When selling your home with a real estate agent, you will execute a listing contract. The most common arrangement is an exclusive right-to-sell listing agreement.
A contract is signed between a homeowner and a listing agent in this arrangement. The contracted agent is the only individual you have hired and is guaranteed a commission upon selling the property.
What an exclusive right of sale agreement means today is much different than many years ago.
When I entered the real estate industry in the mid-1980s, having an exclusive right to sell meant you did not share the listing with other real estate agents.
It was a pocket listing that only one real estate company knew about. Doing business this way was a disservice to home sellers because they were not getting the best exposure for their homes.
Pocket listings pose a financial risk to a seller not getting the maximum sale price for their home.
Would you want your home seen by thousands of agents or just a handful? The answer is beyond evident.
An exclusive right-to-sell agreement now means a listing agent from one company will sell the property. However, the home is not held in-house.
The exclusive right to sell a listing will be put in the multiple listing service (MLS), and the listing agent will cooperate with a buyer’s agent.
From many years of experience as a Realtor, the benefits in the selling process far outweigh any negatives. The value of having your representative cannot be overstated.
Let’s examine everything you know about the exclusive right to sell.
What Does Exclusive Right to Sell Mean?
When you meet a real estate agent to interview to sell your house, they will likely bring an exclusive right to sell listing contract. The exclusive right of sale listing is the most common type of agreement.
By signing this contract, you cannot hire another real estate agent to sell your property for as long as the contract period. The listing agent with the exclusive right to sale is the only one who can market the property.
All other agents must deal with the listing agent while selling the house.
With an exclusive right to sell listing agreement, a seller agrees to pay a commission to the listing broker whether the listing broker, another agency, or the seller sells the home.
However, a seller and real estate agent can agree to have named exclusions in the contract under which the seller would not owe a commission if one of these parties purchased the property.
When you sign this contract, you should expect exceptional efforts such as promotion and negotiation. Sellers should understand that the selection process for an agent is critical. Your property is a significant investment, and the consequences of choosing the wrong agent can be troublesome.
It is crucial to understand there is a prominent difference between the skill sets of listing vs selling agents.
What is Contained in The Agreements?
An exclusive right to sell real estate contract will contain the following information:
- Names of the seller and the exclusive agent (listing real estate brokerage).
- Address of the property being sold.
- The asking price of the property
- Duration of the agreement (contract length or listing period).
- The total commission rate being charged.
- How the broker fees are being split – is the commission fee equal between the listing and selling agent?
- What type of agency relationship is established?
- Is the real estate agent going to practice dual agency?
- Permission from the home seller to put a lock box on the property.
- Whether the seller will allow open houses.
- The real estate agent can market and advertise how they see fit.
- Is there a cancellation fee if the home seller backs out of selling?
- If any potential buyers are excluded from the contract (the seller doesn’t have to pay a commission).
How Long Do The Contracts Last?
Most real estate listing contracts range from 3 months to 6 months. The contract’s time frame is undoubtedly negotiable, but you can expect to be in this range.
If the home is expected to sell quickly, the agent might agree to the lower end of the range. On the other hand, they may expect a more extended contract expiration date if it is a challenging property to sell.
The market conditions could also play a role in the contract length. For example, an agent might ask for a more extended contract if a buyer’s market and homes take a long time to sell.
Is There Another Type of Contractual Agreement Besides the Exclusive Right of Sale?
Yes, there are other types of listing agreements. Besides the exclusive right of sale, there are the following:
- Exclusive agent agreement
- Open listing agreement
- Net listing agreement
We will cover each of these real estate contracts in detail. All three of these are not standard listing agreements.
What is an Exclusive Agency Listing Agreement
An exclusive agency listing is similar to an exclusive right-to-sell contract. However, there is one significant difference.
With an exclusive agency agreement, the homeowner can find their buyer, much like a for sale by owner would.
There will still be only one listing broker, but the seller may procure their buyer. Typically, if a seller is fortunate to find their buyer with this type of agreement, they would only be obligated to pay the listing agent half the agreed-upon commission.
For example, if the total commission is 5% and the owner finds their buyer, they only need to pay the listing agent 2.5%.
It is possible an exclusive agency contract could also state that the listing agent gets no commission if the seller finds the buyer. Many real estate agents, however, will not agree to this.
There is a significant outlay of expenses a real estate agent pays to market and advertise. Most agents don’t want to lose money on a sale.
