What Is a Listing Agreement?
Let me explain what a listing agreement is: it's a contract where you, as the property owner acting as the principal, authorize a real estate broker, who serves as your agent, to find a buyer for your property based on the terms you've set. In return for this service, you agree to pay the broker a commission.
Less commonly, you might hear the term listing agreement in the context of a contract between a security issuer, like a public company, and a financial exchange that hosts the issue, such as the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), or the London Stock Exchange (LSE).
Key Takeaways
Understand that a listing agreement is the contract between you, the property owner, and a real estate broker, giving the broker authority to represent you as the seller and locate a buyer for your property. There are three types of real estate listing agreements you should know: open listing, exclusive agency listing, and exclusive right-to-sell listing. Remember, this is an employment contract, not a real estate contract itself—the broker is hired to represent you, but no property transfer happens between you and the broker.
How a Listing Agreement Works
A listing agreement gives the broker the authority to represent you, the seller, and your property to third parties. It's an employment contract, not a real estate one, meaning the broker is hired to represent you, but no property is transferred between the two of you.
Under real estate license laws, only a licensed broker can act as an agent to list, sell, or rent someone else's real estate. In most states, these agreements must be in writing.
Since similar issues come up in nearly all real estate deals, most listing agreements cover standard information, beginning with a description of the property. This description usually lists personal property that stays with the property upon sale, as well as items the seller plans to remove, like appliances or window treatments.
The agreement also details the listing price, the broker's duties, your duties as the seller, the broker's compensation, mediation terms, an automatic termination date, and any additional terms and conditions.
Important Considerations
Even though listing agreements are legally binding, you can terminate them in specific situations, such as if the broker fails to market the property. The agreement also ends if the property is destroyed, for example by fire or natural disaster, or if either the broker or seller dies, goes bankrupt, or becomes insane.
Types of Listing Agreements
Let's break down the types of listing agreements you might encounter.
Open Listing
With an open listing, you as the seller can hire any number of brokers as agents. This is nonexclusive, and you only owe a commission to the broker who finds a ready, willing, and able buyer. You can also sell the property yourself without paying any commission.
Exclusive Agency Listing
In an exclusive agency listing, one broker is your exclusive agent. You can still sell the property yourself without owing the broker anything, but if the broker procures the buyer, you must pay the commission.
Exclusive Right-to-Sell Listing
The exclusive right-to-sell listing is the most common type. Here, one broker is your sole agent with exclusive rights to represent the property. The broker gets a commission regardless of who sells the property, as long as the agreement is active.
Tip on Multiple Listing Service (MLS)
- The Multiple Listing Service (MLS) is a shared database set up by cooperating real estate brokers to share data on properties for sale.
- It helps brokers view each other's listings to connect buyers with sellers.
- Under this system, both the listing and selling brokers gain from sharing information and commissions.
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