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June 10, 2021 by Andrew Whytock Leave a Comment

What Is a Listing Agreement?

Types of Listing Agreements | Details to Look For | When to Sign | How to Cancel

A listing agreement is a legally binding contract between a home seller and a real estate agent that authorizes the agent to sell the house. 

When a home seller selects the agent they’d like to work with, they’ll sign an agreement to formally kick off the selling process.

Listing agreements include details like:

  • How much commission the agent will be paid
  • The listing price of the house
  • How much access the agent will have to the house so they can show it to prospective buyers
  • How long the agreement will be in place

Sellers can sign different types of listing agreements with agents, the most common being an “exclusive right to sell.” An exclusive right to sell listing agreement guarantees that an agent will be paid commission when the sale closes.

Sellers may be able to cancel a listing agreement, but only under certain circumstances.

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πŸ”‘ Key Takeaways:

  • Home sellers sign listing agreements with agents to document the terms both parties agree to, such as how much commission will be paid to the agent.
  • Listing agreements are legally binding for the duration of the contract (typically 3-6 months), but an agent may be willing to terminate the agreement if you aren’t satisfied with their service.
  • An exclusive right to sell listing agreement gives one agent the exclusive right to sell your home and earn commission from the sale. Other types of agreements are more flexible and may even give you the option to sell your home on your own without being obligated to pay commission.

Types of Listing Agreements

Exclusive Right to SellExclusive AgencyOpen ListingNet Listing
πŸ† Best forSellers who don't feel comfortable selling their home without a professionalSellers who want to try selling FSBO, while getting backup offers via an agentSellers who want to try selling FSBO and solicit offers via multiple agentsSellers in hot markets where net listings are legal
How often is it used?Almost alwaysNot oftenRarelyVery rarely
Work with one agent exclusivelyβœ…βœ…βŒβœ…
Option to sell FSBOβŒβœ…βœ…βŒ
Pay % commissionβœ…βœ…βœ…βŒ
Potential for disputes over who sourced the buyer❌ βœ…βœ…βŒ

Exclusive right to sell listing agreements

Most real estate agents use exclusive right to sell listing agreements because they guarantee that the agent will be paid a commission fee when the sale closes, regardless of who finds the buyer. 

The promise of compensation is important because agents have upfront costs β€” like paying for photography and staging β€” when they’re marketing a home. 

An exclusive right to sell agreement also sets up an exclusive relationship, so the home seller can’t work with any other agent for the duration of the contract.

Home sellers benefit from an exclusive right to sell agreement because it clearly lays out the agent’s responsibilities and establishes a timeline (typically 3-6 months), which can motivate the agent to sell your house before they lose your business.

Β» MORE: Everything you need to know about exclusive right to sell listing agreements.

Exclusive agency agreements

An exclusive agency agreement can only be signed with one agent, just like an exclusive right to sell, but there’s a twist.

If you sign an exclusive agency agreement, you still have the right to sell for sale by owner (FSBO) without paying any commission to your agent β€” provided you find a buyer on your own.

Exclusive agency agreements are risky for agents because there’s no guarantee that they’ll be compensated for the time and effort they put into selling your home.

As a home seller, an exclusive agency agreement might be beneficial if you want an agent as a backup option while trying to sell FSBO.

Exclusive agency agreements, however, can lead to disputes over who found the buyer. At the end of sale, you and your agent might disagree over who sourced the buyer and, thus, whether or not you owe the agent commission β€” which could get messy.

Most agents won’t sign an exclusive agency agreement because they aren’t as clear-cut as an exclusive right to sell.

Open listing agreements

When a home seller is selling their home for sale by owner (FSBO), they can contact local real estate agents and agree to pay them a buyer’s agent commission if the agent can find a buyer for the home. This is called an open listing.

An open listing agreement differs from other types of listing agreements because it isn’t exclusive β€” a home seller can sign one with as many agents as they like.

Open listings allow the seller to retain the right to sell FSBO, so they might be able to avoid paying commission if they can find a buyer on their own.

Β» MORE: Everything you need to know about open listing agreements.

Net listing agreements

Net listing agreements don’t have a set commission rate for the real estate agent, like exclusive right to sell or exclusive agency agreements. Instead, the agent keeps the difference between the listing price and the sale price β€” if they’re able to sell the home for more money than the listing price.

For example, if the seller and the agent agree to list the home for $200,000, but the home sells for $225,000, the agent gets to keep $25,000.

Net listings are illegal in most states, so they’re very rare.

A net listing might make sense for a seller who’s in a hurry and doesn’t mind getting less than top dollar for their home.

Β» MORE: Everything you need to know about net listing agreements.

The Most Important Details of a Listing Agreement

The legal jargon contained in listing agreements doesn’t vary much, but you should take note of the following details:

  • Cancellation policy: The process for terminating the agreement, and the associated cancellation fees.
  • Commission: How much goes to the agent when the home sells. 6% is typical.
  • Duration: How long the agreement lasts. 3-6 months is standard.
  • Protection period: A period of time after the agreement expires when an agent remains eligible for commission if the home sells to a buyer who the agent found.
  • Services: What the agent does to market the home. Includes things like photographing the home, listing on the MLS, and scheduling showings.

Real estate agents usually use a listing agreement template from their brokerage or their state’s real estate association.

When Do You Sign a Listing Agreement?

You need to sign a listing agreement as soon as you’ve selected a real estate agent to represent you. An agent can’t legally represent you and start marketing your house without signing a contract.

Listing agreements are legally binding, so make sure that you’re confident in the agent you’ve selected before you commit to one.

Our friends at Clever can connect you with a top agent in your area and you’ll pay just 1% or 3K in listing commissions!

How To Terminate a Listing Agreement

Every listing agreement has an official start and end date. An agent isn’t required to cancel the agreement before the end date if you want to terminate your listing. Cancellation is probably only necessary if you have an exclusive right to sell agreement, since these are the most restrictive.

However, your agent might agree to terminate your listing agreement if you submit a written request. Real estate agents depend on having a good reputation to grow their business, so keeping a client locked into an agreement that they don’t want anymore could lead to bad reviews and lost business.

Speak to your agent about cancelling if you have any concerns about your agreement. Some brokerages even have a cancellation form to make your request official.

You may be charged a cancellation fee if you decide to terminate your listing agreement before it expires. If there’s a fee, it will be noted in your listing agreement.

Related Links

Role of the Real Estate Agent. Find out what real estate agents do for home buyers and home sellers, and how they’re paid.

How To Sell Your House. Your house is probably the largest asset that you’ll ever sell. Learn more about one of the most important transactions of your life.

Filed Under: Sellers

About Andrew Whytock

Andrew Whytock is a Content Writer at Clever Real Estate. He writes articles that educate readers about every aspect of the home buying and selling process. He also reviews emerging real estate tech companies.

Andrew's writing has been published in the Huffington Post and a wide variety of regional news outlets.

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