Q: I am a real estate agent, recently licensed in Maryland. I have just obtained my first listing to sell a house, but the seller wanted an "open listing." What happens when two real estate companies find buyers who are ready, willing and able to purchase? Are both companies entitled to a commission?
A: More and more sellers are looking to the open type of listing. Under such an arrangement, the seller authorizes the real estate company to market the house and to find a buyer for the property. The open listing arrangement gives sellers the right to engage as many real estate companies as they want, and in fact they also have the right to sell the property themselves. Whoever finds the buyer will get the commission.
Consider the following case. Mr. and Mrs. A employed Broker B to sell their house. An open listing was signed by all parties. Broker B found a purchaser who was ready to purchase at specified terms, but Mr. and Mrs. A had already concluded an agreement to sell to a purchaser obtained by another broker.
Broker B sued the seller for his commission. The court ruled in favor of Mr. and Mrs. A.The court found that, under an open listing where several agents are employed, the sale of the property by either the owner in person or by any of the brokers "operates at once to terminate the authority of all the brokers, even though they had no actual notice of the sale."
It is for this reason, and the possibility of having to do a lot of work for no commission, that many real estate companies are reluctant to sign open listings.
There are a number of agency arrangements which can be entered into with the seller:
Exclusive agency: Under this type of listing agreement, the seller authorizes an agent to sell the house during a specific period of time. The homeowner has the right to sell the property without the agent, and no commission would be earned. However, no other real estate firm can be hired during the period of the exclusive agency.
Exclusive right to sell: Here, we go one step further than the exclusive agency. Not only is the broker the sole agent of the homeowner for the sale of property, but the named agent will be entitled to receive a commission whether the property is sold by that agent, any other agent or firm, or indeed by anyone else -- including the homeowner. Thus, if the owners make the sale themselves, a commission is still owed the listing agent.
Net listing: Under this type of agreement, a broker is entitled to receive as a commission all the purchase price in excess of the price fixed by the seller.
For example, a seller lists the property at $50,000, agreeing that the broker receives as a commission everything over that amount. If the broker finds a buyer who contracts to purchase the property for $70,000, the broker is entitled to a commission of $20,000. Because of the possibilities of fraud, "low-balling" or undervaluing property, many jurisdictions have prohibitied real estate firms from entering into this type of agreement. But even where they are legal, the net listing should be avoided.