Not all listing agreements are the same. There are exclusive right to sell listing agreements, exclusive agency listing agreements, open listing agreements and one party listing agreements. Under an exclusive agency agreement, the owner reserves the right to market the property and if the owner finds the buyer, the broker is not entitled to a commission. With an open listing, the broker is in competition with other brokers and the owner to procure a buyer. Most brokers, however, will not agree to anything other than an exclusive right to sell agreement. The C.A.R. Residential Listing Agreement (Exclusive Authorization and Right to Sell) is the most commonly used listing agreement form on residential transactions.
Before signing on the dotted line, it is critical for the property owner to understand the key terms of the listing agreement and the owner's rights and obligations thereunder.
Commission. A real estate broker's commission is fully negotiable. The commission amount can be a flat fee but is usually a percentage of the sales price. What is customary differs from market to market. In Los Angeles County, the typical commission on a residential listing is 5% to 6% of the sales price.
Term. Since the broker will be putting time, effort and money into marketing the property, it is generally reasonable for the term of the listing agreement to be at least 3 to 6 months in order to give the broker a fair opportunity to sell the property and recover his or her marketing costs. The property owner should, however, be careful not to commit to too long a period especially if the owner has not previously worked with the broker. Once the owner signs the listing agreement, the owner is generally stuck with that broker until the listing agreement expires unless there is some material breach by the broker which would entitle the owner to terminate the agreement.
When the Commission Is Earned. The standard C.A.R. Residential Listing Agreement (Exclusive Authorization and Right to Sell) provides that the broker's commission is earned upon the happening of any of the following:
Cooperation with Other Brokers. The owner should specify how the listing broker must share the commission with the selling agent. The higher the selling agent's share of the commission, the more incentivized he or she will be to get the deal done. This is an important term that should not to be overlooked or left to the listing broker's discretion.
Listing Price and Terms. While the owner is not obligated to sell to a buyer at the price and terms set forth in the listing agreement, the owner should be cognizant that the broker may have earned a commission when he or she procures an offer that meets the specified price and terms in the listing agreement but the owner refuses to sell. The owner should, therefore, think carefully about what price and terms he or she would be willing to sell at.
This article is for general informational purposes only. It does not constitute legal advice and is not intended as such. Do not act or refrain from acting on the basis of any information on this website. Always seek professional advice from the appropriate legal or other professional licensed in the relevant jurisdiction.