So you’ve decided to list your home for sale. You already know that listing it with a REALTOR® is statistically the best way to net the highest amount of money in the shortest possible time and with the least amount of hassle, but did you know that all listing contracts are not the same? Here are some basics you might want to know before you sign on the dotted line:

First of all, there are several different types of listing contracts.

"Exclusive Right to Sell" is the most commonly used by quality real estate firms with powerful marketing programs. Under this type of agreement, in exchange for the seller’s commitment to pay the listing company an agreed commission if a sale is made by any party, including the seller himself, the listing broker is able to bring the full force of its marketing to bear. As part of its marketing program, the broker will typically place the property in a local multiple listing service, making it cooperatively available to the vast majority of real estate agents of other brokerage companies to show to their buyer clients. To induce the other agents to bring their buyers to the property, the listing firm offers to share the commission in the event of a sale.

“Exclusive Agency” differs from exclusive right to sell in that it only provides for payment of a commission to the listing firm if they or any other realty firm effect a sale. Under this form of agreement, the seller retains the right to sell the property himself, in which case no commission is paid. This type of agency provides a disincentive for the listing firm to invest heavily in marketing of the home, because if the seller comes up with a buyer on his own there are no commission dollars to offset the marketing costs. It also gives rise to the possibility of an unscrupulous buyer going around the broker, which not only attempts to cheat the broker of his rightfully earned fee, but can lead to a commission claim against the listing broker by a cooperating real estate firm that introduced the buyer to the property. The risk to the seller, besides the ineffectiveness of a watered-down marketing program, is that the seller might agree to a buyer’s price on the assumption that no commission will be due, only to subsequently discover that the broker was, in fact, the procuring cause in the sale and a full brokerage fee is due.

An “Open Listing” is employed by owners trying to sell their home by owner who are also willing to work with real estate agents. Basically, it gives a real estate agent the right to bring buyers to view the home. There is nothing exclusive about an open listing and a home seller can give out such listings to every agent who comes around. This kind of listing is the lowest priority on a broker’s list of properties. It receives no broker marketing and is not listed in the multiple listing database. If the home fits the criteria for one of their clients, and it is convenient, an agent may be willing to show it. And if the showing results in an offer from the buyer, the seller is unrepresented at the negotiating table.

A “Single Showing Listing” is similar to an open listing in many respects, as it is most often used by real estate agents who are showing a FSBO (for sale by owner) to one of their clients. The home seller signs an agreement, which identifies the potential buyer and guarantees the agent a commission should that buyer purchase the home. This prevents the buyer and seller from negotiating directly later and trying to avoid paying the agent’s commission. As with an open listing, agents will not be spending money on marketing the home and it will not be placed in the multiple listing system.

Sellers should beware of the “Net Listing,” in which the seller agrees to accept a fixed price and the broker gets to keep any difference between that amount and the actual sales price. This kind of listing is highly unethical, because it creates a conflict of interest between the broker and the client. It is also illegal in Illinois.

How can some real estate firms offer such low commission rates?
With the advent of the web, a lot of agents are offering "cut-rate" commissions. The old adage of “you get what you pay for” applies, as lower commissions are most often tied to a lower level marketing and service. Generally, an agent who will actively promote your property to other agents and spend money on advertising will generate a better net dollar to the seller that will more than offset the higher commission. A seller is not likely to get that level of service with a reduced commission.

Smart sellers will know their rights when listing their homes. The law regulating real estate brokerage in Illinois stipulates certain minimum services that must be provided, regardless of the kind of listing agreement or the amount of commission. These include accepting delivery of and presenting offers and counter offers regarding the client’s property, assisting the client in developing, communicating, negotiating and presenting offers and counter offers and related items until a contract is signed and all contingencies are satisfied, and answering the client’s questions to the extent allowed under the law. (In Illinois, real estate agents and brokers are prohibited from giving legal advice or performing acts that should be performed by a licensed attorney, including the drafting of documents and legal language.) Some brokers try to skirt even these minimum requirements.

It should also be noted that nothing in the law pertaining to minimum services requires the agent to provide any marketing or assistance in the scheduling of showings, handling of earnest money, or the myriad other valuable services provided by full service firms. Since a powerful marketing program incorporating a strong Internet presence, photography, virtual tours and numerous other media is the best way to get top dollar, it would be wise to thoroughly understand what your broker is prepared to do in this area before you sign the listing agreement.

Lastly, as with any legal contract, one should always read the document before signing. Most REALTOR® forms are written to be easily understood, but if something is unclear, ask questions. If you’re still uncertain, consult your real estate attorney before you sign.

Bob Dohn
www.BobDohn.com
Coldwell Banker Residential Brokerage
140-A South Roselle Road, Schaumburg, IL 60193
Direct Phone: 847-301-3126