Special offer

What Are The 3 Types of Listing Agreements a Seller Will Sign?

By
Real Estate Agent with RE/MAX Executive Realty 91362

When selling a home, one of the first steps is signing a listing contract with a real estate agent. This contract outlines the terms and conditions under which the agent will represent the seller in marketing and selling their property.

We will discuss the three main types of listing contracts: exclusive right to sell, exclusive agency, and open listing. Understanding these types will help sellers choose the most suitable agreement.

From three decades experience in selling homes, the exclusive right to sell contract is head and shoulders the most used listing contract. Both exclusive agency and open listings lag behind significantly in popularity. An open listing contract has become a dinosoar in the industry.

Most real estate agents don't want to waste time and money with the uncertainty of not being compensated for their work. Let's examine each of the listing agreements in real estate.

1. Exclusive Right to Sell Listing Contract:

The exclusive right to sell listing contract is the most common and comprehensive type of agreement. Under this contract, the chosen real estate agent has the exclusive right to represent the seller and earn a commission regardless of who brings the buyer. Key features include:

a. Agent's Exclusive Right: The agent is given the sole right to market and sell the property during the contract period. This means that even if the seller finds a buyer themselves, they must still pay the agreed-upon commission to the agent.

b. Commission Structure: The agent is entitled to a commission upon successfully selling the property, regardless of who finds the buyer. The commission is typically a percentage of the final sale price, as agreed upon in the contract. The typical real estate commission is usually between 5 to 6 percent of the sale price.

The buyer's agent's fee is usually paid from the total commission by the seller.

c. Marketing and Promotion: The agent is responsible for advertising and marketing the property to attract potential buyers. They may use online listings, print media, open houses, and networking with other agents.

d. Contract Duration: The exclusive right to sell a listing contract usually has a specific duration, typically 90 days to one year. During this time, the seller cannot terminate the agreement without incurring penalties or fulfilling the obligations outlined in the contract.

2. Exclusive Agency Listing Contract:

The exclusive agency listing contract is similar to the exclusive right-to-sell contract but with one crucial difference. The seller retains the right to find a buyer independently and avoid paying a commission.

Key features include:

a. Seller's Right to Sell Independently: Under this contract, the seller can find a buyer without involving the agent. If the seller successfully sells the property, they do not owe the agent a commission.

b. Agent's Right to Commission: If the agent brings a buyer who ultimately purchases the property, they are entitled to a commission as outlined in the contract. This arrangement motivates the agent to promote the property and find potential buyers.

c. Buyer's Agent Still Go Through The Listing Agent: In an exclusive agency arrangement, buyer's agents who work for other companies must go through the listing agency.

3. Open Listing Contract

An open listing contract, or a non-exclusive listing agreement, is an arrangement between a seller and a real estate agent where the seller allows multiple agents to market and sell their property.

The seller is not bound exclusively to one agent in an open listing contract. They can engage other agents or sell the property themselves as a FSBO.

This type of contract is commonly used in a competitive real estate market where sellers want to maximize exposure and increase the chances of selling their property quickly.

One significant advantage of an open listing contract for sellers is the increased exposure their property receives.

By allowing multiple agents to market the property, sellers can tap into a more extensive network of potential buyers. This can result in more showings and offers, increasing the likelihood of a successful sale.

Additionally, since the seller is not bound to an exclusive agreement, they can explore different marketing strategies and agents, potentially finding the best fit for their needs.

However, there is one significant caveat. The Multiple Listing Service (MLS) does not allow multiple agents to list a property in many states. In this circumstance, a seller would be at a severe disadvantage without having the exposure the MLS provides.

For example, a listing in the MLS in Massachusetts by multiple agents is immediately flagged.

Sellers have More Flexibility

Another advantage for sellers is the potential cost savings. In an open listing contract, the seller is not obligated to pay a commission to the agent unless they bring in a qualified buyer who successfully purchases the property. This means that if the seller can find a buyer independently or through another source, they can avoid paying a commission.

On the other hand, there are also some downsides for sellers and real estate agents when it comes to open listing contracts. For sellers, the main disadvantage is the lack of dedicated representation.

Since multiple agents are involved, there may be less personalized attention and coordination than an exclusive listing agreement. Additionally, if there are too many agents involved, it can create confusion and inefficiency in the selling process.

The main disadvantage of open listing contracts for real estate agents is compensation uncertainty. Since there is no exclusive agreement, agents may invest time, effort, and resources into marketing a property only to have another agent or the seller close the deal without their involvement. This can result in wasted time and missed opportunities for the agent.

In conclusion, open listing contracts offer sellers the potential for increased exposure and potential cost savings in states where the MLS can be utilized. Still, they also come with the potential risks of less dedicated representation and uncertainty for sellers and real estate agents.

It is crucial for both parties to carefully consider their specific circumstances and objectives before entering into such an agreement.

They are not utilized that often because they fail to meet the objectives of all the parties involved.

 

Posted by

With three decades of experience, Bill Gassett is an authority in the real estate sector. Bill writes informative articles for numerous prestigious real estate sites to help buyers, sellers, and fellow real estate agents. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Placester, Realty Biz News, Credit Sesame, and his own authority resource, Maximum Real Estate Exposure. Reach out to Bill Gassett for his real estate, mortgage, and financial expertise.

Comments(3)

Roy Kelley
Retired - Gaithersburg, MD

This is very good information to share with prospective home sellers.

Happy Holidays!

Dec 15, 2023 04:52 AM
Bill Gassett

Thanks Roy - you as well.

Dec 15, 2023 05:06 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Today the only Place I ever see Open Listings is at the Beach . Often 4-6 different Real Estate Companies are authorized to rent the same Property

Dec 15, 2023 08:27 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  Our mls, and most of Texas does not allow an open listing.  I hope you have a great day.
Dec 17, 2023 04:35 AM