the property owner and the real estate agent. This type of contract is exclusive to real estate sellers – real estate buyers will sign a separate buyer’s agreement with their agent.
The purpose of a listing agreement is to benefit both parties - not just the agent. It’s important not to gloss over the small details and read every condition carefully. Everything in a listing agreement is negotiable on both ends and can be terminated at any time if there’s a breach of contract.
Elements of a listing agreement
No two listing agreements look the same; however, there are a few general guidelines that every seller-agent contract should follow.
Here are the basic components to include:
- The names and contact information of both parties
- Time period: The length of the listing period with start and end dates
- The listing price of the property
- The type of listing: More on this below
- Commission terms: How the agent will be compensated and any conditions that could alter their final commission
As mentioned previously, these terms can be negotiated and tailored to fit the specific needs of the seller and agent.
Types of listing agreements
There are four main types of listing agreements that outline different terms.
Exclusive right to sell listing
In an exclusive right to sell listing, the real estate agent has the sole right to represent the seller, list the property, and find qualified buyers. Throughout the duration of the agreement, the seller cannot work with any other agent. Commission will be paid to the agent even if the seller finds a buyer for the listing. This is the most common type of listing agreement.
Exclusive agency listing
An exclusive agency listing is an agreement where the seller agrees to list their property with one agent or brokerage and pay them commission if the agent finds a buyer for the property. The main difference here is that the seller has the right to deny commission if they find a buyer on their own.
An open listing is a non-exclusive agreement that allows a property owner to sell the listing on their own. This is commonly referred to as a “For Sale By Owner” listing. In this scenario, the owner may choose to hire multiple real estate agents and only pay commission to the one that brings in the most qualified buyer first.
In a net listing, the property owner sets a net price for the property that is considered acceptable. If the property sells at a higher price, the real estate agent will get to pocket the surplus. It’s important to note that this type of listing is much less common and even illegal in some states.
A listing agreement is just one of many important documents that are necessary to have on file in a real estate transaction. When terms are clearly outlined in a contract, all the parties involved are held accountable for holding up their end of the bargain.
Curious what other paperwork to expect? Learn the ins and outs of a basic real estate purchase agreement.