The process of selling your home can be exciting and stressful. Still, before you decide on a price or make improvements, you should probably consult with a real estate agent. But here’s the thing: hiring a real estate agent isn’t always easy, and there are some agreements you may want or need to make with them in writing before proceeding. Here’s what the exclusive right to sell means in real estate, and when you should consider it. We will also investigate the distinction between an exclusive right to sell vs an exclusive agency listing agreement.
What Does Exclusive Right to Sell Mean
An “exclusive right to sell” listing contract is one you enter into with a real estate agent. Simply put, it states that the signing agent is the only person authorized to market and sell your property for a set period. These agreements typically last between one and six months. Exclusive right-to-sell agreements typically include a commission – typically around 6% of the sales price – that you must pay to the agent if the property sells during the specified period, even if they did not find the buyer.
Exclusive Right to Sell Listing
When you employ a real estate agent to sell your house, the contract may include an exclusive right-to-sell clause. This means that you cannot engage another agent or broker while the agreement is in effect. They are the only ones who can sell your home, and all buyers must go via them during the sales process.
Consider the different listing agreement kinds available to you to further understand what this exclusive right to sell means. An open listing, as opposed to an exclusive right-to-sell listing, allows the seller to use various brokers to advertise and market their home. Unless there are acceptable fee arrangements in the open contract, the seller only pays the broker who brings in a buyer.
There is also an exclusive agency listing. The homeowner can only work with one broker under this agreement, but they also have the right to bring in their buyers. In this case, a broker may list a home, but the homeowner may agree to sell to a friend or coworker who wants to buy the home, so bypassing the broker procedure. Any potential buyer must go through the broker if the broker has the exclusive right to sell the listing. Even if a friend is interested in purchasing your house, they must first contact your agent.
Exclusive Right to Sell Listing Agreement
The exclusive right to sell and exclusive agency listing are two significant agreements for property sellers. These agreements are essentially property listings between property owners and real estate agents who assist owners in selling their properties. These contracts spell out what each party is entitled to and what each is responsible for.
What is the Exclusive Right to Sell Listing Agreement?
A real estate listing agreement between a home seller and a broker or real estate agent is known as an exclusive right-to-sell agreement. This type of listing agreement grants the broker or real estate agent the only right to earn a commission on the sale of a property by representing the homeowner and locating a suitable buyer. It is the most typically used agreement when selling or listing a home. Even if the homeowner finds a buyer on their own, the broker still receives a commission on the transaction. In addition to the commission, the owner bears the cost of the listing fees.
Four Components of an Exclusive Right-To-Sell Listing Agreement
When negotiating an exclusive-right-to-sell listing deal, there are various factors to consider.
- Commission: When the house is sold under an exclusive right-to-sell agreement, the broker will receive a negotiable commission charge. Before signing the agreement, the parties will normally discuss the commission charge.
- Expenses: In addition to the sales commission, you may be contractually compelled to bear various fees associated with the sale of the home. This could include repairing an infrastructure issue discovered during a house inspection or addressing listing fees.
- Contingencies: Many property buyers may make contingent bids on a home, leaving the seller in the dark until the contingency is met or not met. For example, if your buyer has an appraisal contingency, which means that a house must be appraised at a higher or equivalent value to the listing price to receive financing, you may need to cut the price of the home to attract purchasers. This reduces the amount of money you’d walk away with after deducting the seller’s commission.
- Contract duration: The term of your right-to-sell listing agreement specifies how long you must pay your broker a commission on the sale of your house, even if they played no role in locating the buyer. If your broker is unable to locate an able buyer for your house within the time frame specified in the contract, you may be allowed to sell the home on your own without paying the broker a commission. Check to see if your cancellation rights are included in the agreement.
Exclusive Right To Sell vs. Exclusive Agency
An exclusive agency agreement is a contractual agreement in which the listing broker acts as the seller’s agent or legal representative. The seller must agree to pay a commission charge to the broker if the property is sold under this agreement.
The most significant agreement between an exclusive right to sell vs an exclusive agency agreement is who pays the REALTOR® fees. The seller is liable for paying the REALTOR® fees under an exclusive right-to-sell agreement, regardless of whether they or the owners sell the property. However, in the case of an exclusive agency listing, the seller only pays the fees if the agent sells the property.
If the seller finds a buyer for their property, the broker does not receive a commission under exclusive agency agreements. When it comes to an exclusive agency listing, the broker must also do a lot of monitoring.
The broker will have to manage things like interaction with other brokers and purchasers to ensure that the home was sold with their assistance.
Unlike an exclusive right to sell, an exclusive agency exposes an agent to financial risk if they devote significant resources to selling a home and are not compensated for any of it. This fact alone is why most agents will refuse to sign an exclusive agency agreement.
