Real Estate Listing Agreement: Real Estate Agents Asks About Proper Length

Q: In a recent column about listing agreements, you wrote that you never advise sellers to sign a longer listing agreement than 90 days. This poses a problem for me.

As a Realtor who sells in an area with average days on market of 151 days, it would not be financially prudent for me to spend all the time and money marketing a listing that most likely won’t sell since the average days on market is a lot longer than a 90-day listing agreement.

Even if I’m being reasonable, many times the reason the house won’t sell is interference by the sellers or their determination not to follow my suggestions for getting the property into selling shape or to lower the listing price. I see it everyday.

By the way, sometimes we want to get rid of the seller but are stuck because of the longer listing contract we’ve signed.

A: I know that many agents would like to dump their unrealistic sellers. The problem is one of expectation. Sellers expect that their property will sell immediately, for a high price. But in most parts of the country, the market is so slow that it will take a lot longer than sellers would like to get a contract.

So, sellers get disappointed and blame their agents. Agents get frustrated because the market is changing, in some cases, on a minute-by-minute basis, and their sellers aren’t realistic.

In some cases, sellers feel as if they are abandoned by their real estate agents once they sign the listing agreement. If a seller knows that a listing agent is doing all that he or she can for the seller, many sellers will hang on to a great agent, and renew a listing agreement several times.

If a listing agreement would allow sellers to cancel at any time, and for any reason, after the first 90 days, with 30 days notice, that listing time would give sellers the comfort of knowing that they can get out of a bad arrangement while encouraging them to stick with their current agent to get the property sold.

Signing a 365-day listing (as is the practice in some areas) isn’t prudent for sellers, especially if the agent isn’t one of the good ones, as you seem to be.

I’m sure if you look around your office, you’ll see that 20 percent of the agents do 80 percent of the work. Assuming you’re a good agent, if you have a seller who is smart enough to sign on with you, you should be fine with this type of arrangement.

I’ll agree that it is costly to list, show, and advertise a home, but that’s the way real estate agents are compensated. Someday, listing agents might be paid for their out of pocket expenses if case a home doesn’t sell, but for now the listing broker gets paid an average commission of 5 to 6 percent to list and sell a home.

There has always been a tradeoff in the residential real estate industry between the cost of marketing and selling a home and the commission for the sale. Some sales will go quickly, and you’ll reap a larger reward, while others will go slowly.

Since that’s the deal, I think sellers should make sure to limit their listing agreements to 90 days or a longer contract as long as it includes the right to cancel after the first 90 days has passed.

Thanks for taking the time to write.

July 31, 2009.


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