You’ve decided to sell your home and you’ve engaged a real estate agent to get the job done. The agent will subsequently present you with a listing agreement, the contract between the seller and the agent that sets forth the conditions of the listing. It’s important to understand the terms of the agreement because once executed, you will be bound by them for the duration of the agreement. And while the listing agreement protects the agent because it obligates you to work with the agent for a minimum amount of time, it also protects you by detailing the agent’s responsibilities and what recourse you have should he/she not fulfill them.
Here are the key terms of listing agreements:
1) Length of the listing period.
The listing agreement defines the start date and the end date. During this time period, your agent has the exclusive right to sell your property. Generally, the agreement is written for 3 to 6 months. While sellers typically prefer to have shorter time frames in case a sale doesn’t happen as quickly as imagined, it’s important to recognize that it takes a fair amount of time, effort and expense for the agent to prepare the house for sale, take it to market, and generate interest around the property.
2) Sales price.
The listing agreement also defines the mutually agreed upon initial list price for the property. The sales price can be further amended during the listing agreement period with the execution of an addendum document.
3) Amount of commission.
The commission rate is the percentage of your sale that is paid out to the brokerage companies that sponsor the real estate agents involved in the transaction. Typically this is set forth at 5-6%, to be split between the listing broker and the selling broker. The listing agreement should also specify exceptions to the commission as well. For instance, if your agent “double-ends” the sale, meaning that he/she also represents the buyer on the transaction, the commission rate for that scenario should be spelled out.
The agreement should lay out all the necessary activities the agent is authorized to conduct on your behalf to sell the property. In addition, the agreement will also specify how you will handle disputes should there be a disagreement between you and the agent. Generally, the contract calls for mediation or binding arbitration.
The listing agreement is the first of several forms a seller will be asked to review and sign during a sale transaction. Read it carefully and have your real estate agent walk you through any portions you don’t understand. Make sure you are comfortable with the terms and clear on how things will proceed.