For Home Sellers
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Listing Contracts and Commissions
Listing Contract Basics, Exclusive Listings, Key Parts of Exclusive Listings, Commission Basics, Seller Disclosure Statements
Listing Contract Basics
A listing contract is a personal service contract between you and a licensed real estate broker. This contract authorizes the broker to act as your agent by finding someone to buy your house. The listing contract contains two basic promises: The broker promises to do his or her best to find a buyer for your property, and you promise to pay the broker a commission. Legally speaking, the definition of a listing contract is a bit more complex:
- An employment contract: A listing contract specifies the exact terms and conditions of your employment contract with a licensed real estate broker. It also authorizes the broker to represent you during the sale of your property.
- A compensation agreement: The listing broker's pay is almost always a commission based on a specified percentage of the sale price.
An exclusive right to sell listing is also referred to as an exclusive authorization and right to sell or just a plain, old exclusive. The exclusive is the most widely used form of listing contract in the United States. Here are the reasons it's popular with sellers and brokers:
- Maximum incentive for brokers: Under this form of exclusive listing, the listing broker gets paid if anyone -- even the owner -- finds a ready, willing, and able buyer for the property during the life of the contract. Owner and broker are allies with a mutually beneficial goal of getting the listed property sold as quickly as possible.
- Maximum effort for seller: An exclusive right to sell listing gives your listing broker a strong incentive to focus his or her time, energy, and advertising on one priority -- a fast sale of your house.
Nothing is wrong with giving your listing broker a day or two head start on other brokers, if you approve. However, good brokers don't keep your listing quiet for long before advertising it and opening it up to other brokers.
Key Parts of Exclusive Listings
Exclusive right to sell listing contracts vary widely in length, wording, and complexity from one state to another and from city to city within any given state. Regardless of the wording in your contract, here are a few fundamental facts to keep in mind about all exclusive listings:
- Listings are intended to be legal contracts but they are sometimes called 'agreements':
Whatever your listing is called, the intent is to create a legally binding contract between you and the listing broker. Read it carefully. Consult a real estate lawyer if you have questions or concerns about the listing's fine points.
- An exclusive listing must have a definite termination date:
We recommend a 180-day listing period. If your house hasn't sold after 180 days but you were pleased with the listing broker's efforts on your behalf, you can simply renew the listing.
- Multiple listing service (MLS) option:
It gives sellers the option of having information about their listing put into the local MLS, which is critical for an efficient sale. In some areas, brokers use the MLS contract to sign up their listings. If that's the case in your area, signing your contract automatically places your property in the MLS database. In all other respects, a multiple listing contract operates the same way as any other exclusive right to sell listing contract.
- Title verification:
Asks who has title to the property, because anyone who signs a listing contract obligates herself or himself to pay a commission, even if that person ultimately can only convey a partial interest in the property. Unless all the parties who hold title in a property join in the sale, a full interest in the property can't be sold.
- Broker protection clause:
The broker protection clause prohibits (for a specified period of time) the homeowner from selling directly to a buyer.
- Alternative dispute resolution options:
Lawsuits are very time consuming and expensive. Most real estate contracts -- listing contracts and purchase contracts -- now have provisions for alternative dispute resolution, a phrase that describes using either mediation or arbitration to resolve contract disputes faster and generally more cheaply than litigation in a court of law.
Are commissions set by law?
Usually sellers pay the commission, although in rare cases, buyers pay their agent directly.
Commissions vary from one area to the next. The price and type of property being sold also affect the percentage. Commissions on houses, for example, usually range from 6 to 8 percent of the sale price, and commissions on vacant land can go as high as 10 percent.
Seller Disclosure Statements
Disclosure statements differ widely from state to state and from one area to another within any given state. Generally speaking, the law requires that you disclose to prospective buyers any information you have that materially affects your property's value or desirability. This disclosure must cover facts that you, as an owner, are expected to know about your property and the neighborhood that couldn't be known by (or wouldn't be apparent to) the buyer. For example:
- Physical condition
Are your built-in appliances in good working order? Do you know about any hidden defects or malfunctions in your house's major components (roof, foundation, electrical system, plumbing, sewer, insulation, windows, doors, walls, and so on)? No one expects you to be a professional property inspector, and disclosure laws are one reason why getting a premarketing inspection of your house is wise. You and your agent should also encourage buyers to conduct their own investigations and obtain inspections from their own experts instead of relying solely on your inspections or the information you provide about the property's physical condition.
- Health, safety, and environmental hazards
You must comply with federal, state, and local disclosure laws regarding property problems related to asbestos, formaldehyde, lead-based paints, underground fuel or chemical storage tanks, radon gas, and other health hazards. Is your property in harm's way from earthquakes, floods, hurricanes, or other natural disasters? Does your property comply with local energy or water conservation ordinances?
- Legal condition
Are any lawsuits pending that affect your property? Did you make any modifications or alterations to your property without getting the necessary building permits? Do these modifications or alterations comply with state and local building codes? If you're selling a condominium, you must give the buyer copies of the Covenants, Conditions, and Restrictions (CC&Rs), the Homeowners Association bylaws, and the budget.
- Subjective areas
Subjective questions can't be answered with a simple yes or no. The environment that you think is extremely quiet, the buyer may consider a boiler factory. Answer all subjective questions to the best of your ability, and then encourage buyers to familiarize themselves with the area so they can draw their own subjective conclusions about these issues.If you're not sure whether or not you have to make this type of disclosure about your property, consult your listing agent.
Disclosing Work Done Without Permits
This cautionary note is for do-it-yourselfers who've done carpentry, plumbing, and electrical work around the house without getting a permit for the work or having it inspected by their local building department. When you sell, you should document in writing about any work performed without a building permit.
Your written disclosure serves to protect you if the buyer sues you about it after the deal closes. Remember: The key to avoiding lawsuits is complete, timely, written disclosure of all problems so your buyer can make an informed purchasing decision.
The best defense is a good offense. Here are three steps you can take to reduce the possibility of a legitimate lawsuit:
- If in doubt, disclose.
If you have to ask whether or not to disclose something about your property or the neighborhood, you've probably answered your own question. Over-disclosure is best.
- Put your disclosure in writing.
Most states have Property Disclosure forms which require a seller to put all disclosures in writing. This disclosure is signed and distributed to potential buyers.
- Hire a professional to inspect your house prior to putting it on the market.
After seeing the results, you have the option of fixing defects you want to repair and disclosing the others.