Understanding different types of real estate listing contracts can save you trouble and money when it’s time to sell your house.
If you’re trying to sell a house that needs work, there are two options worth considering: selling with an agent on the market, or selling to a cash buyer off-market. If you’ve weighed the pros and cons and decided it makes sense to hire an agent, they’ll probably ask you to sign a listing agreement. Read this guide before you sign on the dotted line.
The listing agreement is an important document that outlines the terms and conditions of your working relationship with your real estate agent. Read it carefully and be sure you understand what it says. If it doesn’t meet your standards, you’ll need to negotiate terms that work for you. Here are some key items to look for.
Beware of ‘exclusive right to sell’
Many listing agreements contain an “exclusive right to sell” in the terms and conditions. This clause is legally binding and guarantees a set commission for the agent when the home is sold, regardless of who finds the buyer. (Note: agents include commission as part of all listing agreements, not just the exclusive right to sell).
In an exclusive right to sell agreement, if your real estate agent goes on vacation and you find a buyer on your own, the real estate agent still gets their commission even if you did all the work yourself in their absence.
If you want to be hands-off in the sale of your house, this type of agreement might work fine. However, homeowners who want to play an active role in selling their home may want to avoid an “exclusive right to sell” agreement.
Typical commission fees for agents add up to six percent of a home’s sales price, meaning an agent would receive $18,000 on the sale of a $300,000 house. In an exclusive right to sell contract, the agent essentially locks in this commission if the home sells during the contract period, which can bite into the seller’s profit.
Because it grants exclusive right to a sales commission when your house sells, this arrangement is likely to be every agent’s preference. It is possible, however, to negotiate agreements that are less restrictive to the homeowner. You’ll want to start by clearly communicating to your agent how active you want to be in the sales process and what you expect to happen if you, and not the agent, find a buyer. Read on to learn about more options.
Exclusive agency listing
Another type of agreement to consider that has more flexibility is an exclusive agency listing. With this type of agreement, you’ll work with one real estate agent to help sell your home, but you also have the option to find a buyer yourself. In the event that you find your own buyer, the real estate agent would not receive a commission.
If your home sells for $300,000 as in the example above, you’ll save yourself the $18,000 commission that would have gone to the real estate agent. If your buyer is represented by an agent, however, you would likely still pay the buyer’s agent commission which is a smaller percentage (typically two percent to three percent, or $6,000 to $9,000, in this case).
While this type of listing agreement is more favorable for the buyer, there is one potential downside: it can disincentivize the real estate agent. If there’s a good chance they won’t earn a commission, the agent might not be as serious about trying to sell your home.
Bottom line: while you might have more flexibility with an exclusive agency listing, your real estate agent may not make selling your house their top priority.
One of the lesser-known listing agreement options is an open listing. An open listing allows any real estate agent to secure a buyer and get a commission for selling your home.
In other words, an open listing is non-exclusive, using multiple real estate agents to find potential buyers for a house, where only the agent for the buyer who ultimately purchases the property gets the commission. Open listings also include “for sale by owner” property listings, in which a homeowner sells their house without the help of an agent (and without having to pay a commission).
While this option offers the most flexibility for the seller, it’s not very attractive to real estate agents. Open listings often carry a stigma of being best for properties that have been on the market a long time without attracting interest, or as properties that need to sell fast. In both cases, potential buyers may approach open listings with more caution than normal.
Selling off market without an agent
You can avoid signing a listing agreement with real estate agents by selling your house directly to a cash buyer. This is what’s called selling off-market, meaning you don’t list your house on the Multiple Listing Service (MLS) to try to attract buyers.
Instead, you approach off-market buyers like Sundae, and ask them to make you an offer. Not all off-market buyers are created equal. Make sure you do your homework on each one before entering into a contract to sell.
Excluding a buyer from a listing agreement
If you’re trying to sell a house that needs work, it’s in your best interest to explore these two primary options:
- Selling on the market with an agent
- Selling to a cash buyer off-market
When considering selling with an agent, you’ll want to research how much the agent may be able to get for your house on the market, the timeline it will take to sell, and how much you’ll walk away with in terms of net proceeds. Then you can compare and contrast this option to what you could get with an all cash offer from a property investor off-market. The good news is that there is a way to explore both at the same time without getting locked into a listing agreement with commissions.
Here’s how to do it:
Before signing a listing agreement with an agent, field offers from a few off-market buyers. You can get one from Sundae here or by calling 800-214-4426. Once you get a sense for the amount you’ll make off-market, select the buyer you’re most comfortable selling to. Bring that selected offer to the agent you plan to work with, and ask them to exclude that one buyer from the terms of their listing agreement. This gives the agent the right to sell your house on the market, but if you’re unsatisfied with the results, you’ve reserved the right to sell directly to that one off-market buyer without owing the agent a commission. This gives you an “escape hatch” from the listing agreement if you’re not getting the outcome you need.
When working with a real estate agent, read the fine print, understand the commission structure, and know your options for different types of listing agreements. Should you decide to sell off-market, choose a buyer who is reputable, transparent, and fair. Make sure to research off-market buyers online and, if you’re in a tight spot, look into federal housing resources for homeowners in need.
Here are some questions to consider asking:
- How is the offer calculated?
- Is the offer guaranteed?
- What costs am I on the hook for?
- What, if anything, can I keep from inside the home?
- How do you, the buyer, make money on the sale?
- What is the timetable for selling?
- How does the process work?
- Can you provide references?
- Do you offer a cash advance?
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Interested in learning more about selling your house to Sundae? Contact us for more information.
Michael leads Sundae’s Southern California operations based in San Diego. Prior to Sundae, Michael developed his residential real estate expertise at LendingHome and as a partner at Upward Trend. He also held roles at PGI Investments, a private equity firm based in Carlsbad, California.