What is a listing contract?
Homeowners who want to sell their properties painlessly will often look to agents licensed by the National Association of Realtors.
That’s a good place to start, but whether a buyer or a broker yourself, you will need to understand how listing contracts work within the real estate industry.
So, before you start down the road of selling a home, let’s cover the listing agreement basics.
Listing contracts explained
A listing contract is an agreement between a homeowner and a seller (agent). In the contract, each party is obligated to perform and fulfill its duties.
The agreement is the heart and soul of any real estate transaction. The agent earns a commission fee that is a percentage of the final selling price.
Other points are covered in a listing contract, such as the following:
- Who is allowed to sell the property
- Listing price
- Description of the property
- Marketing and advertising
- Personal property—what is staying and what is going
- Permission to use content like photos or virtual tours
- The expiration date of the contract
- Protection period—protects the real estate agent from a sale right after the end date
- Cancellation terms
- Agent’s commission
With so many details and terms to define, drafting a legal contract can be a daunting task.
You can always use contract management software to make document generation a breeze!
What are the different types of listing agreements?
There are many different types of listing contracts.
With an open listing agreement, any real estate agent or broker is free to find a buyer and sell the property.
This includes listing the estate on a Multiple Listing Service (MLS) where all information about the property is available.
Any licensed agent can find home buyers to facilitate the sale of the property. If they sell the home, they will receive the commission as guaranteed in the real estate listing agreement.
An open listing agreement is also a “for sale by owner” (FSBO) real estate contract.
This means that the owner can sell the listing themselves and, in that case, owe no commission.
2. Exclusive listing agreements
Exclusive listing contracts are a type of agreement where one agent or agency has exclusive rights to sell the property for a set period of time.
One major advantage of exclusive listing agreements is the control and privacy you can maintain.
This means you can keep information like property pricing confidential with things like a real estate non-disclosure agreement.
Property owners may opt to give a single agent exclusivity for a time period. The named listing broker is the only party that is allowed to find potential buyers.
This type of exclusivity can help build motivation for agents to sell listings as well as improve the owner-seller relationship over time.
Rather than focusing on a single agent, a homeowner can instead decide to sign an exclusive agency listing agreement.
This allows any realtor within the brokerage’s employment to attempt to find a buyer in a given amount of time. If they successfully push through the home sale, they will earn the commission fee.
With a net listing agreement, the owner sets an exact dollar amount for the selling of the property.
Anything that goes above and beyond the listing price is a commission left over for the sales agent. Net listing agreements are actually illegal in many states.
What type of listing is not subject to a bilateral contract?
Bilateral contracts are what most of us simply refer to as “legal contracts.” This is because, in a bilateral contract, each party promises to perform.
Performance can be that one party must supply a product or service and the other party must pay a fee, for example.
The majority of listing contracts work in the same way. The only exception is with an open listing agreement. Instead, an open listing contract is known as a “unilateral contract”.
This is because only one party in the contract is making a promise to deliver—the other involved party is under no obligation to perform.
The property owner promises a commission fee to any licensed seller when listing their property on an MLS (Multiple Listing Service).
The potential “seller” may choose whether or not to take on their end of this agreement.
What is the process if you wish to make changes to a listing agreement contract?
If you’re using an open or non-exclusive agreement to sell your property, then you’re under no obligation to any specific party. In this case, you can simply make any desired changes to your contract.
If you’ve been given exclusive rights to sell to either a broker or real estate agency or are an agent working under exclusive rights, you have a legally-binding contract with the other party.
If you wish to make changes to this kind of listing agreement contract, it’s important to notify them as quickly as possible.
This should be done in writing. Once communication has been initiated, you may be able to negotiate any changes to the existing agreement.
If you’re a homeowner who wishes to take your property off of the market, then all communication should be done at light speed.
This is because the agent or agency will be incurring costs throughout the selling process and be waiting to recoup once the home is sold.
Getting listing contracts right, every time
Selling a home can be a lot of hard work. When working with listing contracts, you can’t afford to get it wrong.
And you don’t just want to get it right, you want to get it done within an efficient timeframe so you can begin marketing and other promotional efforts.
It’s advisable to seek legal advice when drafting your listing contracts. But with PandaDoc, it’s easy to get started with our real estate agency agreement template.
Once you’ve got that in the bag, it’s time to get out and start bringing in potential buyers.