The ABCs of Negotiating Terms of Your Listing Agreement
When you hire an agent to list, market and sell your home, you can expect to sign a listing agreement and home disclosures.
The disclosures are not negotiable, but the listing contract terms are.
Before you sign on the dotted line, make sure that you have discussed with your agent and agreed on the main listing contract terms. It could save you time and heartache later.
Types of Listing
There are three types of listing agreements on a residential property:
Open Listing: In this case, the seller is not limited to working with just one agent. Multiple agents could be marketing and attempting to find a buyer for the property. The seller would only the agent who brought the buyer. Also, the owner themselves would not be represented directly by any agent, and therefore, the brokerage commission would be reduced, usually by about half. Most listing agents will not enter into this type of contract, except on unusual properties.
Exclusive Agency: With this type of contract, the listing broker works for the owner, but if the seller finds their own buyer, the listing broker may not be due a commission. If the listing broker attracts the buyer (with or without an agent), the seller pays both agents. This contract also is rare.
Exclusive Right to Sell: This is the most common type of listing agreement. The property owner works exclusively with one listing agent, whose job it is to market the home to attract a buyer. The buyer most likely will have a different agent, and the seller pays both agent commissions.
Contract Terms
Here are the most important points to clarify in your listing contract:
Timeframe: A listing contract must have a definitive start date and end date. It’s common for a listing contract term to be three months, six months, or even a year for some transaction types (short sales, for example).
Commission: There is no “normal” commission for a home seller. Whether it’s 6 percent or 5 percent or even less, you’ll pay what you can negotiate with the agent of your choice.
Market conditions will contribute to what you pay. When homes are selling fast, listing commissions tend to decrease. If the market is slow, you may need to offer an agent more to bring their buyer. Want the highest level of service? You’ll pay more for a full-service listing agent than a discount brokerage that requires you to take on much of the workload.
Whatever you do, don’t shortchange the buyer agent commission – you’ll be reducing the number of potential buyers who see your home.
Cancellation: What happens if you aren’t seeing eye-to-eye with your listing agent? Can you cancel the contract before the expiration date? Some agents will allow an early termination under some circumstances (no buyer in escrow, for example). Others hold firm to the contract timeline and could figuratively handcuff you for months. Make sure you have cancellation terms in writing.
At Dream Big, we offer an Easy Exit Listing Agreement to all of our seller clients. That means a seller can change agents at a moment’s notice, as long as there is no buyer in place. That guarantee keeps us on task at a high level of service.
Expiration Reservations: After a listing contract expires, the listing agent still may have rights to a commission if you later sell a home to a buyer who viewed the property when the listing contract was en force.
After expiration, the listing agent typically has three days to provide the seller with a list of buyers who saw the home while it was listed with the agent. If one of those buyers enters into a purchase contract on the home during the grace period stipulated in the listing contract, the former agent would be due their commission.
“Guarantees”: Some agents will add guarantees to the listing contract to up the ante on service, even offering commission refunds for poor performance.
Dream Big offers a “Satisfaction Guarantee” and will refund an entire listing agent commission if we don’t do what we promised. Even if the house is sold.
Exclusions: Make sure you discuss with your agent what items are included in the sale and what items are excluded so there is clarity from the beginning.
Generally, anything that is attached to the property with a fastener (bolt, screw, nail, glue) will be considered included with the house. To exclude it, it must be in the purchase contract as such.
Ceiling fans, window coverings and appliances are the most common items that sellers assume they’ll take and buyers assume stay. Walk the house and point out what you want to keep, so that those items can be indicated in the listing contract and communicated to the buyer.
Of course, it’s always better to remove those items before you go on the market. If a buyer sees them, they’ll want them anyway.
Choosing a listing agent is an important task. But clarifying the terms of their employment contract is just as important. If you touch on all of these negotiation points, you’ll have a firm understanding of expectations and “what-ifs.”
Thinking about selling your home? Want to know what strategies are working to get the highest possible price for a house? Call us today at 951-778-9700 or use the form below and ask for a 10-minute consultation.
Illustrations courtesy of Stuart Miles | freedigitalphotos.net
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