Types of listing Agreements Flashcards
Why would a seller choose you over another agent or broker? Well, if you put together a great listing presentation, you’ll get their business.
Listing Presentations
A listing presentation is your opportunity to pitch yourself and your services to a seller. Think of it as a job interview in which you are applying for the opportunity to sell someone’s home. You’ll need to gain the seller’s trust by convincing them that you are honest, hardworking, competent, and communicative.
You’ll also need to present a suggested price range based on your knowledge of the local market. Preparing a competitive market analysis (CMA) will help you determine this price range.
Marketing Plans
During the listing presentation, you’ll outline your marketing plan to potential seller clients. A marketing plan is a plan created to secure the other party needed to carry out a real estate transaction that includes sales and advertising.
Your job is to convince the seller that your plan will bring prospective buyers to their property. And how you market your skills to the seller will tell them a lot about how you will market their property to buyers, so be on top of your game from the beginning.
Target Audience and Platform
How will you be targeting buyers? Will you use social media? Your listing presentation is your opportunity to show off your marketing skills. Show them examples!
The End Goal
Your goal in a listing presentation is to impress the prospective seller client so that they sign a listing agreement with you.
Listing Presentation and Marketing Plan
What Exactly Is a Listing Agreement?
Between a Seller and a Broker
Listing agreements are employment agreements made between a seller and a broker. The seller is hiring an agent to sell their home. In other words, the broker is hired to find a ready, willing, and able buyer. Listing agreements are not sales contracts or lease agreements, even if the marketed property is sold or rented.
Listings Belong to the Broker
Listings belong to the employing broker. If a salesperson or associate broker leaves, they cannot take a listing with them.
Authorizes Listing Agency
Listing agreements create an agency relationship authorizing a license holder to represent the principal (the seller or landlord) and market the principal’s property to customers (buyers or tenants).
These types of agreements impose upon the broker and their sponsored salespersons the fiduciary duties of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care (remember the acronym OLD CAR?) to the principal.
Disclosures
If the agent has any interest in the property being sold, this should be disclosed in the listing contract. This also goes for if the listing agent is related to any party in the transaction.
Obligations in a Listing Agreement
A broker generally agrees to provide all of the real estate services the client requires until the property is actually sold or rented. The broker might allow other people — sponsored salespersons, associate brokers, and cooperative brokers — to help carry out their contractual duties, provided they do so under the designated broker’s supervision.
(This, of course, is because the contract is between the seller and the broker, not salespersons sponsored by the broker.)
Boilerplate Forms
Listing agreements must be in writing in Arizona. In Arizona, the most commonly used preprinted form for listing agreements is created by the Arizona Association of REALTORS® (AAR). The standard language in these forms is called boilerplate language.
If you are a member of AAR, you will have access to these forms.
An open listing is a nonexclusive listing agreement that gives multiple brokers (and owners themselves) the right to sell the property. The individual who is considered to have procured the cause of the sale is the one who will receive the commission. If the property owner finds their own buyer, no commission is owed.
Open listings are considered a unilateral contract. The broker is not required to perform (bring a buyer to the table), but if they do, the seller would be required to pay commission.
Open Listings = Multiple Open Agreements
An open listing basically provides a commission to the broker only if their activities bring about a sale. Sellers can enter into multiple open agreements with several brokers. This is commonly done orally, but a written agreement to an open listing is the wiser choice for a broker who wants to secure the commission if they find the buyer.
EXAMPLE
Francine is selling an office building. She gives three brokers in the area an open listing. Broker Betty finds a buyer for the building, so she gets a commission. The other two brokers do not receive any commission, despite the work they did marketing and speaking to prospective buyers.
Pros for Sellers
Some sellers believe that this type of listing works in their favor. Being listed with various brokerages means more prospects, and the seller will not be locked into paying a commission if the property is sold as a result of the seller’s own initiative. Also, open listings may be terminated with any or all brokers at any time before performance. It’s the only listing type that may not have an expiration date, but rather runs for a “reasonable” amount of time.
The Downside
Open listings are relatively rare in residential real estate. A downside for sellers is that agents will not be overly motivated to put time and money into marketing an open listing property knowing they stand a good chance of not seeing any commission at the end of their efforts. The broker realizes that this unilateral agreement only rewards them for bringing a buyer – nothing else. Even if the agent does secure the buyer, they’ll have to prove it.
