Home Selling: What Kind of Listing Agreement Do You Want?
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Home Selling: What Kind of Listing Agreement Do You Want?

Sometimes agents will offer a guaranteed-sale listing. A guaranteed-sale listing isn't a separate type of listing. The listing simply includes a separate clause which says that if the property isn't sold by the end of the listing term, then the agent agrees to buy it from you for a set price.
                      listing agreement types

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There are many different types of listing agreements, each of which grants the agent specific rights and limitations. You should ask your agent what type he or she prefers and be sure you understand the ramifications of each before signing. This is continuation of Home Selling: Types of Listing Agreements.

Sometimes agents will offer a guaranteed-sale listing. A guaranteed-sale listing isn't a separate type of listing. Rather, it's any of the listing (example: exclusive agency listing, exclusive right-to-sell listing, open listing) but is usually the exclusive right to sell. The listing simply includes a separate clause which says that if the property isn't sold by the end of the listing term, then the agent agrees to buy it from you for a set price (usually the listing price), less the commission. While this sounds like a panacea, you should be careful with it. Although widely used at one time, this type of listing is often frowned upon today because of the potential conflict of interest. The reason is simple. While an honest agent can use the guaranteed-sale listing to induce you to list, a dishonest agent can use it to gain a larger-than-expected commission. A dishonest agent may induce an unwary seller to list, then take no action to sell the property. When the listing expires, the agent buys the house at a previously guaranteed lower price and later resells at a much higher price. This is particularly a problem when the listing calls for the agent to buy the property for less than the listed price (justified by the supposed "fact" that because it didn't sell for the listed price, ergo, that price was too high). If your agent suggests this type of listing, insist on the following (which may already be legally required in your state):

  • The agent can buy the property only for the listed price. No less.
  • The agent has to inform you, and you have to agree in writing, if the agent resells the property to someone else within 1 year of your sale to the agent.
  • The agent must buy the property. The agent can't sell it to a third party in escrow, unless you get all the proceeds less the agreed upon commission.

A net listing is by far the most controversial type. And I would be wary of any agent who insists on it. With a net listing, you agree up front on a fixed price for the property. Everything over that price goes to the agent. You agree to sell for $100,000. If the agent brings in a buyer for $105,000, the agent gets $5,000 as the commission. But if the agent brings in a buyer for $150,000, the agent gets $50,000 for a commission. The opportunities to take advantage of a seller here should be obvious. An unscrupulous agent could get a listing for a low price and then sell for a high one, getting an unconscionable commission. On the other hand, a net listing is sometimes useful for a "hopeless" property. For one reason or another, the property isn't salable. So the seller tells the agent. "Be creative. Find a buyer. Here's what I want. Everything else is yours." In such an arrangement, you as the seller should insist (if state law doesn't already require it) that you be informed of the final selling price and that you agree in writing to it. The easiest way to handle a net listing is to simply avoid it.

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