Common Negotiables & Red Flags in The Listing Agreement
A listing agreement is a contract between you and your agent’s brokerage that will lay out the terms and conditions of the listing. There are three different types of listing agreements you should be familiar with, although the most common is the Exclusive-Right-of-Sale. Find out which items are negotiable and how to spot red flags in a Florida Exclusive Right of Sale Listing Agreement.
Types of Listing Agreements
Open Listing: The seller employs multiple brokers. Brokers are not obligated to market the property and will only be entitled to a commission if they bring a ready, willing, and able buyer to submit an offer on the property that is accepted by the seller. The seller may sell on their own merit without owing a commission.
Exclusive Agency: The seller employs one broker to list the property. The listing broker agrees to cooperate with buyer’s agents from competing brokerages. The seller has the right to sell on their own merit without paying a commission. This arrangement often causes disputes over procuring cause between the broker and the seller.
Exclusive-Right-of-Sale: The seller employs only one broker to list the property and agrees to pay a commission if the property is sold within the listing period. This is the only type of listing agreement that will permit the broker to advertise the listing on the MLS. The seller can not sell on their own merit without paying a commission unless exclusions are written into the listing agreement.
Negotiables in the Exclusive Right-of-Sale Listing Agreement:
- Contract Term: Look to the average days on the market in your neighborhood to guide you toward an appropriate timeframe. For example, if the average days on the market is 30 days, you wouldn’t want to sign a one-year listing agreement unless there were extenuating circumstances. Three to six months would be more appropriate. Remember that on average, it takes 30 to 45 days to close once you’ve accepted an offer. So you want to allow ample time to get your home sold in the event that a deal falls through due to financing, inspection, or appraisal issues.
- Listing Price: Your agent can change the price at a later date with your consent. The listing agreement might include a listing price range if you haven’t agreed on a price before the listing agreement is signed. A comparative market analysis will help you determine an appropriate list price.
- Financing Terms: You want to provide buyers with as many financing terms as possible to increase your chances of selling. However, some terms don’t work for all property types and conditions. If your agent excludes conventional, FHA or VA financing be sure you understand their reasoning. If you would like to consider seller financing, talk to your financial advisor so you have a full understanding of the risks involved.
- Commission: Commission is negotiable, but remember that your agent will have costs associated with your listing. Discount brokers tend to cut marketing costs and spend less time and effort getting your home sold. You can actually net a larger profit by paying a professional Realtor the standard commission rate in your area.
- Marketing: You can prohibit your agent from displaying your listing on the MLS, internet, or third-party syndicated websites. You can also withhold your property address from the internet. This will hinder your agent’s ability to get the home sold.
Red Flags in the Exclusive Right-of-Sale Listing Agreement
- Retained Deposits: It is common for brokerages to take up to 50% of retained deposits, but that doesn’t make it right. This means that if you get under contract with a buyer who fails to perform their duties in the sales contract and you’re eligible to retain their earnest money deposit, your agent could keep a portion of these funds. This is negotiable.
- Cancellation Fees: Many Realtors charge a fee if you decide not to sell to cover their marketing expenses. Cancellation fees are negotiable and exorbitant fees are a red flag.
- Commission Paid to Cooperating Broker: Usually, the commission is split evenly between the listing and buyer’s agents. If you’re selling in a buyer’s market, you may want to consider offering a higher commission percentage or a bonus to the buyer’s agent to help generate greater interest in your property. However, if the listing agent is taking a higher commission than they are offering to the buyer’s agent, they are doing you an injustice because buyer’s agents are more likely to show properties that offer higher commission rates.