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Listing Contracts

Listing Contracts

Listings Contract Basics

A listing contract is a personal service contract between you and a licensed real estate broker. This contract authorizes the broker to act as your agent by finding someone to buy your house.

The listing contract contains two basic promises:

The broker promises to do his or her best to find a buyer for your property, and you promise to pay the broker a commission. Legally speaking, the definition of a listing contract is a bit more complex:

Other negotiable options include paying your broker a set fee for selling the property or compensating the broker on an hourly fee basis. Although the listing contract doesn't obligate you to sell your house, it may obligate you to pay the broker a commission even if you don't sell.

Considering the types of listings

All your various listing options boil down to variations on two types of listings: Exclusive Listings and Open Listings.

Exclusive Listings

An exclusive listing is exactly that—an exclusive authorization giving only one broker the right to find a buyer for your house—though there are two very different types of exclusive listings. Exclusive right to sell listings is the most common listing type and popular with both sellers and brokers. An open listing is a non-exclusive authorization for brokers to find a buyer for your property. You can give as many brokers as you wish an open listing on your house. See each section for details on how each type works, their advantages, disadvantages and risks.

The broker designated in an exclusive agency listing is the one and only agent authorized to sell your house during the term of the listing. If any other licensed real estate broker or agent finds a buyer, your broker gets paid.

Because you aren't a licensed real estate agent, the listing contract excludes you Under the terms of an exclusive agency listing, owners specifically reserve the right to sell their own house directly and ace the broker out of a commission. Your broker - who should be your strongest ally - is your competitor.

The adversarial relationship isn't good for you or your broker. Exclusive agency listings discourage brokers from spending time or money marketing property because the arrangement offers no assurance of a reward for their efforts.

Exclusive right to sell listings

An exclusive right to sell listing is also referred to as an exclusive authorization and right to sell or just a plain, old exclusive. The exclusive is the most widely used form of listing contract in the United States.

Here are the reasons it's popular with sellers and brokers:

Maximum incentive for brokers: Under this form of exclusive listing, the listing broker gets paid if anyone—even the owner—finds a ready, willing, and able buyer for the property during the life of the contract. Owner and broker are allies, not adversaries, with a mutually beneficial goal of getting the listed property sold as quickly as possible for as much money as possible.

Maximum effort for seller: An exclusive right to sell listing gives your listing broker a strong monetary incentive to focus his or her time, energy, and advertising dollars on one priority—a fast, top-dollar sale of your house. To that end, the listing broker should immediately cooperate with any and all other brokers who might have buyers for your property by offering to split the compensation 50/50 (or whatever split is customary in your area) with the broker who generates a ready, willing, and able buyer.

Nothing is wrong with giving your listing broker a day or two head start on other brokers, if you approve. However, good brokers don't keep your listing quiet for long before advertising it and opening it up to cooperating brokers. Exclusive right to sell listing contracts vary widely in length, wording, and complexity from one state to another and from city to city within any given state. Regardless of the wording in your contract, here are a few fundamental facts to keep in mind about all exclusive listings.

Open Listings

An open listing is a non-exclusive authorization for brokers to find a buyer for your property. You can give as many brokers as you wish an open listing on your house.

You're obligated to pay a commission to the first broker who fulfills either of the following conditions: (1)Finds a buyer ready, willing, and able to enter into a contract that meets the exact terms of your listing (2)Procures the buyer whose offer you ultimately accept. If you find the buyer by yourself, you don't have to pay any of the brokers. And you can cancel an open listing any time you want without penalty.

If this arrangement sounds wonderful, think again. Smart sellers won't give brokers an open listing and good brokers won't accept them. Here's why: