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Types of Listing Agreements: Understanding Real Estate Agent Contracts With Sellers

Types of Listing Agreements: Understanding Real Estate Agent Contracts With Sellers
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Selling a home for the first time? As you’re choosing a listing agent, you’ll want to do some due diligence and make sure you understand exactly what’s included in your real estate agent agreement.

Because it’s a legal document, listing agreements can be complicated to decipher, especially since you may see it only a few times over a lifetime. It helps to know the most common elements in a listing agreement so you recognize if what you’re signing is standard or if it’s missing seller protections or has excessive agent benefits.

What is a listing agreement?

A listing agent agreement, also known as a listing agent contract, is a legally binding document between a seller and the real estate agent representing them in the sale of their home. There are several different categories of standard listing agreements, but any agreement can be modified to fit a specific situation.

Most agents who are part of a real estate agent organization or brokerage will use the standard listing agreement provided for them for each type of real estate contract, including:

  • Exclusive right to sell
  • Exclusive agency
  • Open listing agreement
  • Net listing agreement

What’s included in a seller-broker agreement?

While contracts can be amended or modified, and while addenda may be added, there are some common real estate listing agreement terms:

Commission amount

The commission amount is usually 5-6 percent of the sale price, which is split roughly 50-50 between your listing agent and the buyer’s agent. Whether you owe your agent a commission depends on the type of listing agreement that is in place — more on that later.

Listing duration

This identifies how long your contract is valid before it expires and your agent is no longer representing you. In most major real estate markets, it’s usually three months, but it can be longer or shorter in duration, depending on the state of your local real estate market.

Cancellation clause

The cancellation clause outlines any penalties you will or won’t face if you attempt to cancel the contract before your agent successfully sells your home.

Responsibilities

This section details what tasks and services your agent will complete. Common examples include professional photography, getting the home listed on the MLS and detailed marketing services.

Disputes

These are guidelines around how issues or conflicts will be handled. This can include disagreements over listing price or marketing strategies.

Ownership

In this section, you confirm that you are the home’s owner, you have the right to sell the house and you’re legally allowed to transfer the title.

Expiration

This notes that if the contract expires before the house is purchased, the listing agent can provide a list of all buyers who saw the home while they were the agent. It says that if one of those past buyers comes back after the contract expires and wants to buy the home, the listing agent is still due their commission, within a specified time frame. It’s also called a holdover clause or a carryover clause.

Dual agency

This is when a listing agent keeps the full commission because they’re representing both the seller and the buyer. It’s illegal in many states, and in the states where it is legal, there are restrictions set by both the state and local professional organizations that prevent conflicts of interest.

Type 1: Exclusive right to sell listing agreement

This is the most common type of listing agreement. It says that the listing agent has the exclusive right to earn the commission if they bring the buyer (either directly or via another agent). It’s an exclusive contract with your real estate agent that prevents you from working with another agent during the term.

In this arrangement, all offers go through the listing agent, which protects the agent from losing time and money on a deal that they won’t receive any commission for.

The contract can sometimes include an exception if one specific person (who is predetermined) ends up buying the home — a specific family member, for example. The name has to be included in the contract before signing, and it must be something that was in the works before listing.



Benefits of an exclusive right to sell listing

Agents work incredibly hard to secure a buyer, because they won’t get their commission until they do. If you engage a full-service agent with an exclusive right to sell listing, you’ll get the full real estate agent experience and the expertise that goes along with it.

Type 2: Exclusive agency listing agreement

This type of listing agreement is far less common. In this agreement, you still hire a listing agent, but if you are the one who ends up finding the buyer, you get to keep the commission.

Benefits of an exclusive agency listing agreement

The main benefit here is that you have an opportunity to avoid paying commission. This type of agreement is best for people who want to be hands-on in the process and those who are comfortable investing in their own marketing.

You’ll also have the peace of mind that comes with knowing there is still an agent working on your behalf (even though they may not provide all the marketing services a full-service agent typically would).

Set up a good way to track whose marketing efforts got each potential buyer through the door so you’ll know who gets the commission.

Type 3: Open listing agreement

An open listing agreement is not a formal contract. Instead of engaging a listing agent, a seller instead allows local buyer’s agents to market the listing in hopes of getting the 3 percent buyer’s agent commission.

The whole process happens without a listing agent, sort of like a for sale by owner (FSBO) transaction. To start this process, you would reach out to a handful of local buyer’s agents, letting them know that you’re willing to pay a buyer’s agent commission. If a buyer’s agent is interested in this arrangement, they may want to put it in writing before they bring their buyers through the door.

Benefits of an open listing agreement

An open listing provides some flexibility, as you’re not committed to one single listing agent agreement. And it gives you the ability to change direction or take the house off the market whenever you want, without a penalty.  But the biggest benefit is that since you’re not using a listing agent, you’ll only have to pay half as much commission — typically just 3 percent to the buyer’s agent (a savings of 3 percent).

You’ll want to do whatever you can to help the buyer’s agents you’re engaging sell the home. Give them a good description of the home, share your real estate photos, and give them permission to share your home with their clients as they see fit.

Type 4: Net listing agreement

A less common type of real estate agency agreement, a net listing agreement is when a listing agent guarantees to sell your house for a certain set price, and if they sell the house for a higher amount, they pocket the difference as their commission.

The reason this is a less common agreement is that net listings are illegal in many states. And in the states where they’re legal, which include Texas and California, there are rules in place to protect sellers and prevent lawsuits over perceived losses.

Net listing agreement considerations

A net listing can be good for someone who wants a quick sale and a guaranteed price, but it’s important to use an agent you trust. Because the listing agent is so invested in your purchase price, they could take advantage of the situation and not show you the lower offers received. That’s why these arrangements are illegal in many places — they’re considered financially risky.

Alternatives to a seller-agent contract

If you don’t want to sign a legally binding contract early in the home-selling process, consider Zillow Offers. If your home is eligible, we’ll provide a cash offer, and if you decide to sell, you’ll never have to put your home on the market or hire a listing agent.



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THIS GUIDE PROVIDES AN OVERVIEW OF THE HOME-SELLING PROCESS IN 7 INFORMATIVE STEPS. 

[Revised and Updated for November 2020]
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