Listing Agreement: Common Types and Essential Terms

What is a Listing Agreement?

A listing agreement is a contract between a property owner and a real estate agent who the owner hires to act as their broker. Upon agreement, this agent is tasked with searching for a home buyer to sell the owner’s property to. The contract treats the real estate professional like an independent contractor since he or she is paid commission for their services.

The listing agreement is a binding contract, but it is not considered a real estate contract because there is no exchange of property between the main parties directly involved. The real estate agent acts on behalf of the people selling their home but only to the extent that is requested.

Listing agreements are very common for real estate related services, but they sometimes are used by security issuers and financial exchanges who want or need to have a contract in place since a third party contact is being made by the indirect party.

To get a better understanding of what a listing agreement is, view this article.

Are listing agreements legally binding?

Yes, a listing agreement is a legal contract that is legally binding. Most states require a listing agreement be put into writing when a real estate agent agrees to represent property owners in order for the contract to be enforceable. It is also common for real estate licensing laws to require a broker to be the party in charge of listing, selling, or renting another’s property.

Common Types of Listing Agreements

The listing agreement category is made up of a few different agreement types and the most used ones are listed here for your review:

Open Listing:

An open listing agreement is non-exclusive meaning that owners have the right to sell their property on their own. Owners opting to work under this agreement can work with as many real estate brokers they want to.

A benefit of an open listing agreement is that the owner is only obligated to pay commissions to the broker who successfully sells their home under the agreement’s requirements. A seller agent fee does not need to be paid because the owner represents his/herself. If the owner finds a buyer without any assistance from a broker, then no fees or commissions will need to be paid.

Despite the pros of this option, closing costs and other fees will still need to be paid. A lot of real estate brokers steer away from open listings because they rely on commissions and cannot risk not being paid.

Exclusive Agency Listing:

An exclusive agency agreement is one where a chosen broker represents the owner but the owner still has the authority to sell their property alone. If the owner is able to sell the property without assistance, then no commission fees will be due.

In this type of listing a broker is free to work with other brokerage agencies who can bring a buyer forward. Listing and selling fees are both required in an exclusive listing agreement. This option is best for owners who do not believe they will be able to sell their home without help.

Exclusive Right-to-Sell Listing:

The most frequently chosen listing agreement is the exclusive right-to-sell because it guarantees payment to a broker for representation of the owner and finding buyers. A broker will be paid commissions regardless of whether they brought forward a buyer solely or if they had help from another brokerage company.

Typically, an owner cannot sell their property alone under this option without paying a fee to the broker. However, there are cases where an exception might apply and fees or commission can be avoided if the owner finds a buyer and gets an official contract signed within a set number of days.

Similar to an exclusive agency listing, an owner is the responsible party for paying listing and selling fees in an exclusive right-to-sell listing.

To get a good idea of which listing is best for you, view this article.

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Essential Terms to Know in a Listing Agreement

If you are going to be writing a listing agreement or simply have the need to understand what content is included in one, then you will want to take a look at the following essential terms you will likely come across:

• Start and Finish. A beginning and end date of representation should be listed. This will prevent prolonged efforts from being allowed to continue if the job is not getting done.
• Listing Price. The price that the property is being sold for should be written in the agreement so that undesired negotiations on pricing do not happen.
• Compensation and Fees. The commissions, fees, or other compensation that will become due to the broker need to be added in the agreement. It should be clear as to when the broker will be paid and if payments will be made in full or in increments based on particular duties or completed milestones.
• Terms and Conditions of Payment. An additional section should be included to express what terms and conditions the broker must meet to receive payment. If payment will not be made under certain circumstances or if it will be reduced in the event something is not completed as planned, then the agreement must state the facts regarding this.
• Permission to Bring on Brokers. This section should detail whether the main broker will be permitted to bring on other brokers or brokerage firms to assist in efforts to find a buyer. If this will be allowed then statements should be made as to what fees or commissions will be paid to these brokers by the owner and if the main broker’s pay will be affected in any way.
• Transparency and Disclosures. The agreement needs to contain a section discussing whether the broker will be obligated to inform the owner of any and all offers received for the property for sale, or if the broker can keep that information to his/herself.

Realtors, or members of the National Association of Realtors, are required to have the content listed above included in their listing agreements. It is suggested each listing agreement contains those terms though regardless of realtor status to make sure all bases are touched and nothing important is left out.

In addition to the terms previously listed, there are many other things you may want to have in your listing agreement. See below:

• Description of the Property. Exactly what is included in the sale must be clear (house, fence, hot tub, etc.).
• Advertisements. How the listed property will be advertised should be stated in the agreement. Will it be posted online and on what websites, will yard signs be put up, will a home brochure be published?
• Photographs. Photographs or other images will document what the property looked like at the time of agreement so that if anything changes it will be known.
• Exclusivity Clause. If the broker and owner choose to work exclusively with one another without bringing others into the search and sale process then this clause should be included. If any exclusions to this clause apply then they need to be clearly expressed. Read more about exclusivity clauses here.

To view more about essential terms to include in a listing agreement, click here.

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Can a seller back out of a listing agreement?

You may wonder if a seller is legally permitted to back out of a listing agreement after it has been fully agreed upon. The answer to this question is yes but only in some scenarios.

Although the listing agreement has legal standing it can be terminated if unfortunate events occur such as death, failure to properly conduct business as agreed to, bankruptcy, poor mental wellbeing, or unexpected damage to the subject property. It can also be terminated by mutual agreement of the parties, or if the contract provides an expiration date.

If there is no termination clause included in the listing agreement then you may find it challenging to get out of the contract before the job is complete.

Get Help with A Listing Agreement

If a listing agreement sounds like a necessary document for you to have based on your situation, then reaching out to a good team of real estate lawyers for a consultation should be your next move. Post a project in ContractsCounsel’s marketplace to receive free bids from vetted lawyers.