Cancellation of an Exclusive Right to Sell Agreement
A legally binding contract is an exclusive right-to-sell agreement. Technically, it cannot be canceled; instead, the seller must wait for it to expire, which normally takes 3-6 months. Real estate agents, on the other hand, establish their businesses by maintaining a good reputation. Keeping a dissatisfied client tied into an agreement is terrible for business.
Even if your contract hasn’t yet expired, you may usually get out of a listing agreement by simply requesting your agent to terminate it. You may be required to submit a written cancellation request or fill out a form provided by the agent’s firm.
If a client backs out of a listing agreement, some brokerages charge a cancellation fee to recoup some of their upfront marketing costs. If there is a cancellation fee, it is specified in your listing agreement.
Other Types of Listing Agreements
If an exclusive right-to-sell listing vs an exclusive agency listing isn’t quite what you’re looking for, you have a few more options if you’re considering listing your home.
Open Listing
The house buyer benefits the most from open listings. An open listing, as opposed to an exclusive right-to-sell listing, permits the owner to put listings with multiple real estate brokers. Furthermore, the homeowner can still sell the home without paying a commission to an agency.
Net Listing
Net listings allow a real estate agent to keep the difference between what the homeowner wishes to sell the home for and the actual sales price. Furthermore, Net listings, as opposed to exclusive right-to-sell listings, where your commission rate is fixed, might be risky for the agent.
Multiple Listing
This listing places your home on the multiple listing service (MLS), and that’s generally the end of it. The Multiple Listing Service (MLS) is a service that practically every real estate agent uses to find properties for their buyers—think of it as Google, but for houses for sale.
The MLS contains the majority of exclusive agency listings and right-to-sell listings.
Important Details of the Exclusive Right-To-Sell Agreement
There are a few more provisions you should discuss and include in your contract before signing that exclusive right-to-sell agreement with your agent.
#1. Duration of the Agreement
You must understand how long your exclusive right-to-sell agreement is contractually obligated to last since if you sell your house on your own (without the agent), you may still be obligated to pay their commission.
The agent will receive their compensation as long as your exclusive right-to-sell agreement is in force. If they are unable to find you a willing, ready, and able buyer before the contract expires, and you have found your buyer, you will not be required to pay it.
#2. Financial Obligations
Aside from the agent’s commission, you must also consider the other potential expenditures that may arise while selling your home, such as modifications you do before listing it, capital gains tax (or other taxes), closing costs, or even completing any components of a contingent offer.
Having an agent by your side during this process could save you a lot of money, especially when it comes to making changes to your house or negotiating contractual clauses.
#3. Contract Cancellation Rights
What happens if the buyer is unable to obtain financing? If difficulties are discovered during the house inspection, appraisal, or title search, the buyer may be allowed to simply walk away from the contract.
What Happens When An Exclusive Right-to-Sell agreement Expires?
If your house hasn’t sold by the end of your contract with your agent, you’re free to part ways and do whatever you choose. This could involve finding another agency, selling on your own (FSBO), or letting your house sell on the market until economic conditions improve.
However, it is vital to read the fine print in this scenario because the contract may contain conditions that commission is still required if a buyer, particularly one brought forth by your agent during the contractual time, decides to acquire the property shortly thereafter. The timeframe for making this claim is usually 30-45 days following contract termination, but it’s worth being aware of the possibilities.
Of course, this is only to safeguard the agency from situations in which a dishonest seller may try to work directly with a possible buyer and either terminate or let the contract expire to avoid paying a commission. After all, if an agent’s marketing efforts brought a buyer to your door, it’s only reasonable to compensate them.
Conclusion
The key distinction between an exclusive right to sell vs. an exclusive agency listing is the agent’s commission. If you rely only on the broker to discover possible purchasers, an exclusive right-to-sell agreement is preferable. Whatever agreement you choose, carefully read the terms and conditions before signing.
Frequently Asked Questions
What is the difference between an open listing and an exclusive agency listing?
Homeowners may choose to offer an exclusive listing or an open listing to a real estate agent. An open listing allows other area real estate agents to compete for the property’s buyer. An exclusive listing motivates the lone agent to strive hard for the sale.
Is an open listing legal in NY?
These open listings are only available to brokers (and agents) who have registered with the Open Listing Service of New York and have been verified to be licensed in the state of New York.
Why would a seller want an exclusive listing?
The Exclusive Listing Agreement sets a foundation for the seller and broker’s honesty, trust, and confidence. This type of relationship is critical during the marketing process and after the sale or lease is completed. This foundation is required for any property we sell or lease.
Which is better exclusive right to sell or exclusive agency?
The primary distinction between an exclusive right to sell and an exclusive agency listing is the agent’s commission. If you rely only on the broker to discover possible purchasers, an exclusive right-to-sell agreement is preferable.
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