QI am considering selling my home, which is worth a considerable amount of money. One agent requested my consent to show my home to a special client. When I consented, the agent promptly produced a "standard" listing agreement for me to sign. I objected to a number of terms and conditions in that document. Can you explain what a listing agreement is? Do I have to accept all of the provisions in that standard agreement?
AAs I have said many times, everything in real estate is negotiable.
My first suggestion is that unless you want to sell your home by yourself, you should consider finding another real estate agent. You gave your consent for that agent to show your home to only one prospective client. However, the agent tried to sign you up for a long time, so that no matter who purchased your home, you would be obligated to pay a commission.
For a real estate agent or broker to get a commission for selling your house, there must be a written agreement, known in the trade as a listing agreement, between the seller and the brokerage firm. It is a contract that spells out the terms and conditions under which the broker will act, and the scope of the real estate commission when the property is sold.
There are four basic types of listing agreements:
* Exclusive right to sell. This is the most common form of listing agreement. The real estate broker commits to making good-faith efforts to sell the property, and the seller commits to paying a commission if an acceptable buyer is found.
Under this kind of agreement, the seller must pay a commission to the listing broker no matter who sells the property. Thus, if Broker A has the listing on your house, but Broker B brings in a buyer and a real estate sales contract is signed, you will owe Broker A the agreed-upon commission. Typically, Broker A has made it clear to all other brokers in the area that the commission will be split should another broker find a buyer. In this scenario, Broker A will share the commission equally with Broker B.
But, what if you sign an exclusive-right-to-sell agreement with Broker A, and two weeks later your next-door neighbor wants to buy your house? Broker A has had absolutely no contact with your neighbor. Under the agreement you have signed, Broker A is still entitled to a full commission, based on the exclusivity contained in your listing agreement.
* Exclusive agency listing. Under this kind of agreement, you designate a specific real estate broker as your "exclusive agent" to sell your house. However, if you find a buyer on your own, no commission need be paid.
Obviously, this kind of listing agreement is not usually offered by the real estate industry. Understandably, no real estate broker wants to spend time (and money) marketing your house, only to learn that you have found your own buyer and thus there's no commission.
* Open listing. This is an agreement that states that you as seller will pay the real estate agent a commission, but only if that agent produces a buyer who meets the terms and conditions spelled out in that agreement. In legal terms, if the agent is the "procuring cause" of the potential buyer, that agent will get a commission.
* One-time or one-person listing. Here, you as seller sign a listing agreement that gives the broker the right either to show your house for a set period of time, or to show your house to one particular person. If the broker produces a real estate contract during that time or from the specified person, you will owe a commission.
It is this fourth type of listing agreement that would have covered your situation; unfortunately, it appears that the agent was trying to get you to sign an exclusive right-to-sell agreement.
Most real estate agents want to be able to get a commission no matter who is the procuring cause, who is the buyer, or how long it takes to get a sales contract. In other words, they want potential sellers to sign the exclusive-right-to-sell agreement.
No matter which agreement you and your real estate broker agree upon, there are several important provisions that should be contained in the legal listing document that you will both sign:
* When the commission is earned. The typical listing agreement provides that the commission is earned when a sales contract is entered into, but payment is deferred until settlement. Thus, if a buyer should default, even though you would not get the full sales price, your broker would be entitled to a commission. To protect the seller, each listing agreement should specifically include the following language: "The commission will be earned only if settlement takes place."
* Amount of the commission. This is negotiable. Most brokers in this region will want a 6 percent commission. There is nothing wrong with asking the broker to take a lesser percentage; the broker will either accept or reject your terms.
Additionally, you should ask the broker to take a lower commission if it's not shared with another brokerage firm. Example: Your house sells for $300,000. A 6 percent commission is $18,000. If you list your property with Broker A and Broker B is the procuring cause, each broker will get $9,000. However, why should Broker A get the full $18,000 if he finds a buyer without the assistance of some other broker? Negotiate a lower commission under such circumstances.
* Length of the listing agreement. Brokers obviously want the listing agreement to continue for a time. I recommend that listing agreements not exceed 60 days. If you are happy with the efforts of the broker and your house still hasn't sold within that 60-day period, you can always extend the listing. But if you are dissatisfied, you need not renew it. It is difficult to terminate a listing agreement.
* Inclusion of all relevant items. Keep in mind that a listing agreement is a legal document. You cannot take it lightly. You must review it carefully, and make sure that all relevant items are contained in that agreement. For example, if you plan to take the chandelier in your dining room when you sell the house, put that in the agreement. If you are willing to accept a seller take-back loan (i.e., you will lend your buyer some of the purchase money), spell out your terms in the agreement. If you need to stay in the house until a particular date, make sure it is included in the listing agreement.
That last point is important for a lot of people nowadays. Under the tax law, if you have lived in your house for two of the past five years before the sale, you can exclude up to $250,000 of the profit you have made on the sale ($500,000 if married and filing a joint tax return). Clearly, you do not want to sell if you have lived in the house for one year and 10 months. Make sure that you qualify for the tax exclusion.
* Exclusions from the agreement. Sometimes, a friend or a neighbor might be interested in buying your house. It would be a shame if you signed a listing agreement and then had to pay a hefty real estate commission when your friend decided to purchase.
You have the right to specifically exclude certain people from the listing agreement. The language would read: "No commission will be earned if Mary Jane Jones buys my house."
However, once again, the real estate broker will be reluctant to spend time and money to market your house if there is a possibility that no commission will be earned. Thus, most real estate brokers will allow you to exclude certain people from the listing, but only for a set period of time, usually not more than two weeks after the listing agreement goes into effect.
My suggestion: If you know that there are potential buyers interested in your house, talk to them before you sign a listing agreement. Explain that once the agreement is signed, you will be obligated to pay a real estate commission, and if they are interested, they should sign a sales contract with you.
Another variation is to sign a listing agreement, but make the starting date two weeks later. That will give you two weeks to find your own purchaser, and save the commission.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.