Are you a first-time home seller?
Perhaps you are about to get married and need to sell your home to facilitate your move to a bigger place. Or, you’ve just inherited a house from a relative. Whatever the reason(s), before your first foray into home selling, you should understand the many unfamiliar terms you will encounter.
Why should you care to know these terms? You need to understand these terms for your own legal and financial protection. This will prevent you from making any house-selling decisions that may affect you negatively in the long run. Knowing these terms will also increase confidence as you work your way through the home selling process with an agent.
In this short guide, we take you through the different types of listing agreements and the terms you will come across as you plan to sell your property.
Types of listing agreements
As a first-time home seller, you should note that there are four types of listing agreements; open listing, exclusive right-to-sell listing, exclusive agency listing, and net listing. In this article, we will discuss the pros and cons of each.
1. Open listing
An open listing is when a homeowner contracts with one or multiple listing agents on a nonexclusive basis to find buyers. The nonexclusive clause means the seller is not solely restricted to one agent. While the agents are all entitled to a commission, only the one that brings a buyer gets the commission. However, if the seller sells the house without the agents’ help, they will not pay any of the agents.
Open listing is not the most advantageous for the seller. Because it involves competition among agents, agents may not be very motivated to invest their own time and resources into marketing the property. Consequently, open listings are for very special circumstances and are uncommon, especially in the residential market.
2. Exclusive agency listing
In an exclusive agency listing agreement, the listing agent and the seller agree to a commission that only comes into effect if the house is sold through the agent’s effort. An exclusive agency means a single agent is representing the seller. It also allows the seller to sell the property on their own. The seller is not obligated to pay any fee if they sell it on their own. These arrangements are more common than open listings but less common than exclusive right-to-sell listings.
Like open listings, a downside to using an exclusive agency listing is that the agent is less motivated to invest their own time and resources into marketing and preparing the seller’s home. This is because there’s a risk that the seller could undercut the agent and sell the property on their own — wasting the agent’s time and money. Moreover, an exclusive agency can put both the seller and their agent at greater risk of litigation because it’s not always apparent in these kinds of arrangements when the agent has “earned” their commission.
For example, if the buyer finds the property from the agent’s advertisement but contacts the owner directly to visit the property, was the agent responsible for finding the buyer and thus “earning” their commission? Since disputes can arise for reasons like this, most agents prefer to use exclusive right-to-sell when using an exclusive agency listing. However, some kinds of discount real estate brokerages (who do minimal work for their clients) will offer exclusive agency for their clients to entice sellers into listing their property with them.
3. Exclusive right-to-sell listing
An exclusive right-to-sell listing creates the strongest form of representation between the seller and their agent. In this type of listing, the agent retains the exclusive right to sell the seller’s property. That is, a single agent (or agency firm) bears the entire responsibility of finding a ready and willing buyer to purchase the seller’s property.
This type of listing encourages agents to invest most of their own time and money because they will earn the commission regardless of how the buyer is found. This type of listing also encourages cooperation between the seller and their agent because the agent is not competing with the seller to find a buyer. Exclusive right-to-sell also reduces the “grey area” where disputes could arise about whether the agent earned their commission or not.
Although it may seem unfair that the agent would be paid no matter who finds the buyer in this type of listing, in reality, it is to the advantage of the seller to have an arrangement with their agent. This provides the agent with the maximum incentive to quickly find a suitable buyer who can close on the sale at a fair price. For these reasons, exclusive right-to-sell is the most common type of listing arrangement.
4. Net listing
This type of agreement is illegal in Utah and many other states. If the listing agent sells the home above the seller’s stipulated price in a net listing agreement, they get to keep everything above that figure. Although it may seem like a net listing is not a bad idea, they are illegal because they negatively impact the listing agent’s financial, or fiduciary, loyalty to the seller.
Any time an agent represents a seller, that agent should have their full commitment towards getting the seller the best possible outcome. It is unethical and illegal for an agent to have a secret motivation to exploit their client for their selfish gain. If the agent has any kind of financial interest in the property, they should not enter into a representation or listing agreement with the seller.
When we represent a seller, we give that seller our entire loyalty and commitment. When we buy a property as an investor, we do not represent the seller of that property because that would be illegal and misleading. Instead, we are fully transparent about our objectives and motivations. Bost Redevelopment prohibits net listings in our company policy.
Basic listing terms you should know
- What is a “listing contract”?
After making the necessary repairs in your home, you may want to contact a real estate agent to sell the house. The agreement between you and the real estate agent that authorizes them to sell your home is a listing contract.
This contract gives the agent the authority to start marketing your home, including putting it on the Multiple Listing Service (MLS). If you don’t know, the MLS is a database real estate agents use to share information about the properties they are trying to sell. Because access to the MLS requires the agent to be a member of the National Association of Realtors (NAR), some agents choose not to use the MLS. The NAR can also expel agents for unethical conduct and deprive them of accessing the MLS and list properties on the MLS. Many discount brokerages and online brokerages, such as Homie, do not participate in the MLS. However, at Bost Redevelopment, all agents are members of the NAR and participate in the MLS.
(Note: If you’d prefer to save yourself the stress of entering into a listing contract and would instead prefer to have a quick and easy sale to an investor who can buy your house as-is, check out our article on, “Is selling my house to an investor a good idea?”)
- What is an expired listing?
When a homeowner contracts or signs an agreement with an agent to sell their home, the listing contract has a time limit in which the agent must sell the house before the agreement expires. This then becomes an expire listing if the house has not been sold within this time limit. A listing expiration date could be three months, six months, or even a year from the signing date.
(Note: There are exceptional circumstances in which the relationship may continue in a limited scope for a while after the agreement expires, but that won’t usually affect you unless you sell your home on your own shortly after the agreement expires.)
After a listing expires, the homeowner may decide to renew their contract with their current agent or seek another. However, if your home’s sale is about to close when your listing expires, you are obligated by law to complete that process with your listing agent. Trying to personally reach out to a buyer or their agent during this time to complete the transaction is unethical and unwise. The buyer or their agent may seek to leverage your lack of experience to gain information from you that your agent would never give them. Because your agent is morally and legally bound to protect you as much as possible, when a listing agreement represents you, your agent is bound never to disclose confidential information that could harm your negotiation position without your explicit authorization.
- What does a withdrawn listing mean?
A withdrawn listing happens when an agent removes a listing from the MLS or from the market. Think of a retail store owner removing an item from the shelf. A withdrawn listing does not end the relationship between the home seller and agent as long as the listing contract is still in force.
Homes can be withdrawn from the market for different reasons. For example, perhaps the out-of-state job opportunity that was motivating you to sell your home disappeared. Or, a family member suddenly became ill. Perhaps, you realized that your home is overpriced or you think your agent isn’t working hard enough to sell your home. These are all examples of situations in which a listing might be withdrawn.
However, depending on the contract agreement between the homeowner and the listing agent, there may be nothing preventing a seller from getting advice from another agent or being represented by the other agent. This largely depends on the listing agreement both parties agreed to. Realtors who are members of the National Association of Realtors are required to ask if another agent represents you before representing you because they are prohibited from soliciting business from you if you are already in an exclusive type of arrangement with another agent (as per NAR Standard of Practice 16-4.)
Let Bost Redevelopment handle your expired listing problem
If you previously tried selling your home and your listing expired, we understand you may feel demotivated or frustrated by being unable to sell your home. At Bost Redevelopment, we are experts at handling every home selling problem you may be facing. We will provide a no-cost assessment to help you learn the options available for you to get the best outcome out of your situation.