Additionally, the expertise a real estate professional brings to a transaction came to that professional at a price. They will not be inclined to simply give away their hard-earned knowledge to a seller who is less than fully committed to the broker.
Most brokers will not spend any of their funds on an open listing due to the fact that the company might not receive a commission. After all, the company down the street might sell the place before their company does. It’s just too risky.
Note that it’s quite rare for an open listing to appear on the MLS.
Background
In the early days of real estate, open listings were so common that the license holders would carry a list of all of them in their pockets.
There was no paperwork between the owner and license holder, but the owner would say that if a buyer was located, the owner would pay a commission. Since this was just a verbal agreement, if the owner decided not to pay the sales agent the commission, there was little that the sales agent could do about it.
Nowadays, the courts require a written document for evidence of an agreement. If one does not exist, the case will be thrown out before it even begins.
Open Listings
You might have noticed that I used a fancy phrase in the previous section: procuring cause. It’s a legal term used in open listings to determine whether an agent has a right to commission.
Procuring cause is the defining action or actions that brought a buyer to purchase a property.
Featured in Some Listing Agreements
In an open listing, a broker may have to prove that they were the procuring cause for the sale in order to earn compensation. Since a seller who enters into an open listing may choose to enter into other listing agreements with other brokers, there lies the possibility that brokers may need to prove that they are the one responsible for “producing” a buyer.
EXAMPLE
Lisa is looking to sell her home. She entered into open listings with two fine fellows named Jermaine and Brett. Both of them had a chance to earn commission on the sale of her home, but they had to prove that they had procuring cause. Jermaine showed the house to several buyers, and he even created a mailing campaign — but no dice. Brett, on the other hand, just happened to run into a fellow named Murray on the street holding a sign that said “I want to buy a house.” Brett took Murray to Lisa’s home to show him around, and helped Murray eventually purchase the home.
It was determined that Brett had procuring cause in the transaction and he was awarded the commission.You might have noticed that I used a fancy phrase in the previous section: procuring cause. It’s a legal term used in open listings to determine whether an agent has a right to commission.
Procuring cause is the defining action or actions that brought a buyer to purchase a property.
Featured in Some Listing Agreements
In an open listing, a broker may have to prove that they were the procuring cause for the sale in order to earn compensation. Since a seller who enters into an open listing may choose to enter into other listing agreements with other brokers, there lies the possibility that brokers may need to prove that they are the one responsible for “producing” a buyer.
EXAMPLE
Lisa is looking to sell her home. She entered into open listings with two fine fellows named Jermaine and Brett. Both of them had a chance to earn commission on the sale of her home, but they had to prove that they had procuring cause. Jermaine showed the house to several buyers, and he even created a mailing campaign — but no dice. Brett, on the other hand, just happened to run into a fellow named Murray on the street holding a sign that said “I want to buy a house.” Brett took Murray to Lisa’s home to show him around, and helped Murray eventually purchase the home.
It was determined that Brett had procuring cause in the transaction and he was awarded the commission.
Procuring Cause
Exclusive right-to-sell agreements are the most common and most preferred (by brokers) type of listing agreement. This type of agreement states that as long as the property is sold within the stipulated time frame of the contract, the listing broker named in the contract will receive a commission for their role as agent.
It does not matter how the sale is secured, whether by the named listing broker, another broker, or by the owner finding a buyer without the listing broker’s assistance. Regardless, a commission must be paid to the listing broker who holds exclusive rights to the commission.
Exclusive right-to-sell agreements are bilateral contracts, as the agent promises to market and sell the property in return for a commission.
Getting Paid in All Situations
Sign a seller to this type of agreement and, if the home sells before the agreement’s expiration date, you’re getting paid, plain and simple.
If the broker procures the buyer, the listing broker gets paid.
If a subagent, broker’s agent, or buyer’s agent procures the buyer, the listing broker gets paid.
If the seller procures the buyer, the listing broker gets paid.
If Elvis were to reappear and procure the buyer… well, you get the picture, right?
If the owner signs an exclusive right-to-sell listing agreement with more than one broker, that owner could be liable for additional commissions.
