Some day, years from now, you and I are going to be selling our homes. I thought we’d have two options: sell the place ourselves or hire a real estate agent to sell for us. My assumption was wrong. I’m not sure if any real estate agent will share this stuff with you, but if you decide to employ a real estate agent, you actually have a multitude of options:
1. Exclusive right to sell or exclusive authorization to sell: This agency relationship is the one we’re most familiar with. In this contract, no matter who sells the property while you’re listed with an agent, the listing broker is entitled to his commission.
2. Exclusive agency listing: the broker receives a chunk of the change if he sells the property. But if you sell the property yourself, you get to keep the commission. Brokers are motivated by money, so while this contract seems like a sweet deal, don’t expect the broker to invest great effort. If someone sees his “for sale” sign in your lawn, that person knocks on your door, and you sell the house, the broker gets nadda. He’ll probably say ‘nadda’ to this contract, too.
3. Open listing: much like the exclusive agency listing, you get the commission if you find the buyer. You aren’t limited to one broker, though. In fact, you can offer your house to the whole town of brokers. The one who finally sells gets the commission. A competitive market! The problem, of course, is that brokers will be hesitant to work hard for you. They probably won’t spend advertising dollars on your property since anyone can sell the place. This guy, Joe, saw an ad for the house on Lolo Real Estate’s newspaper ad. Joe called his dear uncle Joe-Bob who happens to be a broker himself. Joe-Bob snagged the commission; Lolo Real Estate snagged the advertising bill.
4. Net listing: This final agency agreement seems the most intriguing. You decide that you want $1 million for your house. You hire a broker and agree to pay him a everything above $1 million as his commission. He’s motivated, baby. He sells your house for a whopping $1.7 million. Unbelievable. His commission is $700,000. The problem here is a misled price. Did the broker know you could have gotten more than a mil for your house? Did he mislead the buyers into adding another $700k? Who knows! …many states outlaw this agency.
So go propose your dream sales pitch. No law says that a broker must accept a listing. He can pick and chose what he wants. Yet with the glorious $1 mil houses you and I will be selling one day, how could he refuse?