The difference between all of the listing types relates to how and under what circumstances a broker will get paid a fee
By Jeff Sorg, OnlineEd Blog
(January 29, 2016) – There are four types of listings agreements commonly used by real estate agents. These four types are:
- Exclusive Agency
- Exclusive Right to Sell
- Net (not permitted in all jurisdictions and rarely used)
The difference between all of the listing types relates to how and under what circumstances a broker gets paid. Most residential real estate listings will be an exclusive right to sell listing. Due to its inherent nature for misuse, the net listing should not be considered a permitted type of listing agreement. The following is a brief discussion of the four types of listing agreements.
This type of listing agreement allows the seller to employ any number of brokers at the same time. However, the seller would only owe a commission to the broker who sells the property. This type of listing agreement also allows the seller to sell the property without using or paying a broker, thereby saving the commission.
This type of listing agreement is rarely used in residential real estate because there is little motivation for any broker to promote the property, there is no motivation to cooperate with other brokers, and the broker is competing with the seller to find a buyer.
A variant of the open listing is the one-time show listing. This type of listing is pretty much an open listing, limiting the payment of a fee to a broker showing the listing only to the specific buyer mentioned in the contract. This us usually used in a For Sale By Owner situation when the broker is pretty sure the listing will be a good fit for their buyer.
With this type of listing, the seller gives one broker the right to sell the property. However, the broker is not entitled to the commission if the seller sells the property. The advantage of the exclusive agency listing compared to the open listing is that competition from other brokers is eliminated so that the listing broker has a higher motivation.
Exclusive Right To Sell
With this type of listing, the seller employs one broker for a specific period. Another broker could sell the property, the seller can sell the property, or the listing broker could sell it. In each case, the listing broker will be paid a commission.
This is the type of listing recommended by the National Association of REALTORS® and is the most common form of listing agreement used for residential real estate. Many multiple listings services will require all property listed in their database to be an exclusive right to sell listing. The exposure of the property to the shared information of the MLS is a great marketing benefit to the seller.
This type of listing should be viewed as the most advantageous for both the broker and the seller. Because the broker will earn a commission if the listing sells, the broker can afford to spend time, money, and other resources necessary to market the property. This also permits the listing to be placed in the local MLS database of available listings. The seller also benefits from this type of listing because the broker’s time, efforts, and resources help produce a successful sale.
The exclusive right to sell listing usually contains a clause that guarantees the seller will pay a listing broker commission if the property is sold to anyone introduced to the property during the listing period. However, if the seller lists the property with another broker after the original listing has expired, then the clause does not apply. The purpose of the clause is to prevent a buyer from purchasing a property directly from the seller, at a lower price, after the listing has expired. It may be viewed as a commission guarantee clause.
The net listing agreement allows the broker to take all of the sale proceeds over the agreed upon net sale price with the seller.
EXAMPLE: The seller tells the broker that he wants to net $280,000 from the sale. The broker finds a buyer that is acceptable to the seller and who is willing to pay $380,000. The broker would then receive a fee of $100,000.
Net listings are not allowed in some states and not recommended in others since they can end in lawsuits for licensees or financial loss for sellers.
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All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.
Jeff Sorg is a co-founder of OnlineEd®, a Web-based vocational school founded in 1997 where he also serves as Corporate Secretary, Chief Operating Officer, and School Director. Sorg holds vocational instructor licenses in Oregon, Washington, California, and Nevada and has authored numerous pre-licensing and continuing education courses. Sorg was awarded the International Distance Education Certification Center’s CDEi Designation for distance education in 2008.
OnlineEd® provides real estate, mortgage broker, insurance, and contractor pre-license, post-license, continuing education, career enhancement, and professional development and designation courses over the Internet.