Are you new to the real estate industry or planning to buy or sell a property? Understanding the various types of listings in real estate is crucial. This article will demystify some of the jargon and help you make informed decisions, regardless of whether you are a buyer or a seller.
The Four Common Types of Listing Agreements
Open Listing Agreement
An open listing is a non-exclusive contract. With this type of listing, the seller or buyer has the freedom to engage multiple brokers as agents. All the contracted brokers can market the property or search for property simultaneously. However, the commission is only paid to the broker who brings a ready, willing, and able buyer to the seller or finds the desired property for the buyer. If the client ends up buying or selling the property independently, no commission is owed to the broker. Open listings are rare because they offer the least assurance of compensation for brokers.
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Exclusive Right to Sell Listing Agreement
The exclusive right to sell listing agreement is the most commonly used in the industry. Under this agreement, a broker is exclusively authorized to market the property for a specified period. If the property sells during the listing period, the seller must pay the agreed-upon commission, regardless of who brought the buyer. This agreement eliminates conflicts between the seller and the broker regarding the buyer's procurement.
Exclusive Agency Listing Agreement
An exclusive agency listing agreement grants a broker the right to market and sell a property within a specific timeframe. However, the owner retains the right to find a buyer and sell the property without owing the broker a commission. The seller only pays a commission if the property is sold by the broker or an authorized agent or subagent. This type of listing is not very common in residential transactions due to the risk of disputes between the broker and the seller over the procuring cause of the sale.
Net Listing in Real Estate
A net listing is not a type of listing agreement. Instead, it involves the owner setting a minimum amount they want to receive from the property sale. The broker is then entitled to any amount above the set minimum as their commission. However, net listings are considered unprofessional and are illegal in many states. This is because they create a conflict of interest for the broker, violating their fiduciary responsibility to prioritize the client's interests.