September 20, 2016

Understanding Your Listing Agreement

If you bought or sold a home recently, chances are you signed a listing agreement – but did you truly understand what you were signing? While a common component of real estate transactions, listing agreements can have language that can be overlooked. Here’s what you should know about them – before signing on the dotted line.

What is a Listing Agreement?

A listing agreement is a contract between a buyer, renter, or seller and an agent. It basically means that agent has sole exclusivity to represent you for a set length of time while you seek buyers for your home for sale. It comes with various protections and limitations, some of which are not understood by buyers and sellers.

Commission Applies, Even in a Private Sale

One of those limitations is for private sales. Let’s say you’re selling your home and a family member or close friend is interested in purchasing it. You might think you can sell to them privately and avoid the real estate commission – but if you’ve signed a listing agreement, you’re still on the hook.

What a listing agreement specifies is that you’re supposed to refer anyone (even if you find the buyer on your own) to your agent. Even if you arrange a private sale, you most likely will still owe the commission to your agent due to something called the holdover clause (which we’ll discuss later).

The Benefits of Having an Exclusive Agent

A lot of sellers assume they can sell their home on their own without the assistance of an agent. While that may be true, there are more benefits to working with an agent than them simply finding you interested buyers. Your agent will also negotiate on your behalf on everything from the price to conditions of your sale and your closing date. Most importantly, your agent will handle the complicated paperwork to ensure the deal goes through without a hitch. Selling a home is most likely the single largest transaction of your lifetime – your agent can ensure it goes smoothly.

Common Listing Agreement Misconceptions

Perhaps the biggest point of confusion among buyers and sellers is that a listing agreement is written in stone and no changes can be made. This is false.

“You can and should make any changes to the agreement that you do not agree with or do not understand prior to signing. Always make sure to take the time to go over the paperwork in detail and ask your agent for clarification,” says Brittany Kostov, a real estate sales representative at Zoocasa.

“For example, commissions are not set or fixed – these are fully negotiable and you should understand what services accompany the fees you are paying.”

Negotiate the Holdover Clause

The holdover clause is a standard inclusion in the listing paperwork. It means that within a specifically stated amount of time after the listing agreement has expired, if you sell to a buyer that was introduced to your property during the term of your agreement, you are still responsible for paying the commission to your agent and brokerage.

“It does not matter how the buyer was introduced to your home, whether they came through an open house or if you know them personally – the holdover clause still applies,” explains Kostov. “The length of the holdover period is negotiable and should be discussed at the time of signing the agreement so that you and your agent are on the same page.”

 Always Ask Before You Sign

As with any legal document, it’s important to make sure you understand what you’re signing. Buying and selling real estate is a busy time; it’s easy to just quickly sign on the dotted line without paying much attention, but by doing that you’re agreeing to whatever is in the listing agreement (which is a legally binding document). You could end up signing a listing agreement for a year without even realizing it. While this may work out, what if you and your agent aren’t compatible? You could end up being stuck together unless your agent is will to end the listing agreement early.

Remember, everything is negotiable. If you don’t like something you see, don’t be afraid to speak up and ask for an amendment. The worst thing your agent can say is no, at which point you can decide whether you want to keep working together or go your separate ways.