From a seller’s perspective, they would not pay a buyer’s agent, so it would still be a considerable saving.
What is an Open Listing?
An open listing agreement allows the seller to hire multiple real estate agents to sell their home. It is the exact opposite of an exclusive right to sell contract.
Open listing contracts are much rarer. You rarely see them in many parts of the US.
With this arrangement, the seller would only pay the real estate agent who brings in the buyer unless the contract states otherwise.
An open listing is one of the least common types of listing agreements.
What is a Net Listing?
In most states, a net listing agreement is illegal. A net listing agreement allows a real estate agent to keep any amount over what the sellers want to “net” on a property.
For example, let’s say a seller wants to net $400,000. If a real estate agent could find a buyer who would pay more than a net of $400,000, the real estate could keep that amount of money.
In most areas of the country, net listings are considered unethical. Taking a net listing is forbidden if you are a Realtor and not a real estate agent.
The National Association of Realtors does not allow them under their net listings policy. Avoiding an agent suggesting this shady business practice when selling a home is best.
If you run into a real estate agent who suggests a net listing, don't be surprised if they would do other unethical things behind your back during a transaction.Click To TweetShould You Sign an Exclusive Agreement?
More than likely, it is customary to sign an exclusive rights-to-sell agreement where you are located.
Since you will be hiring only one agent, it is vital to go through an interview process with multiple real estate agents. Doing so will stand a much better chance of choosing someone you’ll be happy with. Make sure you ask the real estate agents tough questions.
Many home sellers make poor decisions when picking a real estate agent. Often, one agent convinces them their home is worth more than it is, even though the comps suggest otherwise.
Make sure you ask appropriate questions when interviewing real estate agents. The answers will go a long way toward determining your success.
Look over the comparative market analysis or the broker price opinion provided. Is it realistic, or is the agent trying to buy your listing by inflating the value?
Remember, you will be locked into this agent for a while. A mistake here can be costly. Many consumers look to see how they can fire their real estate agent. It’s not easy. A contract is a contract.
How Do You Terminate This Type of Contract?
As I mentioned, getting out of an exclusive right-of-sale listing is difficult.
These are your options when you want to escape an exclusive right-of-sale listing.
- Wait for the real estate contract to expire. There will be a contract period agreed to in the agreement.
- Ask the real estate agent to release you from the agreement. Some real estate agents will have a cancellation policy, and others will not.
- If a real estate agent will not release you, speak to the broker or owner and discuss your desire to be released from the contract.
What Happens When a Contract Expires?
When your contract with a real estate agent “expires,” you are no longer bound to continue working with them.
You are now free to hire another real estate agent, take the home off the market, or sell it yourself as a for sale by owner.
However, it is vital to read the fine print. Some exclusive right-to-sales contracts state that a commission is still due if someone shows the property during the contract period and comes forward with an offer to purchase.
A time frame is usually written into the contract whereby an agent could make this claim for commission.
This contract provision exists because some devious buyers have approached sellers and asked them to let their contract expire to avoid paying a commission.
The buyer would then pocket some of the savings. A clause like this does not survive when a new real estate broker is hired to sell the property. The former agent would be out of luck.
How Do Real Estate Agents Get Exclusive Agreements?
The best real estate agents can make a significant amount of income. Most of the time, the top-earning agents have numerous real estate listing contracts. So, how do Realtors get their listings? There are many methods of acquiring new business. The following are some of the ways.
- Referrals from past clients, family, and friends.
- By having an excellent real estate website that generates new clients.
- Presence on top internet real estate sites.
- Real Estate mailings.
- Calling on for sale by owner properties.
- Calling on expired listings found in MLS.
- Door knocking or cold calling.
- Advertising in social media.
Interesting Statistics Real Estate Contracts
1. Approximately 87% of real estate agents choose to work under an exclusive right-of-sale agreement with their clients.
2. Properties listed under these contracts typically sell 15% faster than those listed under other agreements.
3. Homes sold under these agreements tend to fetch 10% higher sale prices than other contracts.
4. On average, houses listed exclusively by a real estate agent receive 5% more offers from potential buyers.
5. Nearly 92% of home sellers who signed an exclusive right-to-sell reported feeling more confident in their agent’s abilities.
6. Real estate agents with an exclusive right of sale listing are 20% more likely to spend additional resources on marketing the property.
7. Agents representing the exclusive right to sell listings devote approximately 30% more weekly to promoting their clients’ properties.
