What is the difference between an exclusive listing and an exclusive right to sell?

Selling a house involves a lot of paperwork, and the first few pages of the process will start with your real estate agent’s listing agreement. Often, this contract outlines an exclusive right-to-sell arrangement, serving to protect both seller and agent.

So what does this mean for you and what should you know before signing on the dotted line?

To understand exactly what an exclusive right-to-sell agreement is and why it’s important for all parties involved, we pored over listing contracts, digging deep into the verbiage and the fine print; and we spoke with Chiquita Pittman, a New Brunswick, New Jersey-based top real estate agent with more than 20 years of experience.

As defined by the National Association of Realtors, an exclusive right-to-sell listing agreement is a contract between the listing agent and the owner of the home, wherein the seller agrees to compensate the agent’s efforts regardless of who ultimately brings forth a buyer. In simpler terms, you’re agreeing to work exclusively with one agent for the purpose of selling your house within a defined period of time.

Your agent, with the support of his or her managing broker, will be the one to list your property on the Multiple Listing Service (MLS) and work with you to develop a marketing strategy. Your agent will be the one who fields calls and emails from interested parties, coordinates showings, guides you through negotiations, and writes up the contracts.

When you work with a top agent, you’ll have the added advantage of their comprehensive network of home inspectors, service providers, lenders, attorneys, and anyone else who may prove useful on the journey to the closing table.

With all of these resources and marketing dollars about to be at your fingertips, it should come as no surprise that your exclusive right-to-sell agreement will also stipulate your agent’s commission rate — which is usually 6% and will be split with the buyer’s agent.

How long is an exclusive right-to-sell period, and can I cancel?

As with most contractual agreements, terms can vary. The length of your listing contract may depend on the conditions of your local market, the requirements of your agent’s brokerage firm, and your personal preferences. In the United States, the average length of a listing agreement tends to be six months.

“My exclusive right-to-sell agreements are anywhere from three months to six months,” says Pittman, “and in my area, the seller has the right to cancel the agreement at any time if they’re not satisfied.”

While it can feel intimidating to sign a contract — especially one involving something as major as real estate — exclusive right-to-sell listing agreements are purpose-built to protect both sides. You get the representation and advice of an expert, while the agent gets assurance of loyalty and fair compensation for their services.

As with any contract, you’re encouraged to carefully review the contents and ask questions prior to signing, as the best time to inquire about exiting an agreement is while you’re entering. If you’ve selected a reputable, experienced agent, it’s unlikely that poor performance will be an issue.

More often, when sellers cancel an exclusive right-to-sell agreement, it’s due to a change of plans; perhaps a postponed job offer, a family emergency, or deciding to keep the property as a rental rather than selling.

What happens after an exclusive right-to-sell agreement expires?

If your home has not sold by the end of the contract terms with your agent, you’re free to part ways and do as you please. This may mean finding another agent, opting to sell on your own (FSBO), or — if there’s a recession — letting your house remain off-market until economic conditions improve.

This is another case where it’s important to read the fine print, however, because the contract may contain stipulations that commission is still due in the event that a buyer, especially one who was brought forth by your agent during the contractual period, shortly thereafter decides to purchase the property. The window for this claim to occur is limited, often to 30-45 days after contract termination, but it’s worth being aware of the possibility.

This is, of course, simply to protect the agent from circumstances where a sneaky seller may try to work directly with a potential buyer and either terminate the contract or let it expire in order to avoid paying commission. After all, if an agent’s marketing efforts have led said buyer to your door, it’s only fair that they are compensated.

What other types of listing agreements are there?

The three most common listing agreements are:

• Exclusive right-to-sell
• Exclusive agency
• Open listing

In comparison to an exclusive right-to-sell agreement, an exclusive agency contract allows the homeowner to retain the right to sell the property themselves. This means that, in order to earn a commission, the agent must be the one to bring a buyer. Should the seller find a buyer on their own, no commissions are due to the agent.

Many agents do not work under exclusive agency contracts as there’s no assurance of compensation for their time spent marketing the property and offering their guidance in readying the house for the market.

Even looser than an exclusive agency agreement, an open listing allows a seller not only to try to sell the house themselves, but also to hire countless agents in the effort to sell their home. In this scenario, the only agent who earns a commission is the one who is responsible for finding the buyer. Should the seller procure the buyer themselves, no one gets paid.

While open listings may sound like an opportunity to further widen the pool of potential buyers, the strategy’s weakness lies in a lack of cohesion. When multiple agents are vying for a possible paycheck, who calls the shots when it comes to marketing? Furthermore, who is willing to invest their time and money in promotion that may end up benefiting a rival agent?

What else should I know about an exclusive right-to-sell?

With little to lose and much to gain, finding an agent you trust and entering into an exclusive right-to-sell agreement with them is the surest way to have a dedicated expert who is fully committed to the sale of your home.

Remember, a real estate agent’s job is to help you through the sales process from start to finish, so don’t be shy when it comes to asking questions or requesting additional time to review the listing agreement before signing. Here are a few key points to keep in mind when meeting your potential agent prior to listing your home for sale:

• Will we sign an exclusive right-to-sell agreement?
• What is your standard rate of commission?
• How long are the contract terms?
• What is the process if I want or need to cancel our agreement?
• Is there a length of time after our agreement ends in which I may owe you commission if my house sells?
• Is there anything else I should know about working with you?

Whether you’re looking to list now or you prefer to take the summer to work on a few home improvement projects, be sure to make the most of your time with the help of our resources for preparing to sell your home.

Then, leave it to your trusted, exclusive agent to handle the rest.

As Pittman says: “I’m going to be committed; spending money and promoting your house to get top dollar.”

Header Image Source: (Cytonn Photography / Unsplash)