3 Common Real Estate Agent Listing Agreements
As a real estate agent, the most important thing you have to do when deciding to work with a seller gets the residential listing agreement signed. As a general rule, you should not start working with a seller without first having them sign this document.
This is important because listing agreements are the contractual document that binds a real estate agent with a homeowner. This agreement outlines terms in which the agent helps the homeowner find a buyer to purchase their property and commission to be received.
In real estate, there are three common types of listing agreements. Each is different and how you get compensated as an agent, depends on which agreement you use with your seller.
This article will help you become more familiar with the three different listing agreements and in what situation they may be used. Understanding how they function will bring you more success in your career as a listing agent.
So, let’s get started.
#1. The Exclusive Authorization and Right To Sell Agreement
The first type is the “exclusive authorization and right to sell” agreement. With this agreement, you’re the only one who has the right to sell this property. You alone represent the seller. It is the most secure agreement regarding representation and compensation.
So, how do you sell this house if you have the exclusive listing? How do you get the most exposure to get this listing sold?
The best method to use is to put it on the MLS, which is the Multiple Listing Service. This is an online database that real estate agents use to search for properties for their buyers.
Typically, the seller agrees to give you 6% of the sales price as the listing agent. When you list your property on the MLS, you offer to split your commission with the buyer’s agent at 3%. The buyer’s agent becomes the cooperating broker.
With an “exclusive authorization and right to sell”, there is no getting around paying the agent’s commission. It guarantees that you will earn a commission if the property gets sold, regardless of who brings the buyer into the transaction.
If a random buyer knocks on the seller’s door or contacts them on social media, you’re still the only person authorized to sell this property. So you earn your commission because of the compensation structure of the agreement.
This is the most common listing agreement used, the one that forms the strongest bond with the seller and guarantees compensation to the agent.
#2. The Exclusive Agency Agreement
The second type is called the “exclusive agency” agreement. This means your relationship to represent the seller is exclusive to you only. There is one major difference between this and the “exclusive authorization and right to sell” agreement.
The most important phrase missing from this agreement is “right to sell.” With this agreement, there is a little more risk when it comes to getting paid. This will directly affect you receiving a commission if you are not the one who brings a buyer to the table.
With the “exclusive agency” agreement, the “right and authorize to sell” extends to the homeowner. In this scenario, the seller actually has a financial incentive to find a buyer. If the seller secures a buyer, the seller does NOT have to compensate you.
Let’s be clear. This does not refer to a buyer who is represented by an agent. An agent knows that if they have an offer from their buyer that they must present it to the seller’s listing agent.
Some sellers hesitate about having to pay a real estate agent when they believe they can find the buyer themselves. While this is not the optimal listing agreement to use, this can be useful in cases where the seller is doubtful about listing with an agent.
You can present this Exclusive Agency as opposed to not getting the listing at all. With this agreement, the seller feels comfortable knowing that if they find the buyer they will not be obligated to compensate you.
#3. The Open Listing Agreement
This agreement has the most risk when it comes to compensation and commitment.
With an “open listing” the seller is not committing to one agent. In fact, it’s the opposite. The open agreement allows the seller to engage with multiple agents.
Basically, the seller is saying that they will entertain and compensate any offer from any agent who brings them the buyer. That means you are competing with multiple agents with no guarantee that you will get paid for your time and effort.
If the market is hot, sometimes an agent will take the risk on an open listing agreement in hopes that they will find a buyer before anyone else. But like we mentioned before, there’s no guarantee that they will receive a commission if another agent finds a buyer first.
So why would a SELLER want and agree to such an arrangement? In some cases, an “open listing” would be attractive.
They Need to Sell Quickly
The seller wants to increase the chances of getting the home sold in a short period of time by having more agents looking for a buyer.
The seller believes they have a property that is high in demand. They will choose to have an “open agreement” to negotiate better terms and pay less in commission.
As a real estate professional, your time and expertise are valuable. The “open listing agreement” is not the best contract to use as a general rule.
Final Thoughts on the 3 Real Estate Agent Listing Agreements
Overall, the “exclusive authorization and right to sell” agreement is the ideal contract to have your clients sign. It secures your agency with the seller and guarantees your commission when the property is sold.
The “exclusive agency” and “open listing” agreements, while valid, have some definite drawbacks. They do not secure your compensation. You want to ensure that you get your commission if the house sells.
If you’re going to put your time, effort, and money into marketing a property, it’s definitely best to make sure you’re going to be rewarded for your investment. Evaluate the market, weigh the risk and use the best listing form whenever possible.
Real Estate Agent and Trainer, Robert Rico, explains the 3 most common Real Estate Agent Listing Agreements. Do you want to see more video blogs? Subscribe here!