Q: I need some help. Is there an industry standard definition for a “prospect”? Can you define it? It seems that every real estate agent has a different opinion of what this means.
A: There may be different definitions for what a “prospect” is depending on the circumstances. Since you didn’t provide any real estate context for the term, here’s a broader definition.
If you are selling a home and that home is listed with a real estate broker, the definition of a prospective buyer can be quite broad. A prospect can be anyone that is interested in the home during the listing period, whether they saw the “for sale” sign in the front yard, ad in the newspaper about the property, or one of the many variations of the listing for the home on the Internet.
In addition, if the homeowner shows the home to someone, that person is also a prospective buyer for the home.
You might wonder why the definition of prospective buyer is so broad under those circumstances. Well, the real estate listing agent wants the broadest definition possible. The listing agent wants to make sure if the home is sold during the listing period, the listing brokerage house gets its commission.
As a seller, you might think that’s a bit unfair. What if you find the buyer by talking to someone who doesn’t even know the home is for sale? Even if the prospective buyer never had a conversation with your listing agent, the listing agreement is written broadly enough to allow the real estate company to get its commission.
Most listing agreements used around the country are exclusive listing agreements. That means that you, the homeowner, have agreed to list the home exclusively with one real estate brokerage house and that agency will collect a commission when and if the home is sold during the term of the agreement and even for a period after the expiration of the agreement.
An open listing agreement would allow you to list your home with many real estate agents. In an open listing, the agent that brings you the buyer would be entitled to the commission.
If you had an open listing agreement with several different agents, you might use the term “prospect” or prospective buyer differently. In that situation, the prospective buyer may be one that was found by one specific real estate broker and you can directly attribute that buyer to that one broker.
You might even say that if you find the buyer on your own, that prospective buyer is yours and none of the brokers under the open listing arrangement may be entitled to a commission.