Exclusive Listing Agreement – What Is It? [Pros & Cons]
One of the many decisions homeowners face when deciding to sell is how to list their property. Most sellers choose to sign an exclusive listing agreement with one real estate agent, while others prefer to sign an open or exclusive agency listing agreement.
There are pros and cons for each, so it is important to choose the agreement that most suits your individual circumstances. We explain the difference between the three, so you can make the best choice for you.
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What is an Exclusive Listing Agreement?
An exclusive listing agreement (otherwise referred to as an exclusive right-to-sell listing agreement) gives exclusive selling rights to one real estate agent for a set period of time. Your chosen real estate agent will act on your behalf to sell the property for the best possible price.
While such an agreement is in place, sellers are not permitted to use the services of another agent. However, this type of agreement usually has an end date, after which you can decide to change agents.
If a seller decides to sign an exclusive listing agreement, the real estate gains the exclusive right to sell, which means the seller cannot sell the property themselves without paying the agent’s commission. Occasionally, an exception is written into the contract, which allows the seller to sell to family or friends within a certain time-frame where commission is waived.
For an overview on some listing agreement types, this quick video from a real estate agent in WA gives good reasons on why you might want to consider an exclusive listing agreement.
What Are Open Listings? What Are Exclusive Agency Agreements?
There are two other types of listing agreements: open listings and exclusive agency listings. They differ in how the property can be sold and each type has advantages and disadvantages, depending on the situation.
An open listing agreement allows the owner to retain the right to sell the property. They can have an open agreement with multiple real estate agents and will only pay commission to the agent that finds the buyer. If the seller finds the buyer themselves, they do not have to pay any commission.
In this situation, sellers will usually do a lot of the work themselves, so agent fees are often much lower than with other listing agreements. The table below shows the pros and cons of opting for an open listing agreement.
Properties may sell quicker due to competition between agents.
The agent will not usually design a tailored marketing and advertising campaign, as this responsibility lies with the seller.
Each agent has their own list of potential buyers, which may differ in demographics. Sellers gain access to all of these potential buyers instead of those from only one agent.
Agents will not usually be focused on finding the best price. Competition with other agents creates an urgency to sell as quickly as possible, regardless of the offer.
Sellers do not need to pay commission if the property doesn’t sell.
Potential buyers who recognise that the property is under an open listing agreement may simply find the agent willing to put forward the lowest offer.
Sellers can decide to cancel an agent’s services without any penalty or waiting time.
Potential buyers sometimes see open listings as an indication that there is something wrong with the property.
Sellers can sell the property themselves and will not incur any agent fees.
As exclusive listing agreements guarantee commission, agents usually prioritise these. This may mean that properties with open listing agreements take longer to sell.
Sellers only pay the seller’s portion of the commission, as the agent is doing more work for the buyer.
Sellers have many points of contact during the sales process, which can be confusing and difficult to manage.
Exclusive Agency Listings
Although similar in name, an exclusive agency listing agreement is not the same as an exclusive listing agreement. They do both grant the right to sell to one real estate agent; however, with an exclusive agency listing, sellers are able to find their own buyer and avoid agency commissions. Here are some of the pros and cons of opting for an exclusive agency listing.
Sellers are still able to sell their property themselves without having to pay commission.
Agents may not prioritise sale of the property, as commission is not guaranteed.
Sellers only have one point of contact during the sale process.
Agents also may not put much effort into a marketing and advertising campaign.
When the buyer comes via the agent, sellers will pay a lower commission than with an exclusive right-to-sell listing agreement.
Agents may insist on an upfront fee or reduced commission in case the property sells without the help of an agent.
When opting for an exclusive agency listing agreement, be sure to choose an appropriate contract length. Often, agents will request that expired agreements are converted to exclusive right-to-sell listing agreements. This provides them with guaranteed commission, which may mean they work harder for you. However, if the property doesn’t sell under an exclusive agency listing, it is essential to determine the reason why the process was unsuccessful. If it is due to the agent’s services, it may be better to sign an exclusive right-to-sell listing agreement with another agent instead.
What Are The Pros To An Exclusive Listing Agreement?
An exclusive listing agreement guarantees the commission to the chosen agent, and this has many advantages:
Agents will prioritise the sale of your property, knowing that there is no competition for the commission.
The agent will try to obtain the best possible price, as they have more time to sell the property.
