When you hire a real estate agent, they agree to work to sell your house, while you give them permission to do so. When the agent is successful, they get paid through a commission, typically 5-6% of the sale price of the home, which is then split with the buyer’s agent if applicable. So it makes sense that just like any other job, sales transaction or business agreement, there will be a contract involved. In the real estate world, these contracts are known as listing agreements.
The listing agreement covers the time period involved and money spent, as well as every other aspect and step involved in the home selling process. And both parties need to dissect and fully understand this document.
This guide will explain the different types of listing agreements, what that they cover, what happens when they expire, how long they usually last, what factors are typically negotiated in a listing agreement, and what happens if a dispute arises.
What is a listing agreement?
If you are going to be working with a real estate agent and are ready to get the ball rolling on the sale of your home, a listing agreement is the first step that establishes the formal relationship between seller and agent. It’s a contract that lays out specific, agreed upon terms, giving the real estate agent permission to market a home to buyers. No money should be required up front to sign a listing agreement, as agents are paid when a home sale is successfully concluded.
A listing agreement “defines the seller’s role, the agent’s role, and that’s what’s most important,” says Christopher Ferzoco, a top-selling real estate agent in Wildwood, New Jersey who’s negotiated over 700 real estate transactions and has outperformed the average agent in his hometown by 20% in sales.
A listing agreement protects the seller, so that they aren’t tied to an agent that isn’t delivering on their service like they should. It also protects the real estate agent so that they know what their job is and are guaranteed a commission if they find a buyer and execute a successful sale.
The three types of listing agreements
The National Association of Realtors® defines three types of listing agreements.
This is the most common type of listing agreement. An exclusive right-to-sell listing agreement puts the entire transaction in the hands of the real estate agent, meaning they are the only ones that will find a buyer and handle all the other details.
An exclusive right-to-sell listing agreement guarantees the listing real estate agent a commission upon successfully acquiring a buyer for the property. They don’t have to worry about another agent receiving a commission instead of them, and if efforts from you or another agent lead to a buyer, the listing agent still receives the commission.
Exclusive agency listing
With this type of listing agreement, the broker acts as the agent and any agent in the agency may sell the home and collect the commission. But in an exclusive agency listing, the seller still reserves the right to sell the home on their own if they choose, and “if the seller sells [solely through their own effort], they are not obligated to pay [the real estate agent],” says Ferzoco.
In an open listing, the seller pays commission to the agent only if the house sells through the efforts of that agent.
Why would a real estate agent sign an agreement that guarantees them little to nothing? “A lot of times if you have a situation like that it’s because the agent has a buyer coming in,” says Ferzoco. Basically, the real estate agent may agree to an open listing agreement if they are in a position where they think they will get the transaction completed quickly and they aren’t having to invest much time and effort.
Exclusive agency listing and open listing agreements are generally less favored by agents, making them less common than exclusive right-to-sell listing agreements.
Major components covered in a listing agreement
Listing agreements cover aspects of the real estate transaction, and each one needs careful attention and consideration. Here are the main components:
Listing agreements usually cover a duration of between three and six months. For the real estate agent, they want to make sure they have enough time to perform the necessary work to find the right buyer and sell your home. But if you are in seller’s market conditions that make you think your home will sell particularly quickly, you can negotiate with the real estate agent and agree to a time period you are both comfortable with.
The listing agreement gives a detailed plan of action outlining how the real estate agent will promote your home: from listing it on the MLS, to arranging open houses, to online marketing and social media. You can allocate the amount of money spent on marketing in the agreement as well, but Ferzoco advises against this because then “that becomes the focus.”
Just as with all other real estate documents involved in the sale of your home, the listing agreement will include a complete and accurate description of your property. Ferzoco also points out that one critical purpose of listing agreements is that it ensures that the information being marketed about your home is accurate. For example, he recalls incidents where incorrect details included in a listing resulted in the wrong house being shown to buyers.
The listing agreement specifies both items that will be left behind after you sell the home, and which items in the home you will be taking with you when you move (appliances, mirrors, chandeliers, etc.).
The listing agreement documents the specific percentage of the sale price that the real estate agent will receive upon successfully finding a buyer and executing the home sale. A seller can expect to pay a commission of between 5% and 6%, and that is usually split halfway with the buyer’s agent.
Your real estate agent will help you determine a recommended list price based on market data, comparable homes that have sold in the area, and condition of the home. Then, that price will be written into the agreement.
The listing agreement outlines each specific duty that is assigned to the real estate agent and the seller. This way, both you and your agent have a clear understanding of what part you play in the transaction. Most of the time, the real estate agent handles nearly every aspect of the transaction.
Right to use listing content
This grants the real estate agent the rights to use the listing content which includes photos, graphics, videos, drawings, virtual tours, written descriptions, and any other copyrightable elements relating to the property, according to the National Association of Realtors®.
The protection period in a listing agreement is specifically there to protect the real estate agent. For a certain number of days after the contract expires, if any of the potential buyers that the seller’s agent brought in to buy the home, then you will still owe them the commission.
Mediation and dispute clause
Most listing agreements include a clause stating that if there is some sort of dispute between the buyer and seller, then they will both meet with a third party to resolve their issues. This lowers the risk of escalating conflict into a legal dispute.
Negotiating leasing agreement terms
“Everything is negotiable,” in a listing agreement, says Ferzoco. He says that the most common points of negotiation upon drawing up a list agreement are the commission, the length of the contract, and whether the real estate agent will be representing both you and the buyer as a dual agent (which is only legal in certain states).
But anything you feel uncomfortable with is a point open to negotiation. At the very least, the agent would want a referral from you for being accommodating, says Ferzoco, even if an agreement isn’t reached. One thing to keep in mind when negotiating: lowering certain things like commission could potentially hurt the sale since the real estate may agent not be able to devote as much time and money to marketing your home.
In fact, when choosing an agent, it’s a good idea to meet or interview at least three. Having a solid, trusting relationship between seller and agent can be important for the oftentimes stressful and emotional experience of selling a home.
What happens when the listing agreement expires?
So what happens if the listing agreement expires and the house still isn’t sold? The agent should be communicating with the seller throughout the process about what is happening with their home, the market conditions and the showings that have already occurred. “We’re trying to at least cultivate an extension with them probably within about sixty days out [of the listing agreement expiring],” says Ferzoco, “or if they’re unwilling to do an extension, which can happen, then we’re just trying to figure out what their next steps are.”
These next steps could involve taking your home off the market until conditions improve (for example, if there’s a recession), connecting you with another agent because it wasn’t a good fit, or the current real estate agent may renew their listing agreement with you if you want them to continue their services.
Can you terminate a listing agreement?
Unfortunately, not every relationship between a seller and their agent will work out. The listing agreement includes a detailed plan of the duties the agent will carry out, and “if you are not following the plan and [the seller] wants to fire you for it, then you should be [fired],” says Ferzoco. “That gives them the right because it’s non-performance [on the agent’s part].”
Selling your home is one of the most expensive and life-changing decisions that you will ever make. So take the time to read the fine print and make sure that you agree to everything in the listing agreement. Negotiate and make necessary changes before signing the dotted line. And if you hire a top real estate agent, you are likely to make the creation and execution of a listing agreement as painless as possible.
Header Image Source: (Olivier Le Queinec/ Shutterstock)