Each type of listing agreement allows an agent to market the seller’s property, but they differ when it comes to who else can market it and how the brokerage fee is earned
By Jeff Sorg, OnlineEd Blog
(April 4, 2019)
(PORTLAND, Ore.) OnlineEd – Each type of listing contract allows the real estate agent to market a seller’s property, but the agreements will differ when it comes to who else can market the property or how the brokerage fee is earned. In this post, we discuss the open, exclusive agency, exclusive right to sell, and net listings.
Open – The open listing allows the seller to employ any number of agents at the same time. However, the seller will only owe a commission to the agent who sells the property (the procuring cause of the sale). The open listing agreement also allows the seller to sell the property without owing any commission.
Procuring Cause, as defined by the National Association of REALTORS®, is “the uninterrupted series of causal events that leads to a successful transaction.” It is the way to determine disputes about who deserves a real estate commission for causing a sale.
The open listing agreement is rarely used in residential real estate because there is little motivation for an agent to promote the property; there is no motivation to cooperate with other agents; and the agent is competing directly with the seller to find a buyer.
Exclusive agency – The exclusive agency listing gives one agent the right to sell the property, but no commission is owed if the seller sells the property. The advantage of the exclusive agency listing over the open listing is that competition from other agents for the listing contract is eliminated. However, the listing agent is still competing with the seller when selling the property and is at a disadvantage because the seller can sell the property for less than the broker, and no commission has to be paid to the agent.
Exclusive right to sell – With the exclusive right to sell listing, the seller employs just one agent. The agent earns their commission if the property is sold by another agent, the seller, or the listing agent.
This is the most used type of listing agreement in residential real estate brokerage. Because the listing agent is assured of a commission if the listing sells during the term of the agreement, the agent is likely to spend time, money, and other resources necessary to market the property, thereby resulting in a more timely sale for the seller. With the exclusive right to sell listing, the agent earns the fee when a ready, willing and able buyer is produced who meets the agreed upon terms of sale stated in the listing agreement, whether or not the seller accepts such an offer.
The exclusive right to sell listing agreement also usually contains a due diligence clause. A due diligence clause requires the principal broker to exercise due diligence in attempting to locate a buyer for the property. The agreement will also include a clause that requires the seller to pay the fee if the property is sold to anyone introduced to the property during the listing period, even after the listing has expired. The period for which this fee is due after the listing expires is negotiated with the seller and becomes a part of the contract at the time of the listing agreement. The purpose of the clause is to prevent a buyer who was introduced to the property during the listing period from purchasing the property directly from the seller minus any commission due to the listing agent.
Net – A net listing is a listing agreement that allows the listing agent to keep everything over the minimum (net) price set by the seller, however, there wouldn’t be any fee owed to the agent if the seller sold for the net amount. Some states and many brokerages do not allow the net listing, and its use is discouraged even in states where it is legal because of its potential for misuse.
OnlineEd blog postings are the opinion of the author and not intended as legal or other professional advice. Be sure to consult an appropriate party when professional advice is needed.
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Jeff Sorg, an Oregon licensed Principal Broker, 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 for real estate education in Oregon, Washington, California, Flordia, and Nevada and has authored numerous pre-licensing and continuing education courses in those states. Sorg holds the International Distance Education Certification Center’s CDEi Designation for distance education, originally awarded 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.