How to Negotiate a Better Deal on a Listing Agreement

The listing agreement that you’ll be asked to sign when you hire a real estate agent to help sell your home is a contract. Once all signatures are in place it’s binding on both parties.

What many homeowners don’t understand is that almost everything in this particular contract is negotiable, from how much you agree to pay the broker to the length of the contract.

The best time to negotiate is when the agent is sitting right there in front of you, pen held out to you, hoping you’ll sign on the dotted line. You will never have more leverage during the home sale process than you do at that moment.

listing agreement

Agency Agreement

Listing agreements come in several “flavors,” and it’s important that you know the differences between them:

  • Exclusive Right-to-Sell: This type of agency agreement gives the broker full rights to a commission even if you procure a buyer for the home on your own. This is the only type of agency agreement that gives the agent a realistic expectation of earning her commission. Naturally, then, this is the one that is most commonly used.
  • Exclusive Agency: This type of agency is the most advantageous for the homeowner because it allows him to avoid paying a commission to the broker should he find his own buyer. The down side to this agreement is that the agent may not want to expend energy, marketing funds, and time marketing the home because she may not be reimbursed.
  • Open Agency: Open agency is a bit like “for sale by owner” in that it affords the seller all the control over the sale. The “listing” is open to any agent, and the commission goes to the one who brings in an accepted offer.

Listing Agreement Terms

The terms of the listing agreement include all the conditions required for performance of the contract.

One of the terms you may wish to negotiate with the broker is the length of the agreement. The length of the listing agreement varies according to the market, the type and condition of the home, and other factors. Luxury homes and those in poor condition require more time on the market to bring in a buyer. Also, homes take substantially longer to sell in a buyer’s market when there are lots of other homes on the market.

Ask the agent the average number of days the comparable homes used in her CMA spent on the market. If she used recent statistics, this should give you a good idea of when your home will sell. If the listing agreement is longer than this, ask the agent to shorten it and add an unconditional cancellation clause.

For instance, if homes sell, on average, within 90 days of listing, and the agent wants a 180-day listing agreement, ask her to shorten it to 120 days and insert a clause giving you an unconditional right to cancel after 90 days. Some homeowners ask for a clause allowing them to exit the agreement at any time if the agent isn’t performing as promised. Of course, expectations should be outlined in writing, and the agent should check in weekly with progress reports.

Even the most thorough agent interview can’t tell you if the agent is easy to work with or whether you’ll be satisfied with her services, so feel free to negotiate the listing agreement’s terms as needed.

Commission

Although it varies across the country, the most typical real estate commission is 6 percent of the sales price. Half of this goes to the listing broker and half to the buying agent’s broker.

The commission is then split between the brokers and the two agents, depending on the “commission split” the agents have negotiated with the broker. Negotiated splits can really be anything the two parties negotiate.

Assume your listing agent wants a 6 percent commission and the home sells for $200,000. You will pay, out of the proceeds of the sale, $12,000 in commissions. Your agent’s broker gets only half of this – $6,000 – and the buyer’s broker gets the other half.

Assume your listing agent has agreed with her broker on a 60/40 split. She will receive $3,600 and her broker will receive $2,400 of the original $12,000 commission.

As you can see, by the time your agent is paid, that huge amount of money known as “real estate fees” the seller pays at escrow becomes sliced up so many ways that the listing agent receives only a fraction.

That said, real estate commissions are, by law, negotiable. In a slow market, when agents are spending a significant amount of time and money marketing homes to the few buyers out there, asking for a reduction in commission probably isn’t wise.

In a fast-moving seller’s market, on the other hand, it’s appropriate to ask the agent to accept less since she’ll be doing far less work. A turnkey home on the market during a hot seller’s market may go under contract within hours of being listed on the MLS.

Whatever arrangements the two of you make outside of the listing agreement need to be made part of the agreement, in writing. Keep in mind that real estate agents are representatives of the broker, acting in the broker’s name, and may not have the authority to accept listing agreement changes.

Author: – RealEstate.com

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