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Listing Agreements Explained

by Corine Rivera Homelight

Breaking Down the Big, Scary Listing Agreement Into a Deal You Understand

Congrats, homeowner! You’re ready sell your house, and you’ve picked a real estate agent you trust to get the job done. That’s a big step toward your end goal.

But before you can put your home on the market and show it off to the world, you need to make the deal with your real estate agent official.

That’s where the listing agreement comes in—to establish a written arrangement between you and your agent, kick off the selling process, and set the stage for the next few months of your home sale.

You might feel some nerves about that big, scary contract in front of you. And you likely have a lot of questions about whether the agreement you’re looking at is standard and to your liking.

Here’s everything you need to know about the listing agreement so that you can sign on the dotted line with confidence and peace of mind.

What is a Listing Agreement?

“The listing agreement is a legal contract between a homeowner who would like to sell their home for top dollar and a good, solid real estate company who would also like to sell their home for top dollar,” explains Armand Lenchek, who’s sold hundreds of homes and ranks in the top 2% of seller’s agents in Durham, North Carolina.

The contract is a legally binding agreement that gives the real estate agent or broker the right to sell the home. There are several different types of listing agreements, but three of them are most commonly used.

The Most Common Types of Listing Agreements

Exclusive Right to Sell Listing: The Exclusive Right to Sell listing is the most commonly used listing agreement among homeowners and real estate agents. It’s a legally binding contract that allows the real estate agent (or brokerage) full and total control over the transaction and rights to the agreed upon commission once the home sells.

“99% of the time the listing agreement is a listing agreement where the listing agents are responsible for everything,” said Lenchek.

In an Exclusive Right to Sell Listing Agreement, the real estate agent is given the rights to market the home, list the home on MLS, and receive the commission if the real estate agent closes a sale within the determined time frame.

Any mistakes in the terms of the Exclusive Right to Sell Listing Agreement can affect the outcome of the sale and how much the seller will owe to the real estate agent, so it is important for the seller to understand what they are signing.

Exclusive Agency Listing: In an exclusive agency listing, the homeowner allows one real estate agent or broker to try to sell the home. However, similar to an open listing, you have the right to find a buyer on your own. If you find a buyer on your own, the real estate agent would not receive any sort of commission.

While this agreement allows you to fall back on the help of real estate agent if you can’t sell your home yourself, real estate agents are a little reluctant to spend their time trying to sell a property without a guaranteed commission when it sells.

exclusive right to sell listing agreement

Open Listing: The open listing agreement offers the lowest level of commitment. Any real estate agent who brings you a buyer can land the commission AND you reserve the right to sell the property on your own (without paying a commission) if you find your own buyer.

But, odds are that no real estate agent will take you on as a client because any other real estate agent could scoop their commission.

Plus, according to the 2017 Profile of Home Buyers and Sellers by the National Association of Realtors, only 8% of home sales were sold by the owner and typically went for less than those sold by real estate agents.

So, if you choose an open listing agreement you might end up doing all the work to sell your house, and you’re likely to make less money on the sale.

What Goes Into a Listing Agreement?

The listing agreement, particularly the Exclusive Listing Agreement, involves everything––from what’s included in your home sale (appliances, chandeliers, etc.) to real estate agent compensation.

The contract lays out the terms of how the real estate agent can promote your home. This includes the use of the MLS, internet marketing, lockbox, and for-sale signs. There are also clauses that adhere to Equal Opportunity Housing, attorney fees, and dispute resolution and mediation.

You will also grant the agent the rights to use the listing content which includes photos, graphics, videos, drawings, virtual tours, written descriptions, and any other copyrightable elements relating to the property, according to the National Association of Realtors.

The terms involved in the agreement serve as the foundation of your entire real estate transaction, so it’s extremely important that you read each line carefully.

Do You Have to Sign a Listing Agreement?

If you want to sell your home using a real estate agent, you absolutely have to sign a listing agreement, according to Lenchek. If you choose to list your home as for-sale-by-owner (FSBO), you do not have to work with a real estate agent, and therefore do not have to sign a listing agreement.

When Do You Sign the Listing Agreement?

