Good morning, home sellers. Today’s multiple choice quiz is on listing agreements.
First and only question: What do you do when a real estate sales agent hands you a big piece of paper with flea-sized print on both sides and the headline, “Right to Sell Agreement”?
A. Sign your name by the X;
B. Get out your reading glasses and ask questions about any point you don’t understand;
C. Write one of your own.
Correct answer: All of the above.
Of course, you should read the listing agreement carefully, just as you would any other contract. Note all the blank spaces and boxes: There’s lots of room for negotiation. You or your attorney can rework major portions or, within reason, write your own. And, eventually, you’ll seal the agreement with your signature.
In the Chicago area, the most commonly used listing document is the “exclusive right to sell.” It appoints a specific broker to market your property for a specific length of time and entitles that broker to a commission, regardless of who brings in the sales contract. If your son and his wife decide to buy your house while the contract is in effect, your broker still gets paid from your proceeds.
Not all listing agreements are created alike, not even exclusive right-to-sell agreements. About 20 different ones are currently floating about the market. Some brokers use the agreement preferred by their franchisers or home offices and others use the one provided by their local real estate board or multiple listing service.
Christopher L. Picone, general counsel for Baird & Warner Real Estate in Chicago, says he has seen agreements almost entirely reworded by sellers’ attorneys but which still contain all the key points of the company’s standard agreement. “I’m open to just about anything within reason,” he says. “If a seller has a problem with part of the language, we can usually come to some type of compromise. Some things we refuse to change. I would never have an agent accept an agreement with the fair housing language stricken.”
With the help of a few area real estate professionals, we’ve highlighted most of the similarities and a few of the differences in exclusive right-to-sell agreements. We’ve included their thoughts on changes you might want to make-and those you can’t-to suit your circumstances.
– Duration of contract. Most brokers will ask for anywhere between three months and one year to locate a buyer. Difficult properties-those that are very expensive or have a poor location or loads of competition-will take longer.
“Thirty days is not adequate,” Picone says. “In the higher end homes-$800,000, $900,000, $1 million homes-six months is not enough unless you’re really competitively priced. That end of the market is taking a really long time.”
“The best way is to check the local board or multiple listing service for time on market to determine how long homes in your area are on the market,” advises John Michaels, chairman of the real estate department at Oakton Community College in Des Plaines and broker/owner of American Realty Network Inc. in Mt. Prospect. “Then you can figure out: `If it takes 62 days, I’d better have a 90-day listing.’ “
Just in case you change your mind about selling or you and your broker discover a serious personality clash, look for a cancellation clause. Automatic renewals are illegal, so scratch it out if you come across the rare agreement that has one.
Century 21 Cahill Bros. Realtors in Northbrook attaches a service pledge to listing agreements. Sellers who show due cause can be released without obligation if “we haven’t rectified any problems with the relationship in 10 days,” broker Susan Matthys says.
Closely related to the subject of duration is a protection period for the broker, usually 30 to 90 days. Suppose you decide to try selling on your own for a while, so you let your listing agreement expire. If you end up selling to a buyer who first saw the property with a broker, you owe the commission to that broker.
– Commission rate. In the Chicago area, commissions tend to fall into the 5 to 7 percent range. They are negotiable to some degree. (See “Services rendered,” Your Place, March 24.)
Michaels recommends sellers ask brokers not just what their commission rate is, but why. “They should have a definite, stable answer that reflects what they will do to earn it, not just that a given percentage or flat fee came from within their office or is what the market is offering. Consumers have to ask more questions.”
Just as important as the commission rate is the split between the listing office and the cooperating selling office, says Carole A. O’Neill, president of the Northwest Association of Realtors and broker for RealStar Real Estate in Arlington Heights.
“The way a home gets sold is through an offer of compensation. Most sellers assume the split is 50-50, but if I negotiate a 6 percent commission, I could keep 4 and pay out 2,” she says. “(As a selling agent) if I have a choice between showing a house at 4 percent and one at 2 percent, to be honest, I’ll show the one that pays me 4 percent.”
– Listing price. You, the seller-not the broker-will determine the listing price for your home. Ideally, you will come up with the final figure based upon broker input and comparative market analysis. You do yourself a disservice by jacking the price up much higher than what is suggested, Michaels says.
“What frequently happens is the seller says, `That’s a lot lower than I thought. I want $10,000 more.’ The sales person is then in a tight position.” The agent must go along or lose the listing. Buyers and other agents quickly realize the house is overpriced and the house sits on the market. The listing broker becomes frustrated and loses enthusiasm.
– Dual agency and designated agency. A new Illinois law that went into effect Jan. 1 divides real estate brokers into buyer’s agents, seller’s agents and dual agents. They are permitted, with permission, to wear more than one hat.
Although your listing agreement is with a brokerage office, many of the recently written agreements name the listing agent as your designated agent. They also state that while your designated agent is performing the duties of a seller’s agent for you, he or she may be simultaneously acting as a buyer’s agent for other clients.
You will be asked to make the decision whether to permit your designated agent to take on the role of a dual agent if he or she, rather than another agent, finds a buyer. Should you?
“I would probably say yes more than no, but (the seller) should feel very comfortable with the agent,” O’Neill says. As the listing agent, “Who knows more about your house than I do? I’m the one most anxious to sell.”
“It depends upon the person and the property,” Matthys says. “As a dual agent you are a limbo person who can’t say, `You should do this,’ and then tell the other one, `You should do this.’ ” Educated sellers probably have less of a problem agreeing to dual agency than do novices. “Other people need more handling and guidance,” she says.
– The fine points. Further on down the list you will agree to comply with the seller disclosure law and to pay the commission if you default on a sales contract you accepted. You will probably be asked to list personal property to be included in the sale, to permit access to the home at reasonable times and to decide whether you want a lock box and a sign. The broker’s marketing plan will often be attached.
Sellers who are in doubt about the listing agreement they have been given should not sign it blindly, experts say. Instead, ask for help.
“Read everything,” Matthys recommends. “If there is something you don’t understand or if you don’t feel comfortable and the agent can’t fully explain it, have an attorney review the agreement before you sign it.”
O’Neill offers another tip: While shopping for agents, ask them to drop off copies of their listing agreements. Then make comparisons and formulate questions. Conventional wisdom suggests interviewing three agents. “You should know what all three are doing to protect you.”
WHAT KIND OF LISTING? CONSIDER THE POSSIBILITIES
Depending upon the policies of local brokerage offices, several types of listing agreements may or may not be accepted. Most tend to be informal or even verbal and some are recognized by multiple listing services.
“Every seller has the option to be creative,” says John Michaels, chairman of the real estate department at Oakton Community College in Des Plaines and broker/owner of American Realty Network Inc. in Mt. Prospect.
Among the unconventional possibilities is the “exclusive agency” agreement, which multiple listing services do accept. This agreement permits either the broker or the seller to sell. If the seller finds a buyer first, he or she usually pays a reduced commission and perhaps the broker’s out-of-pocket marketing costs.
Another is the open listing, in which anyone who finds a buyer-including the seller-gets the commission. A typical example is when the homeowner selling on his own says to agents soliciting his listing, “Bring me a buyer and I’ll pay you.”
Still another is the net listing, in which the seller says to the agent, “I want $100,000. Anything you get over that is your commission.”
The net listing is one that can backfire for both sellers and brokers, Michaels says. “If the broker says OK and sells for $150,000, the consumer is very upset. Or, because the law says every offer that comes in must be presented to the seller, the broker gets an offer for $99,000 and the seller says, `I’ll take it.’ Then the broker is out.”
