Listing agreements

A - Should you change the listing agreement?

You sign a listing agreement that binds you to an agency to market your home for a lengthy period of time and you agree to pay thousands of dollars in commission. Consider the fact that this agreement has (at best) minimal, specific, written commitment by the agency as to what they are going to do to earn the commission, only that it states that you own the commission if a sale occurs.

Know your listing agreement:

A listing agreement in most states has the binding effect of a contract. It represents the obligations of two parties in pursuit of a common objective, stipulating that a broker will be paid an agreed upon commission for finding (and in some jurisdictions, attempting to find) a buyer for the property.

Whether your agent quickly skims through the listing agreement or covers all facets of it, before you sign it, have the agent leave the agreement with you so you can review it in detail. You should be aware of what it is that you are committing to before signing this document.

Just like a purchase offer, agreements are modified all the time by those who have taken the time to read them. There are “blanks” to enter the dates, asking price, etc. If you feel that specific items that the agent promised are missing (posting on the MLS and realtor.com, supplying a home brochure, home staging help, etc.), by all means, request that they be added to this agreement, either handwritten or as an addendum.  

Fill in the blanks:

Some agents fill in portions of the listing agreement before the meeting, such as inserting a 7% commission rate. Amazingly, many people just accept this and sign the agreement. If you balk at this rate, then the agent is doing you a “favor” by crossing it out and inserting in 6%. The starting point should have been a maximum of 6% and negotiated down.

Some offices have even had the commission typed in or preprinted in the blank space in order to look official, as though this is what everybody pays or what the local real estate board sanctions. The agent will modify it if questioned. This is another reason to invite in several agencies to compare their offerings.

On top of the commission, some agencies add an administrative or processing fee, such as $150.00, due at closing. Politely cross off this greedy, money-grabbing fee.

Easy cancellation:

Make sure there is a termination clause so that you have the option of canceling the agreement upon “X” days notice. You may have to add this condition. Rarely would an agent object to inserting this exit option. He or she may request that you include a reasonable notification period, like five to 10 days.

Some agents may insist upon a cancellation fee. Of course the amount is negotiable. If the cancellation clause states that you will reimburse the agency for expenses, be sure you specify a maximum dollar amount (like $300) that you will agree to pay.

This exit clause may be desirable, not only because you could become dissatisfied with your agent, but also because your situation may change and selling your home at this time would be an extreme imposition (job loss, health problems, death in family, etc.).

House isn't sold but you still owe the commission:

Basically, agents only get paid if your house sells. However, many listing agreements specify that the commission is earned if the agent produces a ready, willing and able buyer who offers the terms and list price you specify, even if you don’t accept the offer! Or, if you do accept an offer, the commission is due if the closing fails to take place. That’s because the agent did their job as specified in the listing agreement and therefore should be paid their commission. The exception is if the buyers are the ones who cause the sale to fall apart.

If this clause is in your listing agreement, change it to state that the commission is payable if and when the transaction between the two parties closes. The agent will respect this request.

Protection period for agents:

Most listing agreements contain a clause that takes effect after the agreement expires. In effect, it specifies that the broker is entitled to the commission if buyers, who were shown your home during the listing period, later decide to purchase the property on their own. If they do, this agreement to purchase has to be made within a limited amount of time following the expiration of the listing agreement, like 60 days.

The amount of time allotted for this protection period is negotiable and you could have this period start from the date of termination of the agreement as opposed to the date of expiration of the agreement.

You may decide to try selling by owner, when the listing is terminated. To eliminate misunderstandings, request a list from your agent of those buyers who were shown your home. Otherwise, unbeknown to you, one of these prospects could buy your home and subsequently you could be liable for a commission.

A listing agreement could possibly contain a clause stating that, upon early termination of the agreement (or even upon expiration of the agreement), the seller is not allowed to sell to any buyer or relist with another agency unless the seller pays a commission to that first broker. That's why you should read the small print on this document.

                  The small print

The listing agreement is an extremely important document. Be sure each agent you interview leaves a blank copy to examine. Sometimes individual offices will have their very own unique agreement. 

Earning the commission:

In order to provide assurances that your listing agent will “aggressively market” your property, it is recommended that a short listing period be considered (which can always be extended). Otherwise, you could prepare a list of functions for marketing the property and attach it to the listing agreement.

This list should be composed of things the agent said he or she would do when the CMA was presented. You may want to add in items that other agents said they would do, such as:

• Commit to a certain number of open houses in a given period.
• Provide you with a schedule of advertising, with pictures of your home.
• Send you a copy of each advertisement.
• Supply the for-sale sign including information box and fliers.
• Keep you supplied with home brochures for distribution at showings and open houses.
• Notify you as soon as possible of any and all offers received.
• Install an electronic lockbox on your property.
• Input your listing into the MLS within 24hours after signing.
• Give you a copy of the listing "sheet" the agents will see 
• Provide a weekly list of all real estate activity in your local area.

If you think that having a list of duties/requirements for an agent is too stringent, wait until you see your commitments in the listing agreement.

Agent relationship:

Agents are known to have legitimate business relationships with referal agents, referral companies, inspection companies, lenders, title companies, home warranty companies, etc.

You should add a simple clause to the agreement saying that the agent will advise you of any relationship they have with the entities they recommend to you or with whom they share the commission. If you’re paying for a service where the agent is getting a rebate, you’re entitled to know this.