Listing Contracts and Commissions
What is a listing contract?
A listing contract is a personal service contract between you and a licensed real estate broker. This contract authorizes the broker to act as your agent by finding someone to buy your house. The listing contract contains two basic promises: The broker promises to do his or her best to find a buyer for your property, and you promise to pay the broker a commission. Legally speaking, the definition of a listing contract is a bit more complex:
- An employment contract: A listing contract specifies the exact terms and conditions of your employment contract with a licensed real estate broker. It also authorizes the broker to represent you during the sale of your property.
- A compensation agreement: Although the listing broker's pay is almost always a commission based on a specified percentage of the sale price, compensation doesn't have to be a commission. Other negotiable options include paying your broker a set fee for selling the property or compensating the broker on an hourly fee basis.
Although the listing contract doesn't obligate you to sell your house, it may obligate you to pay the broker a commission even if you don't sell.
What types of listing contracts exist?
All your various listing options boil down to variations on two types of listings: exclusive listings and open listings.
- An exclusive listing is exactly that -- an exclusive authorization giving only one broker the right to find a buyer for your house -- though there are two very different types of exclusive listings. Exclusive right to sell listings is the most common listing type and popular with both sellers and brokers.
- An open listing is a non-exclusive authorization for brokers to find a buyer for your property. You can give as many brokers as you wish an open listing on your house.
Who pays the commission?
Usually sellers pay the commission, although in rare cases, buyers pay their agent directly. After all, sellers get money when property sells.
What type of information should I disclose about my home?
Disclosure statements differ widely from state to state and from one area to another within any given state. Generally speaking, the law requires that you disclose to prospective buyers any information you have that materially affects your property's value or desirability. This disclosure must cover facts that you, as an owner, are expected to know about your property and the neighborhood that couldn't be known by (or wouldn't be apparent to) the buyer. For example:
- Physical condition: Are your built-in appliances in good working order? Do you know about any hidden defects or malfunctions in your house's major components (roof, foundation, electrical system, plumbing, sewer, insulation, windows, doors, walls, and so on)? No one expects you to be a professional property inspector, and disclosure laws are one reason why getting a premarketing inspection of your house is wise. You and your agent should also encourage buyers to conduct their own investigations and obtain inspections from their own experts instead of relying solely on your inspections or the information you provide about the property's physical condition.
- Health, safety, and environmental hazards: You must comply with federal, state, and local disclosure laws regarding property problems related to asbestos, formaldehyde, lead-based paints, underground fuel or chemical storage tanks, radon gas, and other health hazards. Is your property in harm's way from earthquakes, floods, hurricanes, or other natural disasters? Does your property comply with local energy or water conservation ordinances?
- Legal condition: Are any lawsuits pending that affect your property? Did you make any modifications or alterations to your property without getting the necessary building permits? Do these modifications or alterations comply with state and local building codes? If you're selling a condominium, you must give the buyer copies of the Covenants, Conditions, and Restrictions (CC&Rs), the Homeowners Association bylaws, and the budget.
- Subjective areas: Subjective questions can't be answered with a simple yes or no. The environment that you think is extremely quiet, the buyer may consider a boiler factory. Answer all subjective questions to the best of your ability, and then encourage buyers to familiarize themselves with the area so they can draw their own subjective conclusions about these issues.If you're not sure whether or not you have to make this type of disclosure about your property, consult your listing agent or a real estate lawyer.
I'm not sure whether I should disclose something about my house or not?
If in doubt, disclose. If you have to ask whether or not to disclose something about your property or the neighborhood, you've probably answered your own question. Overdisclosure is better than running the risk of being sued for damages or having the sale rescinded because you failed to reveal a fact that materially affects your property's desirability or value.