According to Lenchek, it all depends on the situation. While some homeowners sign the listing agreement on the first meeting, others may wait weeks or months until they are ready to sell their home. Whatever the case, a listing agreement will be signed once you are ready for your real estate agent to start marketing your home.

How Long Does a Listing Agreement Last?

A listing agreement is valid from the date you sign it until the expiration date. The expiration date depends on a few factors and varies by situation. The condition of the home, the current real estate market, and homeowner’s needs are all factors that play a role in how long a listing agreement remains valid.

Typically, a listing agreement will last from two to six months from the time it’s put on the market. Lenchek mentioned that if a house needs a lot of maintenance, or if the homeowners were in a different state, the owner may sign the listing agreement ahead of time even though it may be two months until you put your house on the market.

The expiration date also depends on the real estate market and the comparable homes in the area. If every comparable home in the area has sold in less than 60 days, you may want to sign up for a two-month contract. Ultimately, the expiration date of the agreement can be negotiated with your real estate agent.

What Can You Negotiate in the Listing Agreement?

As Lenchek puts it, in real estate, everything is negotiable. If you’re uncomfortable with certain terms, say something to your real estate agent or real estate broker that they work for. If they refuse to negotiate, you may want to consider finding a different agent or a different brokerage. Be careful though. Some negotiations may send a real estate agent walking.

Here are some common things to negotiate in the listing agreement:

Expiration date: Real estate agents want to be confident that they will sell your house, so they may want a longer expiration date to give themselves plenty of time. If you believe your home is particularly special and can sell faster than the time frame suggested by the real estate agent, you have a right to negotiate. Most real estate agents will listen to a homeowner’s concerns and find a way to compromise.

Commission: Most listing (or seller’s) agent commissions are between 5% and 6% and are typically split with the buyer’s agent when the deal closes. The commission percentage is decided on when signing the listing agreement, and then becomes part of the MLS listing, so it can’t be changed once the agreement is signed. Legally, you can negotiate compensation percentage, but it could affect the sale––and your real estate agent isn’t required to accept your terms.

A big chunk of real estate agent fees goes to marketing your house, so lowering the commission could lower the quality of marketing for your home.

Keep in mind, if you negotiate your real estate agent’s commission to a lower percentage, you also reduce the compensation a buyer’s agent would receive at the deal’s close. Unfortunately, some buyer’s agents may secretly steer clear of showing homes that offer a low commission, though the practice is technically unethical and frowned upon. The decision is ultimately yours, but be aware that a lower commission could slow down your buyer foot traffic for reasons outside your control.

Type of Listing: You have the right to choose the type of listing agreement they want to use. While most real estate agents choose to sign an Exclusive Right to Sell agreement, you can negotiate a different agreement. However, this may make it harder to find a real estate agent to work with, which could hold up your sale.

List Price: The listing agreement will specify what you will list your home for. Your real estate agent will determine a recommended list price based on market data, comparable homes that have sold in the area, and condition of the home. As the homeowner, you have a right to negotiate the list price. In most cases, it is best to go with a top real estate agent’s recommendation.

Duties: The duties of a seller’s real estate agent includes things like listing the address of the home online, posting a sign in the yard, and creating a list sheet. If you have any issue with these things or the other duties listed in the agreement, you can negotiate them with your real estate agent or the broker that your agent works for.

What Should You Look Out For in a Listing Agreement?

Since a listing agreement is a legally binding contract for a major financial investment, it’s important to look out for red flags before you sign. To save yourself from a bad real estate experience, work with a top-performing, experienced real estate agent.

Here are 7 red flags to look out for when you sit down to sign a listing agreement with your real estate agent.

  • Check the agent’s real estate license. It’s probably a formality (especially if you found your real estate agent through HomeLight) but you should always make sure your agent is legally allowed to sell real estate in your state.
  • Ask if they work as an agent full time. While part-time real estate agents often do a fine job, they may not be able to devote quite enough time to your sale. HomeLight’s data shows that part-time real estate agents rarely break into the top 3% of performing agents in their area nationwide.
  • Read reviews. An experienced real estate agent will have client reviews to support their reputation. If you can’t find any reviews online, ask your real estate agent to provide a list of client referrals.
  • Don’t pay them anything up front. You should never have to pay a real estate agent before your home is sold. If an agent or a brokerage requests a payment before signing the listing agreement, don’t sign it and find a new agent.
  • Negotiate the terms. If you aren’t comfortable with the terms of the listing agreement, ask the real estate agent to change them. A top real estate agent or broker will be willing to compromise for the needs of the client.
  • Check the expiration date. Be aware of the expiration date of the listing agreement. If the agreement lasts longer than what you had in mind, don’t sign it until you bring it up to your real estate agent.
  • Know the commission. Make sure the commission written in the agreement is the amount you and your agent agreed on. If you make changes to the contract, don’t sign it until the changes are fixed.

