What You Need to Know Before You Sign a Listing Agreement

Many sellers only pay attention to one thing on a listing agreement — the commission amount. That's a big mistake. The listing agreement is a binding contract between you and the listing broker, and it contains a number of clauses that can make a huge difference in whether your house sells. Here are some very important items to pay attention to:

Open Listing or Exclusive Listing
An "open listing" is somewhat archaic, predating the Multiple Listing Service. With an "open listing", you go to each broker in your area and sign a listing agreement. You can sign an open listing agreement with as many brokers as you want. With an "exclusive listing", you have one listing broker who exclusively represents you, and other brokers who want to show and sell your property have to work through that broker. (A cooperating broker, who doesn't have the exclusive listing but sells your property, is paid a portion of the commission that you pay to your listing broker.) Only property that is "exclusively" listed can be included in the Multiple Listing System. (This is to avoid duplication of properties, and the possibility of inconsistent listings.) When you have an "open listing", your property will not be included in the MLS, will not show up in the database accessed by MLS participants throughout the region, and will not appear on Realtor.com. Brokers are also reluctant to put any marketing money behind an open listing, because the sale may well be made by another broker, and they end up putting out money for nothing.

Exclusive Agency or Exclusive Right to Sell
If you enter into an exclusive listing agreement, it will grant either "exclusive agency" or "exclusive right to sell" to the listing broker. Under an "exclusive agency" agreement, any sale generated through the real estate brokerage system must go through the listing broker, but you, the seller, have the right to sell the property on your own, as a "For Sale By Owner" transaction. Under an "exclusive right to sell" agreement, any sale during the period of the listing agreement, even if the buyer is found by you, must be handled by the listing broker.

"Aha", you say, "of course I want exclusive agency, so I can still sell it on my own." Not so fast. Many brokers, including possibly the one that's best positioned to sell your property, will only handle "exclusive right to sell" listings. Brokers may also be reluctant to put much marketing money behind a listing they know you're trying to peddle on your own. A broker may agree to an "exclusive agency" listing if you agree not to put a "For Sale By Owner" sign on your property or post your property on "For Sale By Owner" websites.

Depending on the broker, the terms of the "exclusive right to sell" agreement may be negotiable. For example, if you've talked with relatives or neighboring property owners about buying your property, you can ask that they be excluded — by name — from the agreement. Many brokers will agree to a limited number of exclusions, but not for an umlimited amount of time. Exclusions from 14 to 30 days are reasonable; an unlimited exclusion really isn't. Again, the listing broker doesn't want to put out a lot of time, effort and money only to end up without the sale. They don't want to be in the position of bringing you a good offer, when you really plan to sell it to Uncle Harry, who's agreed to match any offer you get.

One option to an "exclusive right to sell" agreement is a clause that if you find the buyer, the listing broker will reduce the commission — in effect, giving you the value of the 'co-broke' portion of the commission that would go to a selling broker.

Co-Brokerage
Sellers gloss over this section, which is tremendously important. The cooperating broker section of the listing agreement states the terms under which a listing broker will share a portion of the commission, known as the 'co-broke' with a selling broker. There will be 2 sections — one for selling agents who act as "subagents of the seller", also known as CSO's (cooperating selling office), and one for selling agents who act as "buyer agents", representing the buyer. The shorthand for the 2 categories in the real estate business is "subagency" and "buyer agency."

In Sullivan County, most brokers recommend offering co-broke compensation on an equal basis to both "subagents" and "buyer agents". In Orange County, however, most brokers no longer offer compensation to coooperating brokers who act as subagents of the seller, and only offer compensation to cooperating brokers who act as buyer agents. The reason is liability. As a seller, you're liable for the actions of agents acting as your subagents (through your listing broker), even though your listing broker has little or no control over them. That approach has moved into the southern reaches of Sullivan County, as far as Rock Hill.

A handfull of brokers in Sullivan County, typically those who are more old fashioned, don't believe in buyer agency, and offer a reduced or even no co-broke commission to buyer agents.

As a seller, you probably don't care all that much about the nuances of "subagency" versus "buyer agency." You just want to get your house sold. You want to make sure that every agent in Sullivan County with a potential buyer — whether acting as a subagent or buyer agent — has the ability to show and sell your property, and that means offering co-brokerage equally to both categories.

Commission
There is no standard commission. In fact, brokers are prohibited by law from even discussing commissions with each other. Its considered price fixing under anti-trust laws. If you ever hear an agent say, "The standard commission around here is X%", run, do not walk, from that agent. Its clear they don't have even the basics of real estate law under their hats, and who knows what misrepresentations they may make on your behalf downline.

An agent can say, however, that their agency's standard commission is X%. Commissions can be negotiable. If you interview two brokers, for example, and Broker A offers a lower commission than Broker B, but you like Broker B better, you can go back to Broker B and ask about negotiating the commission. But make sure you're comparing apples to apples. A broker with a staffed office, prominent internet presence and extensive marketing has a very different cost structure than a single freelance agent with no office and limited advertising.

If you want a lower commission, suggest to the broker things that you can do to make it easier to sell your house — like agreeing to a lock box for access, getting a home inspection or bringing the listing price into their recommended selling range. Also, the listing broker may agree to a lower commission if you offer to reimburse them for part of their advertising expenses on your house if it doesn't sell. Like any successul "win win" negotiation, what are you willing to give in order to get?

Agreement Length
Sellers often think they're being shrewd by getting a listing broker to agree to a short listing period. But short listings backfire. Sullivan County has a relatively long sales cycle. Unless a property is very aggressively priced, or has stand-out appeal to a certain market segment, time on market can easily exceed 90 days. Many brokers won't heavily market a 60 or 90 day listing.

If you've done your homework, you should have confidence that you've chosen the right broker to sell your house. But before signing the listing agreement, look at your "outs" if you're not satisfied. You want a termination clause with minimal penalties. If you terminate before the expiration of the agreement, it is reasonable, however, for the listing broker to seek compensation for any out of pocket expenses, like print advertising, MLS listing fees or costs associated with preparing a virtual tour or brochure.

Note that almost every listing agreement has a post-expiration clause that typically runs for 180 days, stating that the terms of the agreement remain in force if the property is purchased within that time by a buyer who was shown the property during the term of the agreement. The clause prevents the buyer from being shown the property by the listing agent, and then calling the seller up directly and saying "Hey, cancel your listing agreement and I'll make a deal with your directly."

Have All Your Paperwork Together
When you list your property, should should have all the paperwork for the property available. This includes a copy of your deed — because the listing agent will need to verify that the person or persons listing the property is the same as on the deed. You should have a copy of your survey, as well as copies of any homeowner's association documents (if you're in a development) as well as any covenants and restrictions. Its helpful to have copies of your most recent property tax bills, as well as your heating bills. Blueprints for the house, if you have them, are also useful to verify square footage.

David Knudsen
845-887-5855
email: davidk@beechwoods.net