What Is A Listing Agreement? A Basic Guide For Home Sellers

Entering into any contract can be an anxiety-inducing and daunting experience, yet it becomes much more manageable when you comprehend the document's significance. Your agent is there to guide you through every aspect of the service agreement. This blog post aims to provide you with a preliminary understanding of what a listing agreement involves and its role in the process of selling your property.

A listing agreement serves as a legally binding contract between a homeowner and the real estate agent or broker responsible for listing the property for sale. This contract delineates the terms and conditions governing how the agent or broker will market and sell the home. It establishes a framework outlining the duties and expectations between the seller and the agent, incorporating crucial details pertinent to the upcoming sale.

Solely home sellers are required to sign a listing agreement, whereas potential buyers must sign a buyer's agency agreement before being represented by an agent. Execution of the listing agreement occurs only after both the seller and the agent reach a mutual understanding on all aspects of the home sale. Analogous to an employment contract, the signing of the listing agreement signifies the official hiring of the agent for the task of selling the house. Importantly, no upfront payment is expected during signing, as agents are compensated through commission fees upon the successful closing of the sale.

The listing agreement is designed to safeguard the interests of both parties involved. It shields the seller by clearly defining the agent's responsibilities and outlining the course of action if these responsibilities are not met, preventing the seller from being tied to an agent failing to fulfill their obligations. Simultaneously, it ensures fair compensation for the real estate agent, guaranteeing a commission once a successful home sale is concluded.

Prior to delving into the essential details typically found in a listing agreement, it's important to familiarize yourself with the most prevalent types of listing agreements. Your agreement type is typically indicated at the document's outset. As terms may differ depending on your locality, it is crucial to thoroughly read the agreement to comprehend the specific contract you hold with your broker or agent.

• Exclusive right-to-sell

This represents the most prevalent form of listing agreement. As per the National Association of REALTORS® definition, an exclusive right-to-sell listing agreement is a contractual arrangement wherein the listing broker assumes the role of the agent or legally recognized non-agency representative of the seller. In this agreement, the seller commits to paying a commission to the listing broker, irrespective of whether the property is sold through the efforts of the listing broker, the seller, or any other party.

In simpler terms, you commit to working exclusively with one agent to sell your house for a specified duration. The broker is entitled to receive their commission regardless of who ultimately sells the property, as long as the listing agreement remains in effect.

• Exclusive agency listing

In this variant of a listing agreement, it closely resembles an exclusive right-to-sell listing, wherein the broker serves as the agent and any agent within the agency has the authority to sell the property and receive the commission. However, in this scenario, the seller retains the option to independently sell the home if they so prefer. If the property is sold exclusively through the seller's efforts, there is no obligation to remit a commission to the listing broker.

• Open listing

This is a non-exclusive arrangement that permits the seller to engage multiple real estate agents to market their home. However, the agent who successfully sells the home is the sole recipient of the commission. If the homeowner manages to sell the home independently, the agents do not receive any compensation. This type of agreement is less prevalent and is typically less favored by agents due to the potential for not earning a commission if the homeowner sells the property independently.

Here are the main components of a listing agreement:

• Contact information - includes names, phone numbers, addresses, and other information for the seller and the real estate broker or agent.

• Property description - the listing agreement will include a complete and accurate description of the property. The property description also specifies any fixtures that will be left behind after the property is sold, and which items will not be included in the sale and you'll be taking with you when you move.

• List price - You and your agent will discuss the listing price ahead of time, which is based on market data, comparable homes that have sold in the area, and the condition of the home. The price should be written in the agreement to match your earlier discussions.

• Agreement duration - a listing agreement usually covers a duration of between three and six months, although it can last for any amount of time you and your agent agree on. 

• Agent duties - the agent’s responsibilities and detailed plan of action will be specified in this section, together with the activities the listing agent is authorized to conduct on your behalf. This may include holding open houses, listing your home on the MLS, posting a yard sign, etc. Understanding the agent’s responsibilities will give you a clear idea of what they will (and will not) do during the selling process.

• Agent commissions - the commissions, fees, and other compensation need to be added to the agreement. Agent commissions are usually between 5 percent and 6 percent of the proceeds of the sale, and are usually split halfway with the buyer’s agent.

• Mediation and conflict resolution details - this part of the document states how any potential disputes between the property owner and agent will be resolved. It will specify whether conflicts will be settled using mediation or arbitration, lowering the risk of escalating conflict into a legal dispute.

• Protection clause - when the agent shows the house to a potential buyer during the listing agreement period, but that person doesn’t buy the property until after the listing agreement has expired, the protection period clause in the agreement will protect the real estate agent from losing their commission.

While the listing agreement holds legal significance, it remains open to modifications as necessary, indicating a negotiable nature. Common negotiation points encompass the listing type, agreement duration, agent responsibilities and commission, and the list price, among other aspects. When adjustments are made to the document, your listing agent will furnish an addendum outlining the modified sections. Both parties must sign this addendum for it to be valid, and it is subsequently appended to the original document.

It is advisable to carefully scrutinize the listing agreement to verify the accuracy of all contractual provisions and ensure alignment with prior agreements made with your agent. Additionally, take the time to comprehend your agent's obligations to you and your own responsibilities as a seller.

Opting to sell your home is a pivotal decision with substantial financial and emotional implications. The potential worst-case scenario involves a discordant relationship between you and your agent. Prior to committing to a listing agreement, it is imperative to clarify your rights for potential termination.

You retain the option to terminate the listing agreement if you decide against selling your property. Similarly, you have the authority to conclude the agreement if you no longer wish to collaborate with your agent or broker, especially if they have not secured a buyer for your home. In most cases, agents are amenable to canceling a listing agreement if the client expresses dissatisfaction, provided there is no existing buyer in the picture.

This underscores the importance of selecting a reputable and reliable real estate agent to assist with the sale of your home. Conduct thorough research, interview a minimum of three agents before making a decision, and carefully review the details outlined in the listing agreement before appending your signature.