A listing contract is an agreement between a property owner and a real estate broker for the sale of a property. There are three types of agency: exclusive right to sell, exclusive agency, and open agency. The exclusive right to sell is the most secure for brokers, while open agency offers little protection.
A listing contract is a contract between a property owner and a real estate broker that employs the agent as the property owner’s agent for a specific purpose. The most common use of a listing contract is for the sale of a property. Real estate laws vary from place to place, so there are differences in the details of the contracts. Most jurisdictions require contracts involving real property to be in writing.
Listing contracts have three main variations or levels of agency: exclusive right to sell, exclusive agency, and open agency. The exclusive right to sell means that the broker is paid for their work regardless of who is selling the property. Exclusive agency means that the broker gets paid if a broker sells the property, but not if the property is sold by the owner. Open agency means that any broker who sells the property gets paid, and the owner can sell the property himself without paying any broker.
The exclusive right to sell a listing contract gives the broker the security they need to invest their time and money in getting the highest possible offer for the owner. A broker will know that he is going to recoup the cost of advertising and marketing, which may include hiring a specialist to set up the house. Most real estate experts agree that staging is a proven method of getting a higher price and quicker sale for the homeowner, resulting in a win-win situation for everyone.
A broker will be concerned about recovering their costs if the owner insists on an exclusive agency listing contract. For example, a broker may have invested in both staging and a widespread marketing campaign. Then, as a result of the broker’s efforts, a potential buyer contacts the owner directly and the owner signs a contract, bypassing the broker entirely. The broker receives no compensation, not even the amount necessary to recover their staging and marketing costs.
An open agency listing contract pits all sales brokers against each other, but with little protection for their work. In this scenario, many different brokers, as well as the owner, can benefit from the sale, even if the selling broker is not the one that has put the resources into preparing the property for sale. A buyer can make a deal with the owner directly, or they can also work with another broker to complete the sale, usually whoever offers the lowest price. Most selling brokers avoid this situation by not showing open agency properties to potential buyers.
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