8. The likelihood of experiencing price reductions decreases 12% for homes listed under exclusive contracts.
9. The overall satisfaction rate among home sellers using this agreement is 88%, significantly higher than other types of involvement.
10. Over the past decade, the number of homes sold through these contracts has increased by 42%.
FAQs
Are there any disadvantages to signing an exclusive right to sale?
While there can be advantages to signing an exclusive obligation agreement, it is also essential to consider potential drawbacks. One of the most glaring reasons is hiring the wrong brokers.
Without proper research, homeowners can easily make a wrong choice. It is vital to interview companies and the agents that work for them. Working with a highly-rated real estate company is always a wise move.
You should strive for the best representation and guidance from professionals with an outstanding track record.
If the agent you choose fails to market and sell your property effectively, you may be locked into a contract without satisfactory results. To mitigate these potential drawbacks, it is crucial to thoroughly research and choose a reputable and competent Realtor before entering into such an agreement.
One of the best tips is interviewing multiple real estate agents to assess their abilities and knowledge.
Why do some sellers prefer an exclusive sale right over other listing contracts?
Owners often prefer an exclusive right-to-sell over other listing options due to its numerous advantages. First, this arrangement grants the chosen real estate agent or broker the sole authority to market and sell the property, ensuring a focused and coordinated effort. They have an incentive to get the job done!
Additionally, it gives sellers a higher level of commitment from the chosen professionals, as they are motivated by the exclusive nature of the agreement. This exclusivity also allows for more effective marketing strategies tailored to the property, increasing its visibility and potential buyer interest.
Furthermore, it offers sellers a sense of security, as they can rely on their chosen agent’s expertise and dedication throughout the selling process.
How does this listing agreement impact my ability to sell the property independently?
In some respects, this agreement restricts the owner’s ability to sell the property independently. While the agent holds exclusive rights to market the property, the owner maintains complete control over the selling process.
The exclusive right of sale guarantees that the agent will receive their agreed-upon commission if they successfully procure a buyer, regardless of whether they facilitated the sale or the owner directly.
How long does an exclusive right-of-sale contract typically last?
An exclusive right of sale typically lasts between 60-180 days. During this period, the seller grants exclusive rights to a specific real estate brokerage to represent them in selling their property.
The agreement ensures that only the designated agent can list and advertise the property. It maximizes their efforts to find potential buyers. The agreement may be extended or renegotiated if the listing period expires based on the seller’s preference and market conditions.
How do I negotiate the terms of the contract?
Negotiating the terms of a real estate agreement requires careful consideration and effective communication. It is crucial to understand the desired scope and duration of exclusivity clearly. This can be achieved by conducting thorough local market research and analyzing the competitive landscape.
Both parties should discuss and agree upon the services the agreement covers. It is also crucial to negotiate the compensation structure, ensuring that it aligns with industry standards and reflects the efforts put forth by the agent.
The responsibility of each individual should be discussed, including pricing, showings, and handling offers. Discussing all these steps ensures everyone’s goals and interests are aligned. They will all be factors in a smooth transaction. When all party’s efforts are in sync, homes usually sell with fewer headaches.
Lastly, provisions for termination or renewal should be discussed, allowing for flexibility in case circumstances change.
Can a seller cancel an agreement?
A seller can cancel under certain circumstances. While the exclusive right of sale contract typically grants the real estate agent or broker the sole authority to market and sell the property, it is sometimes not entirely binding on the seller. It comes down to the policies stated in the contract.
There can be cases where an agent will let a homeowner terminate. To cancel, sellers must provide written notice to the agent or broker, clearly stating their intention to terminate the agreement.
However, it is essential to note that cancellation may be subject to certain conditions, such as payment of any outstanding fees or expenses incurred by the agent or broker during their representation.
Sellers should review the terms and conditions of their specific agreement and consult with a real estate attorney if necessary before proceeding with cancellation.
Final Thoughts
As a property owner, you should be prepared for an exclusivity agreement.
The agent you choose to market your home is a critical exercise. It is a partnership that should be based on complete trust.
Ensure you know precisely what the agent will do for you to avoid potential problems. Mistakes are made when sellers don’t take the process of choosing an agent carefully.
Consult with a real estate attorney if you are unclear about something in the exclusive right-to-sell contract. Most real estate forms are boilerplate, but an agent could insert language that should be checked.
When signing on with an exceptional agent, there should be no problem with an exclusive listing agreement.
About the Author: The above Real Estate information on what exclusive right to sell means was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