How Do You Terminate a Listing Agreement?

Technically, a listing agreement is a contract so there’s no provision for it to be terminated. Before signing the listing agreement, you can ask your real estate agent if they’ll allow written terms for ending the contract early. Some real estate agents and brokers will allow that, and some won’t. If you’re unhappy with the services of your real estate agent during your home sale, you can ask them to let you out of the contract.

Lenchek said he’ll always write in a client’s terms for cancellation if necessary. He also added that if you signed with a brokerage and you are unhappy with a particular agent, you can ask to switch agents in the same brokerage without breaching the contract.

“Real estate is a service industry. If you’re not prepared to give top-notch service to your clients, you really shouldn’t be in the business,” Lenchek said. He adds that in the rare case that a homeowner is unhappy with his services, he’ll let them out of the agreement without any trouble.

signing the listing agreement

What Is the Protection Period in a Listing Agreement?

The protection period in a listing agreement is specifically there to protect the real estate agent. For a certain amount of days after the contract expires, if any of the potential buyers that the seller’s agent brought in actually buy the home, then you will still owe them the commission.

What Is the Mediation and Dispute Clause in a Listing Agreement?

The mediation and dispute clause in the listing agreement simply states that if there is a disagreement between you and your real estate agent in the duration of the contract, you will meet with an impartial third-party to try to work out any issues. It is meant to avoid unnecessary legal issues between you and your agent in the midst of the home sale.

Does a Listing Agreement Cost Me Anything Upfront?

A listing agreement shouldn’t cost anything up front. Rather, it determines the compensation for the real estate agent after closing. “The listing agreements do have a clause that says if something happens and you part company, the sellers are responsible for the listing agent’s expenses,” Lenchek adds. “But I never have and never will incur that clause.”

What Happens to the Listing Agreement if My Home Doesn’t Sell?

Once a listing agreement expires, the contract is terminated and the house is taken off the market. You will be free to either look for another real estate agent or broker, extend the listing agreement with your current real estate agent or broker, or take their home off the market completely.

That’s The Nitty-Gritty on Real Estate Listing Agreements

Understand what you’re signing and communicate with your real estate agent. The listing agreement will control your entire home sale, from the list price of your home to the amount you owe your agent when it closes. Negotiate the terms that you are uncomfortable with and find a top real estate agent to get you through a home sale stress-free.

And as always—read the fine print!

Some Highlights:

  • Buying a home can be intimidating if you are not familiar with the terms used during the process.
  • To start you on your path with confidence, we have compiled a list of some of the most common terms used when buying a home.
  • The best way to ensure that your home-buying process is a confident one is to find a real estate professional who not only puts your family’s needs first, but will guide you through every aspect of the transaction with ‘the heart of a teacher.’

Don't wait until next year to buy a home

by KCM

The interest rate you pay on your home mortgage has a direct impact on your monthly payment; the higher the rate, the greater the payment will be. That is why it is important to know where rates are headed when deciding to start your home search.

Below is a chart created using Freddie Mac’s U.S. Economic & Housing Marketing Outlook. As you can see, interest rates are projected to increase steadily over the course of the next year.

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.

According to CoreLogic’s latest Home Price Index, national home prices have appreciated 6.2% from this time last year and are predicted to be 5.1% higher next year.

If both the predictions of home price and interest rate increases become a reality, families would wind up paying considerably more for their next homes.

Bottom Line

Even a small increase in interest rate can impact your family’s wealth, so don’t wait until next year! Let’s get together to evaluate your ability to purchase your dream home now.

