This story was updated February 16, 2017
Once you’ve decided to sell your home, and then decided you’re going to sell with an agent, you’ll be faced with a listing agreement.
Although a listing agreement is a valid, binding legal document, many sellers sign it without even reading it. That kind of attitude is setting you up for a big problem down the road. Before you sign the listing agreement, everything is negotiable. Once you’ve signed it, you’re pretty much stuck with what’s printed on the contract.
Here are the important issues you need to think about before you sign the listing agreement. You want the right to:
1. Take the property off the market.
Limit each listing period to 90 days, roughly three months, even if the agent wants you to sign on for 180 days, or six months. Think through your timing carefully before you sign because the language of the contract might force you to keep the property active with this agent.
But retain the right to take the property off the market. If you decide to stay in your home, for whatever reason, no one should have the right to force you to sell or pay a commission, even if you’re brought a full-price offer.
2. Switch brokers and not pay a double commission.
You can spend days, weeks or even months interviewing brokers before selecting your listing agent. And despite all the care taken, your relationship with the listing agent might not work out.
If that’s the case, you want the right to find another broker and not owe the first agent a commission on the sale of your home. Brokerage firms will try to convince you that you owe them for the work they did previously. Strike that clause in the listing agreement, or you could wind up owing a double commission when you sell.
3. Pay the commission only out of the closing proceeds.
In real estate school, agents are taught that they’ve “earned” the commission once they bring what’s known as a “ready, willing and able” buyer to the seller. That translates into a full-price offer with no contingencies.
Although an offer can be made and accepted, many things can derail a sale, and you don’t want to have paid the commission to the broker upfront. Strike any clause in the listing agreement that says you owe a commission if a “ready, willing and able” buyer is found. Add a clause to the agreement which states that the broker will only get paid upon the closing of the sale of your home and from the proceeds of the sale.
4. Terminate the agreement.
There are a number of reasons why you might want to cancel your listing agreement with a brokerage firm: You might have a personality conflict with the agent, or you might disagree over marketing strategies, the list price or whether the agent is actually doing his or her job well.
Retain the right to terminate the listing agreement. You might want to give the agent five business days or two weeks’ notice. But if you terminate for cause – if the broker has lied, stolen or somehow cheated you – your contract should terminate immediately.
5. Not pay a commission six months after termination.
Most listing agreements include a provision that states if you pull your home off the market and someone who saw it when it was listed buys it within six months, you’ll owe the firm a full commission.
Six months is a long time – and it’s supposed to keep you from yanking your home off the market and immediately selling it to someone who saw it while it was listed and stiffing your agent.
Try to reduce this six-month period to three or four months. While many firms won’t accept that, some will and it never hurts to ask.
6. Structuring the Commission
These days, the average sales commission paid is about 5.5 percent. No matter what is printed on the listing agreement, you should take a stab at negotiating a more favorable commission on the sale.
There are several ways you can do this: Ask to pay a straight 5 or 5.5 percent commission or offer to pay 6 percent on the first $100,000, 5 percent on the next $400,000 and 4 percent thereafter. You might also ask the agent how they could rework the commission.
When would you want to pay a higher commission? If you have a home that’s going to be difficult to sell and will require the agent to put in an extraordinary effort or would be expensive to create the custom marketing materials necessary to really do the job right, then you’ll want to pay a higher commission.
While that makes the deal more expensive for you, it might allow you to sell an expensive or difficult-to-sell home more quickly.
7. Agent Junk Fees
You know that mortgage lenders include “junk” fees to pad their profit. Well, real estate brokers have tacked on junk fees to the other closing costs a seller must pay. In other words, paying the commission is no longer enough. Now, brokers want you to pay fees for document preparation ($150 to $300 or more) and other items agents must do to make sure the transaction goes forward.
You don’t have to pay these junk fees. When you’re negotiating the listing agreement, you can simply strike out the paragraph that states which fees the brokerage company will charge you. Or write in that no fees will be charged. Many brokerage firms will remove the fees if you ask. Or, the agent will pay for them out of his or her share of the commission. Either way, you shouldn’t be paying them.
Finally, be aware that some listing agreements require you to use (or at least consider) the title company, home inspector, mortgage company and other services owned by your brokerage firm. Strike that as well.
It’s not up to the agent to tell you which companies to use. Other listing agreements I’ve seen compel the seller to use the services of an agent in the firm to buy his or her next property. I’d strike that, too. Again, you’re the one with the cash. You should decide who to use, not your seller’s agent.
Of course, if the agent and brokerage firm provide excellent service, then go for it. You might have as good an experience buying your next home as you did selling this one.