STEP #2: SIGNING THE LISTING AGREEMENT
Once you’ve selected a REALTOR® to market and sell your property, you and the agent may enter into a written, legally binding contract called a listing agreement. This standard-form stipulates the agreement terms, including the listing price, the listing time period, the broker’s commission, and more. It also informs the seller of issues and legal requirements that may be involved in the process.
You’ve decided to sell your home and you’ve engaged a Realtor to get the job done. The agent will subsequently present you with a listing agreement, the contract between the seller and the agent that sets forth the conditions of the listing. It’s important to understand the terms of the agreement because once executed, you will be bound by them for the duration of the agreement. And while the listing agreement protects the agent because it obligates you to work with the agent for a minimum amount of time, it also protects you by detailing the agent’s responsibilities and what recourse you have should he/she not fulfill them.
What does the listing agreement cover?
The listing agreement is general an Exclusive Right to Sell agreement which states that you are authorizing the agent to handle the sale of your home, and during the listing period, generally six months, the agent is entitled to the full agreed upon commission. How the commission is split between listing agent and buyer’s agent is specified in the contract. It is usually a 50/50 split. Should by chance you find a buyer on your own, the agent is still entitled to that commission. You are entitled to add names to the contract of people who you have previously had discussions with about purchasing your home. If any of those people end up buying then the agent will not received compensation.
If you have previously had your home on the market with another agent and you canceled the listing, or it expired, then they will probably provide you with a list of names to add to the list of exclusions. For these people there is usually a time period during which those prospective buyers would need to act.
Here are the key terms of listing agreements:
1) Length of the listing period: The listing agreement defines the start date and the end date. During this time period, your agent has the exclusive right to sell your property. Generally, the agreement is written for 3 to 6 months. While sellers typically prefer to have shorter time frames in case a sale doesn’t happen as quickly as imagined, it’s important to recognize that it takes a fair amount of time, effort and expense for the agent to prepare the house for sale, take it to market, and generate interest around the property.
2) Sales price: The listing agreement also defines the mutually agreed upon initial list price for the property. The sales price can be further amended during the listing agreement period with the execution of an addendum document.
3) Amount of commission: The commission rate is the percentage of your sale that is paid out to the brokerage companies that sponsor the real estate agents involved in the transaction. Typically this is set forth at 5-6%, to be split between the listing broker and the selling broker. The listing agreement should also specify exceptions to the commission as well. For instance, if your agent “double-ends” the sale, meaning that he/she also represents the buyer on the transaction, the commission rate for that scenario should be spelled out.
4) Duties: The agreement should lay out all the necessary activities the agent is authorized to conduct on your behalf to sell the property. In addition, the agreement will also specify how you will handle disputes should there be a disagreement between you and the agent. Generally, the contract calls for mediation or binding arbitration.
The listing agreement is the first of several forms a seller will be asked to review and sign during a sale transaction. Read it carefully and have your real estate agent walk you through any portions you don’t understand. Make sure you are comfortable with the terms and clear on how things will proceed.