Exclusive Commission Split for Cooperation
If a license holder other than the listing broker brings the buyer to the transaction in an exclusive right-to-sell listing, commissions are generally split, per the listing agreement instructions, between the listing broker and that license holder. This is an example of a cooperating broker — such as a buyer’s agent who is representing the buyer in a sale.
Exclusive Right-to-Sell Listing
Exclusive agency listings combine elements of open listings and exclusive right-to-sell agreements.
As with open listings, exclusive agency listings release the owner from any obligation to pay a commission in the event that the owner secures the sale of the property.
As with exclusive right-to-sell listings, the seller agrees to list the property with only one broker during a specified listing term.
Exclusive agency agreements are bilateral contracts.
Who Gets the Commission?
The listing broker is owed commission unless the owner procures their own buyer. This type of listing is favored by sellers who want representation, but may also think they can find a buyer themselves. If that’s the case, they can avoid paying commission or they can pay a smaller amount to the broker, depending on the details of the contract. The seller may need to specifically name their prospective buyer(s) at the beginning of the agreement so they have a clear claim for procuring cause.
EXAMPLE
Allison is selling her condo. She and Broker Brett sign an exclusive agency listing. Allison ends up selling the condo to a friend. Darn, Brett doesn’t get a commission!
The distinguishing characteristic of exclusive agency listings is that the named listing broker is owed commission if the property is sold by anyone other than the owner. This feature can lead to problems, on occasion. Let’s look at some of those!
Exclusive Agency Listings
Demotivation
First of all, as with an open listing, an exclusive agency listing can de-motivate a license holder if they feel the seller is not fully committed to them or is actively competing against them for the sale of the property. It is not unheard of to see marketing efforts — advertisements, flyers, etc. — coming separately from both camps.
A seller who states they do not plan to actively market the property themselves, but simply wants to reserve the right to sell it themselves if a buyer falls into their lap, might be looked at slightly more favorably by a broker.
The Washing of Hands
Second, if the seller finds a buyer themselves, once the seller tells the listing broker they will not be receiving any compensation per the agreement, that broker will likely wash their hands of the whole thing and walk away.
No compensation, no further broker support. This is an understandable reaction the seller needs to be prepared for.
Exclusive Agency Listings: Potential Problems
Let’s review the three listing agreement options we’ve discussed so far:
Open listing: A nonexclusive listing agreement that gives multiple brokers (and owners themselves) the right to sell the property
Exclusive right-to-sell listing: An agreement in which the seller guarantees the named broker receives a commission if the property is sold, regardless of who brings the buyer
Exclusive agency listing: An agreement in which the seller has an exclusive relationship with a broker but retains the right to sell the property to named prospects
Commission Eligibility
Below is a helpful visual aid that shows who is eligible for a commission in various listing agreements. (Click it to get a better look!)
Chart illustrating who is eligible to be paid based on listing agreement type.
Image description
A Review of Listing Types
The next type of listing I want you to know about is less commonly used.
A net listing can be either an exclusive or non-exclusive agreement. Its defining feature is how the commission is calculated.
How They Work
In a net listing, the seller pre-determines a specific amount that they will accept on the sale of their property. If you can sell it for a higher price, any excess amount is considered earned compensation by the broker.
Are They Legal?
Net listings are illegal in many states. They are discouraged, but legal, in Arizona. Net listings open you up for legal trouble. They offer ample incentive for fraud or bad faith on the part of license holders who might be tempted to take advantage of sellers who don’t realize the true market value of their property. The unscrupulous license holder could use that knowledge to convince the seller to sign a net listing below market, thus gaining themselves an oversized and ill-gotten payday.
Even a virtuous agent should probably steer clear of net listings. They put you at risk of earning a meager commission (or no commission!) if the seller accepts a minimal offer that meets their expectations but leaves little for your compensation. Remember, it will be your fiduciary duty to present all offers, including offers that would leave you with a paltry commission.
Indeed, net listings often involve a conflict of interest, as an unethical licensee might decide to present only those offers that would net them a nice commission, rather than presenting all offers.
Net Listings
Okay! Now that you remember what the MLS is, let’s move on to our last few listing types.