The agent will look for quality buyers who are genuinely interested and able to meet price expectations.
The agent will design a marketing and advertising strategy that optimally promotes the property.
To achieve the best price, agents will use all their available resources to ensure the property is presented well.
Agents will advise the optimal time for open inspections.
Agents will do all the necessary work to sell the property.
An additional benefit is that sellers are able to build an open and honest relationship with the agent, as there is no competition. Agents will be open about offers received and provide honest advice about which offers to reject. They may also offer advice on beneficial renovations or other ways that sellers could increase the value of the property. Communication is also simpler because sellers have one point of contact during the sale process.
What Are The Cons To An Exclusive Listing Agreement?
Despite the many advantages, an exclusive listing agreement does not guarantee a quick, easy sale. The real estate agent’s services may not meet the seller’s expectations or they may struggle to find a buyer. Disadvantages include:
A real estate agent may find it difficult to find a buyer if it’s not a seller’s market.
It may take a long time to receive a suitable offer.
Exclusive listing agreements are usually much more expensive.
Sellers cannot sell the property themselves.
Sellers must stay with the same agent until the agreement expires. This can be frustrating when the seller isn’t happy with the agent’s performance.
How Long Should Your Exclusive Listing Agreement Be?
It is possible to choose from various contract lengths when drawing up a contract for an exclusive listing agreement. Typically, the choices include:
The seller and agent will determine this together after some discussion about the seller’s expectations and individual situation. However, it is important to remember that the final decision rests with the seller.
The following six factors will help you determine which length is right for you:
Is your property located in the city, suburbia or a rural area?
Is your property unique?
Is your property expensive?
Is your property on a large parcel of land?
These considerations are important because, if your agreement expires while your home has a pending sale contract, it will need to be extended. This can often present challenges, so it is best to choose a listing length that suits the current market and property type right from the beginning.
A 30 day listing is usually a good option in a seller’s market. In this type of market, it may only take a few days before listed properties have sales pending. Sellers can reasonably expect to have interest in their property in a relatively short time-frame; however, a seller’s market does not guarantee that the property will sell within the 30 day listing time.
If the property doesn’t sell, sellers can opt for a different agent. However, it is vital to investigate why it didn’t sell, as it may not be a result of the agent’s efforts.
90 Day Listing
A 90 day listing is the average length of an exclusive listing agreement when the market is neither a seller’s nor a buyer’s market. This gives a reasonable amount of time to obtain a good price for the property, as initial open houses are done in the first month. When a property doesn’t sell in the first month, the agent has a further two months to find a suitable buyer.
After an unsuccessful open house, sellers or agents can speak to potential buyers to find out why it was unsuccessful. They may provide a unique insight, which can help the seller or agent determine what could be improved before the next open house. This could involve performing maintenance work, improving the presentation of the house, choosing a more suitable viewing time, lowering the sale price and many other possibilities.
Only after questioning potential buyers will sellers be able to better understand what didn’t work. Sellers will then be able to work with the agent to make improvements before the next open house.
Six Month Listing
A six month listing is the best choice in a buyer’s market. In this type of market, properties take longer to sell, with an average time of over two months. Taking this option will help to ensure the listing agreement doesn’t expire while a sale is pending and allows the process to be completed under the initial agreement.
It is possible to request a written guarantee from the agent, which states that you may cancel the agreement after 90 days if you are unhappy with the agent’s services. This is often a good idea, as six months is a long time to wait when things aren’t going as expected.
One Year Listing
A one year listing is a good option when the property is truly unique. Houses that are very expensive or located in a rural area will likely take much longer to sell, as there are fewer potential buyers.
Real estate agents need time to market unique properties appropriately and will often not agree to sell these properties when the seller requests a shorter listing time.
Other examples of unique properties include mansions, private islands and upmarket holiday homes.
Want To Speak With An Expert?
Before signing an exclusive listing agreement, it’s a good idea to interview multiple local real estate agents to determine which best suits your needs. You can instantly compare all of your local real estate agents using our simple comparison service. This is a great place to start, as you will immediately have a suitable list of agents to contact.
We recommend answering the key questions above first to ensure you have a good idea of your specific needs and some expectation of what a quality real estate agent can offer in terms of listing agreements. Once you decide on an agent, they will be able to answer any further questions you have regarding listing agreements and expected time frames for selling your property.