What Does Exclusive Right To Sell Mean In Real Estate?
Sa El6-Minute Read
November 09, 2020
The process of selling your home can be full of adventure and headaches. Still, before you start doing things like deciding pricing or making improvements, you should probably hire a real estate agent.
But here’s the thing: Hiring a real estate agent isn’t always straightforward, and there are certain agreements that you may want or need to make with them in writing before moving forward.
In this post, I’ll discuss what exclusive right to sell actually means in regard to real estate, and when you should consider this type of agreement.
Exclusive Right To Sell Definition
When you decide to sell your house, you’ll have a few listing options when working with an agent.
One of the most popular options is known as the exclusive right to sell listing. It’s basically an agreement between a seller and a real estate broker or agent that gives them exclusive rights to sell and market your home.
This means you can’t hire another broker or agent while your agreement is in place.
The exclusive right to sell agreement also requires that the seller pay the real estate agent a commission regardless of who ends up selling the property, as long as the agreement is in effect.
The good thing about an exclusive right to sell listing is that they are allowed on the MLS, and usually, that’s where you’ll find them.
If you’re selling your home, you absolutely need it to be on the MLS to find the most buyers.
Exclusive Agency Versus Exclusive Right To Sell
While an exclusive right to sell agreement ensures that the broker gets a commission regardless of whether they or the owners sell the property, an exclusive agency agreement makes no such promise.
Under exclusive agency agreements, the broker does not receive a commission if the seller is the one to find a buyer for their property.
There is also a ton of monitoring required from the brokers’ end when it comes to an exclusive agency listing.
The broker will have to manage things like contact with other brokers and buyers to make sure it’s clear the sale of the home happened with their help.
Unlike an exclusive right to sell, the exclusive agency also puts an agent at financial risk if they put in a ton of resources to sell a home, and they end up not getting paid for any of it.
This fact alone is the reason most agents won’t agree to an exclusive agency agreement.
Other Types Of Listing Agreements
Now, if an exclusive right to sell or an exclusive agency listing doesn’t quite fit what you need, here are a few other options you can choose if you are thinking about listing your property:
Open listings give the most benefit to the home buyer. Unlike an exclusive right to sell listing, an open listing allows the owner to place listings with multiple real estate brokers.
On top of that, the homeowner still has the opportunity to sell the home themselves and avoid paying any commission to an agent.
You also won’t find an open listing on the MLS (multiple listing service); however, they will rely on the real estate brokers to bring them a buyer.
You’ll probably find it hard to get an agent to agree to this type of listing since they work on commission.
Net listings allow a real estate agent to keep the difference between what the homeowner wants to sell the home for and the actual sales price.
Unlike the exclusive right to sell listing where your commission rate is set, net listings can be a gamble for the agent.
For example: Let’s say you go into a net listing with an agent, and both of you agree that you want to sell the house for at least $332,000.
That would be the base price. Anything above that sales price the real estate agent gets to keep.
If they sell the house for $372,000, then their commission would be $40,000. On the opposite end, if they sell the home for $334,000, their commission would only be $2,000.
This is probably one of the most complicated listings available because it could end badly for both the seller and the broker.
Just imagine if you agree to a sales price of $250,000, but the agent sells the house for $500,000. Wouldn’t you feel like you got cheated on the front end by your agent?
And if you were an agent and the house ended up selling under the baseline, and you walked away with $0 commission, I’m sure you’d be really upset.
You probably won’t see this listing much because it’s illegal in several states, and even in the states where it’s legal, there are a ton of restrictions.
This listing gets your property featured in the Multiple Listing Service (MLS), and usually, that’s it.
The MLS is a tool used by almost every real estate agent to find properties for their buyers – think of it as Google but only for finding houses that are for sale.
You will find that most of the exclusive agency and right to sell listings are on MLS.
One downfall for someone who decides to go the For Sale By Owner route is that they have to pay a fee to be placed on the MLS and probably won’t end up selling the house for as much as they could have with an agent.
Important Details To Consider
Now, before you sign that exclusive right to sell agreement with your agent, there are a few more things you need to be sure to discuss and have placed in your contract.
Duration Of The Agreement
You must know how long your exclusive right to sell agreement is contracted to last, because if you sell your own home (without the agent), you could still be on the hook for their commission.
As long as your exclusive right to sell agreement is in place, the agent will get their commission.
However, if they’re unable to find you a willing, ready and able buyer before the contract is up, and you have found your own buyer, you won’t have to pay them a commission.
Outside of the agent’s commission, you must also consider the other potential costs that pop up when selling your house like renovations you make on the house before listing it, paying for transfer tax/property tax/capital gains tax, closing costs, or even fulfilling any components of a contingent offer.
Having an agent by your side through this process could make things much cheaper, especially when it comes to making changes to your home or helping you negotiate on contractual contingencies.
Contract Cancellation Rights
You must understand what situations can cause your contract to be canceled. Do you have any recourse if the buyer just decides to walk away?
Understanding your contingencies is essential because there are several such as:
- Insurance Approval Contingency – If your buyer is unable to get any home insurance before closing on their home, the lender will not fund the mortgage. This would give them the ability to cancel the contract.
- Mortgage Approval Contingency – Essentially states that if a buyer is approved for a mortgage outside of the terms stated in the agreement, they can walk away from the deal. For example, if the contract says the mortgage has to be a 30-year fixed with a $5,000 down payment, but the lender comes back with a $10,000 down payment, the buyer could walk away.
- Appraisal Contingency – If the house you’re selling doesn’t appraise for at least the selling price, then your buyer could decide to cancel the contract. You could be put into a position where you could have to lower your selling price so the buyer could get financing.
- Closing Date – If you’re selling your home, the closing date is important because if your buyer still hasn’t closed after the closing date, you would have the ability to either extend the closing or walk away from the deal. This would be a great option if someone was offering you a better deal.
The Bottom Line
Selling your home is a huge decision, and you shouldn’t go at it alone. As you read above, there are several listing options to choose from.
You should contact a Rocket Homes Real Estate LLC Partner Agent to help you make the right choices as you list your property for sale.
If you want an agent to put in the work and make selling your home much more comfortable, then the exclusive right to sell listing is probably your best bet.
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