Nicki & Karen

Exclusive Right-to-Sell: What Should You Know About It?

Nicki & Karen » February 22, 2021

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exclusive right-to-sell

If you place your home on the market for sale in the near future, there are many factors that you should first take into account. If you don’t prepare for this process and all that it entails, it’s likely that you will run into hurdles and headaches when trying to sell your home. Before you begin this process, it’s recommended that you hire a real estate agent to assist you with everything from setting the price to making various improvements before listing the home. Though hiring an agent might seem simple and straightforward, this process can involve making specific agreements with the agent, which you should be aware of before making a hire.

One agreement that’s typically made before a real estate agent is hired is an exclusive right-to-sell for the agent in question. This type of agreement protects both the seller and the agent. An exclusive right-to-sell agreement means that the listing agent you hire is the only person who will handle the sale of your home within a set period of time. The real estate agent will also have support from a managing broker while this type of transaction is ongoing.

While many sellers worry about the thought of not being able to hire another agent if the current one doesn’t do a great job, it’s possible to hire a second real estate agent to handle the process. However, the first agent you hired will still receive a commission. No matter the outcome of this process, you must always pay the agent you hire with an exclusive right-to-sell agreement. When you finally hire an agent, they will list your home on the Multiple Listing Service, after which they will assist you in developing a strong marketing strategy that includes everything from staging your home to hosting open house events. This article offers an in-depth guide on everything you should know about exclusive right-to-sell agreements.

Types of Listing Agreements

types of listing agreements

The three primary types of listing agreements include an exclusive right-to-sell agreement, an exclusive agency agreement, and an open listing agreement. Once you make an agreement with a real estate agent of your choice, they will be in charge of coordinating showings of your home, fielding communications with interested parties, guiding you through negotiations with potential buyers, and writing up the various contracts that you’ll need to sign. Since you’ll need to pay your initial agent regardless of who ends up selling your home, it’s important that you conduct ample amounts of research before making this kind of agreement.

Exclusive Right-To-Sell Period

Before you sign an exclusive right-to-sell agreement, it’s important to understand that these agreements are only in place for a certain period of time. If your home isn’t sold within this period of time, you can switch to another agent without issue. The terms for these contracts can vary and depend on factors like local market conditions and personal preferences. In many situations, exclusive right-to-sell contracts will last for a period of six months.

Some agents will include a clause that states that the seller can cancel the contract if they aren’t fully satisfied. Sellers might also cancel this agreement because of a family emergency, the postponement of a job offer, or a simple change of plans. Once an exclusive right-to-sell agreement expires, you have several options at your disposal. You can hire another agent, sell the property on your own, or take your home off the market if you’d rather wait before continuing the selling process.

Other Types of Listing Agreements

types of listing agreements

There are three separate types of listing agreements that you can sign aside from an exclusive right-to-sell agreement, which include a net listing, an open listing, and a multiple listing. While an exclusive right-to-sell agreement is oftentimes the preferred option for sellers, it’s important that you’re aware of every route you can take when placing your home on the market.

Open Listing

An open listing is highly advantageous to potential buyers since the owner can place listings of the home with numerous real estate brokers. With an exclusive right-to-sell agreement, only one real estate broker is used during the process. For the homeowner, the main benefit of an open listing is that the property can be sold without the assistance of an agent, which gives you the opportunity to avoid paying a commission to an agent.

The primary downside that comes with using an open listing is that the property won’t be placed on the MLS. Instead, real estate brokers will be used to locate prospective buyers for the property in question. Because agents work on commission, it’s very unlikely that they will make this kind of agreement.

Net Listing

It’s also possible to use a net listing for your home, which involves the real estate agent that you hire keeping the difference between the listing price that you choose and the eventual sales price of the home. Net listings can be risky for agents to agree to, which is why many opt for exclusive right-to-sell agreements. Let’s say that you want to sell your home for $300,000. With this type of agreement, any sale price that’s higher than $300,000 would allow the real estate agent to obtain a commission for their work.

If the home sold for $325,000, the agent would receive $25,000. On the other hand, it’s possible that the property would sell for $301,000, which means that the commission for the agent would be a mere $1,000. This kind of agreement is also a risky option for you as the seller. If you end up agreeing to a sales price of $200,000 but your home ends up selling for more than $300,000, the listing agent would get all of the difference between these two prices. In this situation, you’ll likely believe that the deal is unfair.

For the agent, there’s a possibility that the home would sell for less than the original price, which means that the agent’s commission could be $0. Because of the potential issues with a net listing agreement, it’s illegal in numerous states and is heavily restricted in others. For instance, the MLS doesn’t typically accept net listings, which is just one possible restriction.

Multiple Listing

A multiple listing is a very basic agreement that ensures your home is placed on the Multiple Listing Service. Keep in mind that most real estate agents will automatically list your home on the Multiple Listing Service, which is a top benefit that comes with retaining the services of an agent. If you decide to sell on your own and have your property placed on the MLS, you will be required to pay a fee for the listing. On average, this fee will be around $299-$399. Even though the fee for listing on the MLS isn’t too high, homeowners who attempt to sell their property without the assistance of a real estate agent tend to sell their home for a lower price than the actual worth of the property.

Contingencies to Understand During The Process

There are several contingencies that you should understand about the exclusive right-to-sell agreement, which give you the ability to cancel the contract. These contingencies include:

  • The insurance approval contingency – If the buyer isn’t able to obtain home insurance before the closing process is completed, the lender won’t directly fund the mortgage. In this situation, you can cancel the contract.
  • The mortgage approval contingency – If the buyer’s mortgage is approved at terms that don’t match the agreement they made with the lender, the buyer can back out of purchasing your home. This situation would also give you the ability to cancel the exclusive right-to-sell agreement.
  • The appraisal contingency – If the appraisal of your home is lower or higher than the sale price, the buyer could cancel the contract, which would invariably cancel your exclusive right-to-sell agreement. In situations where the appraisal is higher, the buyer may not be able to get financing for the higher price, which means that you would need to lower the selling price to accommodate them.
  • The closing date – In the event that the buyer doesn’t close on the property by the closing date that was agreed to in the initial contract, you have the option of extending the closing date or walking away from the contract entirely. If you’ve received a better offer for your home, this possibility would actually benefit you.

More Information Regarding Exclusive Right-to-Sell

Before you make an exclusive right-to-sell agreement, there are some considerations that you should take into account. For instance, it’s important that you consider your financial obligations. Along with the commission that the agent receives, you may also be tasked with paying for some closing costs, a transfer tax or property tax, and any renovations that you want to perform to improve the value of your home. With the assistance of a real estate agent, these expenses should be kept to a minimum.

The standard rate of commission on a home is around 2.5-3.0 percent, which means that the listing agent would receive a commission of $7,500-$9,000 on a $300,000 home. When working with a real estate agent, it’s important that you’re respectful of their time and understand that they are working with multiple clients and may not always be able to provide immediate responses. However, it’s also essential that you communicate effectively with your realtor. Let them know which communication methods you prefer, which could be anything from texts to emails. If you hire a reputable real estate who has years of experience in helping owners sell their homes, the selling process should be completed without running into too many problems.

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