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How to Understand & Negotiate a Home Listing Agreement

What is a Listing Agreement and What Does it Cover?

Now that you’ve found an agent you want to work with to sell your home, you have to work out a contract with them. Most states have a standard legal agreement that agents use to make sure both the seller and the agent are protected. Here is what the listing agreement should cover.

Commission
In most cases, the commission will be 6% split between your agent and the buyer’s agent. If you go with what’s called a dual agent, the commission remains the same. Dual agents often have a dubious reputation and are illegal in several states, but there are many reputable dual agents out there. For the most part, the commission is non-negotiable, but it isn’t unheard of to ask for a lower commission on sales that are $500,000 or above. The general rule of thumb on commissions is, however, the less you pay, the less you get.

Right to Sell
The agent will most likely ask for an exclusive right to sell, which means they and they alone have the right to list the house. Other types of contacts will stipulate that the agent gets their commission whether you find the buyer or they do. Sometimes it works out to keep your listing options open. The advantage of exclusive rights is that it incentivizes the agent doing the work for you.

Length of Agreement
Standard contracts for the home-selling process are between 3-6 months. Shorter time frames benefit the seller because if you don’t like the agent or they aren’t getting the job done, you can walk away. Longer agreements are better for the agent because the more work can be done on the house, the better price they will be able to get.

Protection Clause
Agents have to protect themselves from homeowners who make an agreement with the buyer to wait out the length of the agreement so that no commission needs to be paid. This means that if you sell to a buyer found by the agent, then you’ll owe them a commission even if the agreement has been terminated. You’ll want to protect yourself from the protection clause, though, in the case of an agent that fails to perform. Make sure this clause has an exemption in the case of finding a new agent so that you are not paying a commission twice.

Payment
Make sure that payment is owed the agent when the sale is closed, not when the buyer is delivered. If the language of the contract involves payment when a buyer is delivered, then it is possible that the sale could fall through in negotiation with the buyer and you’ll be on the hook for the commission.

Services
The agreement should lay out exactly what the agent is expected to do; use a Multiple Listing Service (MLS), set up yard signs, the dollars to be spent on advertising, being present at walkthroughs, buyer negotiation, and conflict resolution, etc., and the list should be as detailed as possible.

Verification
The agreement will stipulate that you verify certain legal standards: owning the property in good faith, no other claims on the title, etc.

Negotiating the Contract
They say that everything in real estate is negotiable, and it’s true. The agreement between you and your agent is just between the two of you, and if both parties agree, you can add and change whatever you want. But in practice, most agents use a boilerplate form that’s fair to both agent and seller.

Like all important legal documents, and you will be going over many in the course of selling your house, go over this one carefully. If there is anything that seems strange to you in the agreement, have it looked over by a lawyer. Even if you don’t notice anything strange, it wouldn’t hurt to have it looked over by a lawyer. If you are getting a lot of static from an agent over the contract, pay attention. This may not be the agent for you.

Back to: How to Build Your Real Estate Team

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