If you thought about selling your house this year, now more than ever may be the time to do it! The inventory of homes for sale is well below historic norms and buyer demand is skyrocketing. We were still in high school when we learned about the concept of supply and demand, so we understand that the best time to sell something is when the supply of that item is low and demand for that item is high. That defines today’s real estate market.

Lawrence Yun, Chief Economist at the National Association of Realtors, recently commented:

Contract signings inched backward once again last month, as declines in the South and West weighed down on overall activity.”

Yun goes on to say:

The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”

In this type of market, a seller may hold a major negotiating advantage when it comes to price and other aspects of the real estate transaction, including the inspection, appraisal and financing contingencies.

Bottom Line

As a potential seller, you are in the driver’s seat right now. It might be time to hit the gas.

Why buying a home this fall is a good decision

by KCM

Here are four great reasons to consider buying a home today instead of waiting.

1. Prices Will Continue to Rise

CoreLogic’s latest Home Price Insights report reveals that home prices have appreciated by 6.2% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 5.1% over the next year.

Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have already increased by half of a percentage point, to around 4.5% in 2018. Most experts predict that rates will rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison, projecting that rates will increase by half a percentage point to around 5.1% by this time next year.

An increase in rates will impact your monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home.

3. Either Way, You Are Paying a Mortgage

There are some renters who have not yet purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you are living with your parents rent-free, you are paying a mortgageeither yours or your landlord’s.

As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to build equity in your home which you can then tap into later in life. As a renter, you guarantee your landlord is the person building that equity.

Are you ready to put your housing cost to work for you?

4. It’s Time to Move on with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

But what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer, or you just want to have control over renovations, maybe now is the time to buy.

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

Why Selling this Fall makes sense

by KCM

Here are five reasons why listing your home for sale this fall makes sense.

1. Demand Is Strong

The latest Buyer Traffic Report from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing and able to purchase…and are in the market right now! In fact, more often than not, multiple buyers end up competing with each other to buy the same homes.

Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now 

Housing inventory is still under the 6-month supply needed for a normal housing market. This means that, in the majority of the country, there are not enough homes for sale to satisfy the number of buyers in the market. This is good news for homeowners who have gained equity as their home values have increased. However, additional inventory could be coming to the market soon!

Historically, a homeowner stayed in his or her home for an average of six years, but that number has hovered between nine and ten years since 2011. Many homeowners have a pent-up desire to move as they were unable to sell over the last few years because of a negative equity situation. As home values continue to appreciate, more and more homeowners will be given the freedom to move.

The choices buyers have will continue to increase. Don’t wait until this other inventory comes to market before you decide to sell.

3. The Process Will Be Quicker

Today’s competitive environment has forced buyers to do all that they can to stand out from the crowd, including getting pre-approved for their mortgage financing. This makes the entire selling process much faster and much simpler as buyers know exactly what they can afford before home shopping. According to Ellie Mae’s latest Origination Insights Report, the average time it took to close a loan was 44 days.

4. There Will Never Be a Better Time to Move Up

If your next move will be into a premium or luxury home, now is the time to move up! The abundance of inventory available in these higher price ranges has created a buyer’s market for anybody looking to purchase these homes. This means that if you are planning on selling a starter or trade-up home, your home will sell quickly AND you’ll be able to find a premium home to call your own!

According to CoreLogic, prices are projected to appreciate by 5.1% over the next year. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.

5. It’s Time to Move on With Your Life 

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you feel you should?

Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.

Whose mortgage do you want to pay?

by KCM

There are some people who have not purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize, however, that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.

As Entrepreneur Magazine, a premier source for small business, explained in their article, “12 Practical Steps to Getting Rich”:

“While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.”

With home prices rising, many renters are concerned about their house-buying power. Mark Fleming, Chief Economist at First American, explained:

Over the last three years, renter house-buying power has increased fast enough to keep pace with house price appreciation, so the share of homes that a renter can afford to buy has remained the same since 2015.

Although mortgage rates are expected to rise, they are still low by historic standards, and real household incomes are the highest they have ever been. Assuming this trend continues, our measure of affordability, which takes into account income, interest rates, and house prices, indicates that homeownership is still within reach for renters.”

As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to build equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person building that equity.

Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were at 4.51% last week.

