You start off the marketing and sale of your home with a listing agreement. This document controls all the terms of the sale. It sets the keynote for a string of important decisions and legal agreements.
In this article, we’ll discuss some recent news about listing agreements, as well as the broad-brush concepts every seller must know. First, we look at some sales tactics to look out for before you even think of selling. Then, we’ll explore how to understand the terms of the agreement you’ll sign when you’re ready.
Cash for Listing?
Getting a listing agreement signed is valuable to a listing company. So much so, that some companies may try to snag potential sellers well before they’re ready to sell. This sales tactic has been in the news of late, so let’s see what’s going on.
In a cash-for-listing deal, you, the seller, agree to list with the company whenever you might sell. For handing over that control, you’ll get money. Depending on your home value, you might get anywhere from several hundred dollars to $5,000. You keep it no matter what you decide about selling. But once you sign on, the company has exclusive, binding dibs on the listing of your home. Depending on the document’s stated termination date, you could be bound up to four decades. Not even a mortgage runs that long!
In exchange for that payment from the listing company, you lose your choice of real estate agents if you ever want to sell. You’re bound to sign another agreement with the same company. If you like the deal, great. It’s legal. Just be aware of its future effect. Say you want to cancel the contract. Expect the cancellation fee to run into the thousands of dollars. Pay it, or you might be dealing with a collections company, or a lien on the property that keeps you from selling with another agent.
That’s the scoop on cash for listings. Now, on to some general concepts the seller should know about listing agreements.
What Should a Listing Agreement Say?
The listing agreement should say the seller has the right to sell the home. It should empower the real estate agent or broker to handle the sale. The listing agreement should also name any appliances, furnishings, or personal effects being sold in or with the home. It should set forth anti-discrimination provisions required by law. It should not promise your home will sell. In some cases, listed homes do not sell. In this case, the agreement expires, and a seller might decide to keep the house, seek a new agent or broker, or renew the agreement with the same agent.
☛ An agent has some responsibilities to the seller that a broker doesn’t. Read about the difference between an agent and a broker in Your Real Estate Agent’s Fiduciary Duties.
The standard document is called the exclusive right of sale listing agreement. It starts with a boilerplate form. It allows a professional to list the home at a certain price and market it for a commission. Listing agreements must state the parties’ names, the property’s street address and legal description, the list price, and a termination date and time.
The listing agreement is typically drafted to be in force for two to six months. This can be negotiated to fit your situation and the pace of your local market. There’s a protection period for a short time after termination. If anyone the agent attracted does buy your house, a protection period means the agent will still get the commission.
There are some alternative listing agreement types, like theexclusive agency listing, which gives the seller the option to find a buyer and skip the commission payment. Before seeking such an agreement, know that the buyer is ultimately paying for your home — with the related fees priced into the deal.
There is also the open listing agreement, through which the seller can choose any agent or no agent. But most sellers want the most energetic marketing services available — and those come from an agent on a commission.
Don’t Like the Terms?
Negotiate. You can work out compromises on just about anything in the listing agreement before signing. But the guidance of a trustworthy real estate agent is valuable. The agent will suggest optimal pricing and a likely sale date range by drawing on an intricate store of market data, blended with experience. You can even negotiate your agent’s commission if you do so before signing the document. Yet in normal circumstances, agents are unlikely to lower commissions. A commission gets shared with the buyer’s agent, and marketing your home is part of the deal. As Redfin explains:
Typically, real estate commission is 5% to 6% of the home’s sale price. In most areas, the buyer’s agent receives 2.5% to 3% in commission and the seller’s agent receives 2.5% to 3% in commission. This can vary by agent and location.
Investing in a good agent matters. If you have an agent you trust and like, your selling experience will reflect that relationship. You’ll need your agent to explain and guide you through your appraisals and inspections, and the ongoing give-and-take with the buyer. Of course, sellers need not adhere to all recommendations an agent or real estate company offers. Sellers are free to pick out their own additional experts: mortgage professionals, title insurance companies, and settlement companies, for a few examples.
What if you run into a serious argument with the agent? The typical listing agreement says disagreements will be mediated by a neutral third party. It’s also likely to direct the seller to pay any costs the listing agent incurred if the seller calls off their agreement. But a good agent works hard for the seller. And in case of a breakdown in the relationship, an agent will often suggest that the seller work with a different agent in the company or let the seller walk away from the agreement without penalty. This isn’t promised, though!
If you’re still deciding among agents, online reviews that describe how other people dealt with challenges can provide insights. Of course, you’ll want to see positive online reviews; but know that they aren’t always the full story. Negative online reviews may sometimes be removed under pressure from companies.
Key Takeaway: List With an Agent You’ll Appreciate When You Sell
The best agent is a diligent researcher and excellent communicator with a flair for marketing. It’s not a company that uses emotional sales ploys, or offers short-term rewards and long-term burdens. The listing agreement directs every aspect of your home sale, so pick your representative wisely. Negotiate the terms if you believe it is important to do so, and find a real estate agent who has your best interest at heart.
Do you have case-specific questions about financial, tax, or inheritance matters? Sit down with your financial adviser, your tax pro, or an attorney admitted in your home’s state. With the right guidance and support, any seller should be able to attain a fair and successful sale.
Supporting References
Todd Ulrich, WFTV.com: Action 9 Investigates Realtor Offer for Homeowners (Jan. 26, 2021).
Justin Gray, WSB-TV: Metro Homeowners Locked Into 40-Year Contracts With Real Estate Company (May 26, 2021).
Corinne Rivera, HomeLight: Breaking Down the Big, Scary Listing Agreement Into a Deal You Understand (Jul. 16, 2018).
Photo credits: Andrea Piacquadio, via Pexels.