A net listing is an agreement where the broker takes the difference between the sales price and the net price agreed upon by the seller as commission, but it is considered illegal in many places due to the potential for exploitation. Home sellers should be careful with this agreement as it can lead to ethical dilemmas for brokers.
A net listing is an agreement between the seller of a home and the broker commissioned by the seller to find a buyer. In most listing agreements, the broker is entitled to a percentage of the sales price as his commission. In contrast, in a net listing agreement, the broker takes as a commission the difference between the sales price and the net price agreed upon by the seller, as long as the sales price is higher. Since this practice can put the broker in a position to exploit the seller, it is considered illegal in many places.
The process of selling a home can be difficult for those with no experience in the real estate market. As a result, home sellers often look to a licensed real estate broker to facilitate home sales. Brokers have experience showing homes to potential buyers, dealing with all the regulations associated with home sales, and negotiating fair prices. When a home seller hires a broker, one of a variety of conventional listing agreements is typically signed between the two parties, stipulating the fees that are owed to the broker. One type of unorthodox listing agreement is a net listing, and sellers should be careful with this agreement.
As an example of how a net listing works, imagine a seller wants their home to sell for no less than $100,000 United States Dollars (USD). That is considered the net price, and the broker in turn agrees to sell the house and take anything in excess of the net that is achieved with the eventual sale price as a commission. If the house sells for $125,000 USD, the broker would receive a commission of $25,000 USD, which is the difference between the sale price and the net price.
Such a net listing arrangement can lead to all sorts of ethical dilemmas for brokers, which is why many states in the United States do not allow the practice. Some brokers may deliberately misrepresent a home’s value to sellers to encourage them to set a low net price. If the house sells for much more than that amount, the broker will pocket a considerable amount of money that rightfully should have belonged to the sellers.
Additionally, a broker in a net listing agreement might encourage buyers to wait for higher sales prices in an effort to earn a higher commission. A dishonest broker might reject legitimate offers on the house, especially if those offers were too close to net price and therefore not as profitable for the broker. Sellers should be wary of selling their home this way, even if the practice is legal where they live.
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