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, now may be the time to buy.

Until you know the facts buying can be scary...

by KCM

Some Highlights:

Many potential homebuyers believe that they need a 20% down payment and a 780 FICO® score to qualify to buy a home which stops many of them from even trying! Here are some facts:

  • 72% of buyers who purchased homes this year have put down less than 20%.
  • 76.4% of loan applications were approved last month.
  • The average credit score of approved loans was 727 in September.

Seeing lots of Price Reductions lately?

by KCM

Last week, in a new report from Zillow, it was revealed that there has been a rash of price reductions across the country. According to the report:

  • There are more price cuts now than a year ago in over two-thirds of the nation’s largest metros
  • About 14% of all listings had a price cut in June
  • Since the beginning of the year, the share of listings with a price cut increased 1.2%
  • This is the greatest January-to-June increase ever reported, and more than double the January-to-June increase last year

Senior Economist Aaron Terrazas further explained:

“A rising share of on-market listings are seeing price cuts, though these price cuts are concentrated at the most expensive price-points and primarily in markets that have seen outsized price gains in recent years.”

What this DOESN’T MEAN for the real estate market…

This doesn’t mean home values have depreciated or are about to depreciate.

A seller may put a home worth $300,000 on the market for $325,000 hoping a bidding war will occur and an overanxious buyer will pay more than its actual value. That has happened often over the last few years. If the seller gets no offers and reduces the price to $300,000, it doesn’t mean the home dropped in value. It is still worth $300,000.

Home prices will continue to appreciate over the next 12 months. In this same report, Terrazas remarks:

“It’s far too soon to call this a buyer’s market, home values are still expected to appreciate at double their historic rate over the next 12 months, but the frenetic pace of the housing market over the past few years is starting to return toward a more normal trend.”

What this DOES MEAN for the real estate market…

This does mean that sellers should be more conservative when it comes to the price at which they list their homes – especially sellers in the upper end of each market.

Sellers have been listing their homes at inflated prices hoping a super-hot market will deliver a buyer willing to pay virtually any price to ensure they don’t lose the house. That strategy has worked somewhat successfully over the last two years. However, the time that strategy would have worked may have passed.

Again, quoting Aaron Terrazas in the report:

“The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds may be starting to shift ever-so-slightly.”

Bottom Line

Prices are not depreciating. However, if you want to sell your house quickly and with the least amount of hassles, pricing it correctly from the beginning makes the most sense.

Addicted to HGTV? Reality TV Myths vs Real Life

by KCM

Have you ever been flipping through the channels, only to find yourself glued to the couch in an HGTV binge session? We’ve all been there, watching entire seasons of “Love it or List it,” “Million Dollar Listing,” “House Hunters,” “Property Brothers,” and so many more all in one sitting.

When you’re in the middle of your real estate themed show marathon, you might start to think that everything you see on TV must be how it works in real life, but you may need a reality check.

Reality TV Show Myths vs. Real Life:

Myth #1: Buyers look at 3 homes and decide to purchase one of them.
Truth: There may be buyers who fall in love and buy the first home they see, but according to the National Association of Realtors the average homebuyer tours 10 homes as a part of their search.  

Myth #2: The houses the buyers are touring are still for sale.
Truth: Everything is staged for TV. Many of the homes being shown are already sold and are off the market. 

Myth #3: The buyers haven’t made a purchase decision yet.
Truth: Since there is no way to show the entire buying process in a 30-minute show, TV producers often choose buyers who are further along in the process and have already chosen a home to buy. 

Myth #4: If you list your home for sale, it will ALWAYS sell at the open house.
Truth: Of course, this would be great! Open houses are important to guarantee the most exposure to buyers in your area but are only a PIECE of the overall marketing of your home. Keep in mind that many homes are sold during regular showing appointments as well. 

Myth #5: Homeowners decide to sell their homes after a 5-minute conversation.
Truth: Similar to the buyers portrayed on the shows, many of the sellers have already spent hours deliberating the decision to list their homes and move on with their lives/goals.

Bottom Line

Having an experienced professional on your side while navigating the real estate market is the best way to guarantee that you can make the home of your dreams a reality!

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Photo of Summit Real Estate Real Estate
Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker