The final step to hiring a real estate agent to sell your home is signing a listing agreement — a contract that spells out the terms and conditions a home seller and their real estate agent agree to uphold.
The most common type of listing agreement is an exclusive right to sell listing agreement, which stipulates that your agent will collect a specific percentage of your home’s sale price upon closing.
But other types of listing agreements exist. A net listing, for one, is a rare type of listing agreement that uses an unusual compensation arrangement. Instead of stipulating a percentage of your home’s sale price, a net listing establishes a fixed sale price — and if your home sells for more, your agent will keep any proceeds above it.
Read on to learn how net listings work and why they’re illegal in most states.
Have more questions? We always recommend talking to an agent in your area.
- A net listing is an uncommon type of listing agreement.
- You’ll set price for your home, and your agent will keep any proceeds above that agreed upon price.
- Net listings are risky and not legal in all states.
What is a net listing?
A net listing is a type of listing agreement with a unique compensation structure: The agent and seller establish a sale price for the home. If the home ends up selling for more, the agent keeps any proceeds above this agreed-upon price.
By contrast, in a standard listing agreement, the seller agrees to pay their real estate agent a percentage-based commission (usually around 5-6% of the home’s sale price). This commission gets paid out regardless of how much the home sells for.
Net Listings by the Numbers
Net listings can cause sellers to leave money on the table.
Let’s say your net listing sets your home’s sale price at $200,000. But after receiving multiple offers, your home sells for $250,000.
Because you agreed to a net listing, you’ll receive $200,000 from the sale, and the rest ($50,000) will go to your agent.
Under a standard exclusive right to sell listing agreement, you would have paid around 6% in commission ($15,000), split between your agent and the buyer’s agent — giving you $235,000 in proceeds from the sale.
In this scenario, a net listing cost you an unnecessary $35,000.
Are net listings illegal?
Net listings are illegal in most states.
Beyond state laws, the National Association of Realtors (NAR) forbids its members from using net listings.
Since most of the two million active real estate agents in the U.S. belong to NAR — which has approximately 1.5 million members — it’s very unlikely that the average U.S. home seller will ever encounter a net listing.
What states allow net listings?
California, Florida, and Texas are among the states that allow net listings.
However, all three states have established regulations that limit the availability of net listings. For example, California only allows brokers to use net listings with “highly sophisticated clients” who understand the conflict of interest.
Reasons to avoid a net listing
Even if net listings are legal where you live, be cautious. They carry unnecessary risk that could cost you a significant portion of your home sale’s proceeds.
First, a net listing agreement puts the seller and agent’s interests at odds. If your home sells above the listing price, your agent will take home a bigger paycheck while limiting your opportunity to earn money from the sale.
By contrast, in a standard, percentage-based commission structure, both parties win with a higher sale price.
This risk heightens when the seller isn’t aware of their property’s true value. An unscrupulous agent could persuade a seller to accept an intentionally low listing price to selfishly increase their own payday.
Alternatives to net listings
|Standard exclusive right to sell listing agreement||Agree to work exclusively with one agent, who strives to sell your home for the best possible price|
|Companies that buy houses||Contract with an iBuyer or a cash buyer company that purchases homes directly from sellers|
|For sale by owner (FSBO)||Sell your house without an agent, avoiding paying any listing commission (you'll still likely have to pay commission to the buyer's agent)|
Sign an exclusive right to sell listing agreement
Under this arrangement, you’ll work exclusively with one agent who will list, market, and help process the sale of your home.
In exchange for your real estate agent’s services and out-of-pocket expenses, you’ll pay a commission (usually around 5-6% of your home’s sale price).
Companies that buy houses
If you need to sell fast or want to avoid the uncertainty of listing on the open market, try one of the two types of companies that purchase homes directly from sellers:
- iBuyers: Available in 30+ cities, typically purchase homes in good condition, and offer close to fair market value
- “We Buy Houses” Companies: Available nationwide, purchase homes in any condition, but only offer 50-70% of fair market value
For sale by owner
If you’re an experienced home seller, consider going the for sale by owner (FSBO) route.
Though FSBO sales are less common (and only represent 8% of home sales), sellers who are prepared to DIY their home sale have plenty of options.
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