September 14, 2016

4 Questions Sellers Should Ask About Exclusive Listings

In sellers’ markets like Toronto and Vancouver, overwhelming demand and limited supply create blistering competition for homes – and that means bidding wars are the name of the game. It’s not an ideal situation for buyers, who must put forth their best offer just to keep up, but it’s a sweet situation indeed for sellers.

But what if your real estate agent recommends marketing your home as an exclusive listing for a limited time before opening it up to the full market? Your agent may say this will position your home as a special option for only the best buyers and generate interest. But seller beware; this can be a sneaky tactic that results in higher commissions for your agent – and a lower selling price for your home.

“Exclusive listings are a commonly misunderstood tactic among sellers, especially when they’re suggested by someone they trust to guide their real estate transaction – their agent,” says Lauren Haw, CEO and Broker of Record at Zoocasa. “It’s important that sellers are informed of how these listings work, and how they can affect their bottom line.”

Here are the top questions sellers must ask when considering their exclusive listing options.

Q1: How is an Exclusive Listing Different from a Regular Listing?

The biggest difference between an exclusive and traditionally marketed Multiple Listing Service (MLS)-listed sale is how many buyers will have access to your home. In most real estate transactions, your listing is placed on Realtor.ca by your listing agent, and made available to all buyer agents throughout the web. They then take the listing information back to their clients and may work with them to put forth an offer. Marketing a home on Realtor.ca opens it up to potentially thousands of interested buyers, and is a service that’s included in the commission paid to the listing agent by the seller.

An exclusive listing means the home isn’t advertised on Realtor.ca at all; the brokerage representing the seller gets priority to try to sell it to a pre-selected group of buyers.

Q2: Is My Home a Good Candidate for an Exclusive Listing?

There are a few instances when selling your home exclusively may be a good idea: keeping the sale confidential is a common one, as there will be no sign on your lawn or open house for prospective buyers. For this reason, celebrities and very high net-worth individuals may opt to stay off MLS. In these circumstances, the buyer pool is typically small, and may only work with a few agents anyway.

Going exclusive can also hide a home’s difficult selling past from MLS record; if it’s expected a home will be challenging to sell, is very niche, or perhaps has a stigmatized history, this tactic can limit views to specialized buyers. But unless you’re a rock star or selling a home with a haunted past, choosing not to list on MLS will limit the eyeballs, views, and competition, risking a lower selling price.

Q3: Will I Get Less for My Home?

The reality is that the greater the number of interested buyers, the better an offer you’ll likely receive for your home.

A recent poll from the Real Estate Council of Ontario (RECO), finds 57% of Toronto buyers say they’d go beyond their set maximum offer in a bidding war. Of those, 38% said they’d go as much as 10 – 20% higher. Given the average detached house price in the city exceeds $1.2 million, that’s the difference of hundreds of thousands of dollars.

“Forgoing exposure to potentially hundreds of interested buyers, especially in such a competitive market, does a seller a huge disservice,” says Haw. “Limiting marketing efforts isn’t a tactic that any real estate professional can use in good conscience.”

Related Read: How to Win a Bidding War

Q4: How Does My Agent Benefit from My Exclusive Listing?

So if exclusive listings tend to result in smaller offers, why would an real estate professional recommend one? What may be unbeknownst to the seller is the agent could be effectively double-dipping on commissions by representing both the buyer and seller.

“Controlling both sides of the transaction is often why an agent would recommend this approach,” says Haw. “It’s important clients are aware of the motives when presented with this option.”

One common argument for listing exclusively is that the listing agent may reduce their overall commission, because they do not have to pay a cooperating broker. Agents may also try to gather a number of exclusive listings as a tactic to bring in more buyer clients – after all, putting an offer on a house with a limited number of other buyers is a great advantage. This is a marketing decision made in the best interest of the listing agents, not sellers.

Be an Informed Seller

While there aren’t any rules against exclusive listings – and they can be an appropriate route in some special circumstances – it’s important for sellers to know that having one could put them at a disadvantage, says Haw, as limiting your marketing to a single agent or brokerage network will cost you. Consider this – there are roughly 47,000 agents in Toronto – why reduce your chances to less than what the market has to offer, including many unrepresented buyers?

“I can’t think of anyone who would willingly limit potential buyers and risk a less-than-ideal offer,” she says. “It’s important sellers understand how these kinds of listings work – and who truly benefits.”

Would you sell your home using an exclusive listing? Tell us your thoughts in the comments!