Pocket listings are listings that do not appear on the MLS. They are off market. These listings are also knowns as whisper listings. The only people who know about the listing are:
The seller
The listing agent
Potential buyers whom the seller and listing agent inform about the property
Pocket listings are “tucked away in the pocket” of the agent working for sellers who do NOT want their property advertised on the MLS. When sellers go this route, it is understood that only potential buyers working directly with those sellers’ brokers will have the chance to be made aware of the property for sale.
While not appearing on the MLS, pocket listings can be entered into some syndication websites (such as “Pocket Deed.”)
Why Use a Pocket Listing?
A pocket listing often happens when an owner wants to privately sell their house. Celebrities like to go this route. 👀
It could also be that the seller doesn’t want people to know that they are getting divorced, someone has died, or something along those lines.
Should You Use One?
Some brokers frown upon pocket listings, but others are perfectly okay with them. Agents should check with their broker’s policies first before agreeing to a pocket listing situation!
If you do use a pocket listing, it’s very important that you disclose to the seller that their property will have much more limited exposure in the market. The seller needs to know that it might take a while to sell the home if it’s being sold “under the radar” like this.
There are also some fair housing concerns. With pocket listings, not everyone gets access to the property, or the listing gets shared with only an exclusive few. Some claim that pocket listings promote discrimination in the real estate market.
Pocket Listings
An office exclusive is similar to a pocket listing, but isn’t quite the same thing. With an office exclusive, the listing agent keeps the whole transaction in house, meaning that it is “exclusive” to the agents who work within the brokerage. Only those agents who belong to the brokerage may handle the transaction. This means that both the buyer and seller will be represented by agents within the brokerage.
An office exclusive is fine as long as the seller knows that other brokers will not be marketing or showing the property (which will greatly cut down on the property’s exposure). Gotta disclose!
What’s the Difference?
A pocket listing is also off market, but the listing agent is basically just keeping the sale quiet. Cooperating brokers could be involved in this kind of transaction. However, cooperating brokers would not be involved in an office exclusive.
Office Exclusives
There are several types of listing agreements, so it’s important for you to understand their differences. That way, you can properly guide your seller clients and help them select the one that best fits their interests and needs.
But before you go, let’s review some of the important terms, concepts, and principles you’ve learned along the way.
Key Terms
Here are the key terms you learned in this chapter:
exclusive agency listing
an agreement in which the seller has an exclusive relationship with a broker but retains the right to sell the property to named prospects
exclusive right-to-sell listing
an agreement in which the seller guarantees the named broker receives a commission if the property is sold, regardless of who brings the buyer
marketing plan
a plan created to secure the other party needed to carry out a real estate transaction that includes sales and advertising
net listing
an agreement in which the seller names an amount they will accept for a property and if the sales price exceeds that amount, the broker receives the excess as commission; illegal in many states; discouraged but legal in Arizona
open listing
a nonexclusive listing agreement that gives multiple brokers (and owners themselves) the right to sell the property
pocket listing
listings that do not appear on the MLS; only potential buyers working directly with the seller’s broker will have the chance to be made aware of the property for sale
procuring cause
the defining action or actions that brought a buyer to purchase a property
Key Concepts & Principles
Here are the concepts and principles you’ll want to master from this chapter.
A Review of Listing Types
Open listing: A nonexclusive listing agreement that gives multiple brokers (and owners themselves) the right to sell the property
Exclusive right-to-sell listing: An agreement in which the seller guarantees the named broker receives a commission if the property is sold, regardless of who brings the buyer
Exclusive agency listing: An agreement in which the seller has an exclusive relationship with a broker but retains the right to sell the property to named prospects
Net listing: An agreement in which the seller names an amount they will accept for a property and if the sales price exceeds that amount, the broker receives the excess as commission; illegal in many states; discouraged but legal in Arizona
Pocket listing: A listing that does not appear on the MLS; only potential buyers working directly with the seller’s broker will have the chance to be made aware of the property for sale
Office exclusive: The listing agent keeps the whole transaction in house, meaning that it is “exclusive” to the agents who work within the brokerage
Coming soon listing: The listing agent advertises a property that is not yet available; used to generate hype for the property
Commission Eligibility
Below is a helpful visual aid that shows who is eligible for a commission in some of the above listing agreements.
Chart illustrating who is eligible to be paid based on listing agreement type.
Image description
Chapter Summary
