With most real estate purchase contracts, everything is negotiable. This is also true of listing agreements you may enter into if you decide to use a real estate agent to list, market and sell your home. Be careful! The listing agreement is legally binding and will govern your relationship with a real estate agent for several months.
All listing agreements contain important legal clauses, including the following: the initial list price, the term of the listing agreement, the fee you agree to pay your broker for selling your home, the length of time during which your broker will be able to collect his fee after the listing agreement expires, and the amount your broker agrees to pay to any sub-agents or buyer brokers for showing and selling your home.
Although the initial list price seems like a relatively simple term, it needs to be arrived at after careful analysis. All real estate professionals worth hiring will volunteer to prepare a comparative market analysis (CMA) for you at no cost. A CMA will provide you with an estimated fair-market value of your home. Home sellers would be wise to interview at least three local real estate agents and ask them each to provide a CMA. That way you will be far more likely to arrive at an accurate estimated fair-market value for your home.
Once you determine this value, the initial list price and pricing strategy can be discussed and implemented. Do not assume that your estimated fair-market value will be your initial list price. Depending on the market activity and price trends, you may want to make your initial list price higher or even lower than your estimated fair-market value. Some real estate professionals advocate an initial list price above your estimated fair-market value under the theory that you can always come down in price. Another school of thought is to start with a list price below the estimated fair-market value and hope that multiple offers create a bidding war that ultimately results in a selling price equal to, or in excess of, your estimated fair-market value. List prices can always be adjusted up or down to take into account current market forces. Just because you may receive a full-price offer does not mean you have to accept that offer. Be aware that in Virginia, if an agent produces a ready, willing and able buyer, you may owe that agent a broker’s fee. In Maryland and the District, you will not owe a commission until you enter into a sales contract with a buyer and go to settlement.
The length of the listing agreement is also negotiable. Real estate professionals will often ask for at least six months to effectively list, market, sell and go to settlement on your home. There is no hard-and-fast rule as to the proper number of months. The term should reflect the average number of days that houses comparable to yours have been on the market before going to closing. In a brisk market, a three-month listing term may be plenty of time. In a sluggish market — or if your home is going to be subject to a short sale — nine months or even a year may not be enough.