Buyers and sellers of residential real estate, particularly single-family homes, have to make some pretty important choices about who to represent them and what kind of representation they want. For the latter, the choice often comes down to choosing between two major types of arrangements: exclusive right to sell or exclusive agency.
Exclusive right to sell is probably the most common type of listing arrangement. This guarantees the broker and agent a commission, regardless of who finds the buyer, even if you as the seller finds your own buyer.
Then there's the exclusive agency listing agreement, one that combines exclusive right to sell with FSBO (for sale by owner) in a sense. Exclusive agency means that you, as the seller, contract with a listing broker as your sole agent and you'll pay a commission when the sale is closed -- unless you find the buyer yourself.
It can get complicated, certainly, since contracts like that often contain language that says things like "if the listed property is sold solely through the efforts of the seller."
"Solely" can mean different things here, and there are some pros and cons to both exclusive right to sell and exclusive agency listing contracts. Let's look at them.
Pros and cons of exclusive right to sell listing contracts
There's a reason the exclusive listing agreement is so dominant: It gives the listing firm and agent the most incentive to market and sell a property and get it to closing. Many agents will tell you the easiest part of selling a house is showing it. Next comes agreeing on terms and signing a contract. Getting the contract to close is when it can get most tricky, with inspections, financing, and every other variable that can go right or wrong.
An experienced agent and listing broker know the lay of the land and are incentivized to get the close done, since that's when they get paid. They're also guaranteed that commission, regardless of who found the buyer. Agents and brokers are simply not as inclined to put a lot of time, effort, and money into marketing and showing a property if they know it can be snatched out from under them.
An exclusive right-to-sell contract provides motivation for the agent and broker. That's just human nature.
On the downside, an exclusive right to sell means you're tied to that agent and broker for the life of the agreement, usually three to six months. It also means the standard commission of 6% -- or less if it can be negotiated -- means a lot of the money in the sale doesn't go into your pocket. If you think you can do it alone, you can certainly try to find an agent and broker who'll take you up on an exclusive agency agreement.
Pros and cons of an exclusive agency listing agreement
An exclusive agency agreement means the agency -- the broker -- is the only agency listing and marketing your property, including through the local and nationwide multiple listing services (MLS). This listing type also allows you to market the property yourself, and if you find the buyer, the broker gets no commission.
That sounds like an invitation for the broker to simply put the house on the listing service and nothing more, doesn't it? If that's enough for you and you're confident you can find a buyer and get the house to closing without much more help, this might be the arrangement for you.
The biggest pro here is you'll save money if you come up with the buyer. Plus, you get the benefit of being on the MLS. The biggest con is an agent and broker who aren't as motivated as a sole agent would be to help the deal get done, which can be tricky under any circumstances, especially when there are complications with the property and/or your buyer.
There are other types of listing agreements, some quite similar to an exclusive agency, such as open listings, for instance, and other FSBO variants. Let's take a look at some of them.
Other types of listing agreements
There are some commonalities in a real estate listing agreement regardless of type, including such items as the commission amount and length of the contract, authorization to put a lockbox on the door, and, except where it's not permitted, put up "for sale" signs.
Beyond that, there are a lot of variations on that theme. Courtesy of Clever, here are four more types of real estate listing agreements in addition to an exclusive right to sell and exclusive agency listing contract.
If you're going the FSBO route, an open listing could be an attractive option -- if you can get agents to go along with it. An open listing simply means any agent can bring a buyer and get the commission, so no agent or broker is guaranteed anything for their work. In today's hot market in so many areas, this could be the way to go, if you're willing to deal with agents and comfortable guiding a deal to closing (to varying extent) on your own.
Here's another FSBO-related deal. A one-time showing agreement happens when an agent shows a buyer an unlisted home and comes to agreement on a sales price and commission. Clever says the typical fee is half the typical commission, so 3% instead of 6%.
Flat-fee MLS listing
There are multiple companies that will put your property on the MLS for a fee. That's all you'll get. But that might be all you need.
Nearly every licensed Realtor uses the MLS to list and look for properties for their clients. Those listings contain a lot more information than Zillow (NASDAQ: Z) (NASDAQ: ZG) or other competitors, and the MLS has been around a long time. Plus, it has rules against Realtors -- and so does the Realtor Code of Ethics -- against using MLS listings to try to poach that listing and seller.
But, if it matters to you, keep in mind you won't get any of the benefits of working directly with a Realtor. And not all MLS flat-fee listings are the same. Read this Clever blog for more.
A net listing is one in which the seller or their agent has a set price for the property, and the agent nets anything the house is sold for above that price. The ease with which canny agents can exploit a seller in these kinds of deals is a reason they're not even legal in many states.
The Millionacres bottom line
Whether you're selling or renting, there are multiple other permutations of listing agreements. This post from MLS ASAP! lists a baker's dozen, with names like "exclusive right to sell with named exclusion" and "facilitation/exclusive right to sell with variable rate of commission."
They're all variations on the same theme: You need to decide which works best for you as a real estate investor. Especially if you're focusing on the net from a flip, for instance, you must balance what you net in the sale against how much you can do yourself and how much you want to entrust to those third-party professionals and specialists.