What Is A Listing Agreement?
Jamie Johnson4-minute read
February 27, 2022
If you’re looking to sell your home, you might be excited to get started and anxious to complete your move. You’ve got your house ready to list and you’ve found a real estate agent you trust to help you complete this process.
But before you’re ready to move forward, you need to complete a listing agreement. This document is a contract between you and your real estate agent, and it sets out the terms for your upcoming home sale. Let’s take a closer look at what a listing agreement is and how it works.
The Real Estate Listing Agreement, Defined
A listing agreement is an employment contract between a property owner and a real estate broker. It allows the broker to act as a listing agent and find a buyer for the property on the seller’s terms.
Basically, a listing agreement grants your real estate agent permission to find a buyer for your home. It also outlines the type of commission your real estate agent will receive once the sale is completed.
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How Does A Listing Agreement Work?
A listing agreement allows your real estate agent to represent you and your property to potential buyers. It states that this individual is the only person who can act as a real estate agent to manage the listing and sale of the property. This contract is what officially kicks off the home selling process.
What’s Included In A Listing Agreement?
Each listing agreement will vary slightly, but every listing contract will follow a few general guidelines. Here is the information you can expect to include in a listing agreement:
What Are The Types Of Listing Agreements?
You can expect to encounter three types of listing agreements, and each one outlines different terms and arrangements. Let’s briefly look at each one.
Open Listing Agreement
An open listing agreement provides the lowest level of commitment for the seller. It is a non-exclusive agreement that allows any agent to list or sell their property.
The seller is only required to pay the broker if they find a ready and willing buyer. And in this type of agreement, the seller retains the right to sell the property themselves.
Understandably, open listing agreements are not popular among real estate agents. Sellers will often choose an open listing if the property needs to sell quickly. Some will select this option if they’re trying to save money on the commission fee.
Exclusive Agency Listing
In an exclusive agency listing, the seller grants one real estate agent or a broker exclusive rights to sell the property. Once the property sells, the seller will pay a commission to that real estate agent.
However, the seller maintains the right to sell the property on their own. So, if you can find a buyer yourself, you’re not obligated to pay the real estate agent a commission.
With this type of contract, you have the right to try to sell the home yourself. But you can still fall back on the help of a real estate agent if you’re unsuccessful in selling the property on your own.
Exclusive Right-To-Sell Listing
An exclusive right-to-sell agreement is the most common type of listing agreement. This legally binding exclusive contract gives the agent the right to market the home, list the house on MLS and earn a commission on the sale.
This type of contract offers the fewest options to the seller, but there are advantages to choosing this type of agreement. It increases the odds that potential buyers will see your home since the agent will devote their full resources to selling the property.
What Should You Know About Signing A Listing Agreement?
A listing agreement is a legally binding contract, so it’s crucial to understand the signing process before you begin.
Do You Have To Sign A Listing Agreement?
Signing a listing agreement depends on your role in the real estate transaction. For instance, buyers don’t sign listing agreements because the contract is only for those listing the property. In some cases, real estate agents may ask you to sign a contract to make sure they receive their earned money – but many agents don't require this.
By contrast, a seller has to sign the listing agreement when working with an agent because it permits the real estate agent to represent them – and list, advertise and sell the property.
When Do You Sign The Listing Agreement?
Once you’ve found a real estate agent or broker to use in the selling of your home, you should sign a listing agreement. Without your signoff, the home selling process can’t proceed.
What Can You Negotiate In The Listing Agreement?
Everything is negotiable when it comes to selling property in real estate. A seller can negotiate the requirements of their terms when there are conditions they aren't satisfied with. Reviewing and examining the listing agreement is the best way to ensure you understand your responsibilities and agree to complete them.
Here’s a list of standard conditions a seller can negotiate in the listing agreement:
- Expiration date
- Type of listing
- Listing price
How Do I Terminate A Listing Agreement?
If your current agent or REALTOR® has been unable to find any buyers for your home, you may eventually reach the point where you’re ready to cancel the listing agreement. Terminating a listing agreement is a pretty straightforward process, and you can often just ask for a release or ask for another REALTOR® if you’re with an agency.
FAQs: Listing Agreements
What does a listing agreement cost?
A listing agreement doesn’t cost anything; rather, it outlines how much you’ll compensate your real estate agent for the sale of the property.
What kind of clause can be added to a listing agreement?
A listing agreement will often include a Mediation and Dispute Clause. This type of clause states that if you and your real estate agent run into a dispute during the home selling process, you’ll meet with an impartial third party to work it out. Any clauses that are included must be agreed upon before signing the contract.
If my house doesn’t sell, what happens to the agreement?
A listing agreement is valid from the date you sign it until the expiration date. The expiration date is determined by various factors, including the real estate market and the homeowner's needs.
You can negotiate on the expiration date with your REALTOR®, but most listing agreements expire within 6 months. Once it expires, the contract is terminated, and your home will be taken off the market. At that point, you can either find a new real estate agent or extend the listing agreement with your current REALTOR®.
The Bottom Line
A listing agreement is an essential first step to selling your home. It’s what starts off the home selling process and outlines the terms of how you’ll work with your real estate agent.
If you’re looking to sell, be sure to check out this guide on preparing a home for a sale.
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