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A listing contract is a contract between a property owner and a real estate broker that employs the broker as the owner’s agent for a specific purpose. The most common use of a listing contract is for the sale of a property. Real estate laws vary from place to place, so there are differences in the details of the contracts. Most jurisdictions require contracts that involve real estate to be in writing.
Listing contracts have three major variations or levels of agency: the exclusive right to sell, exclusive agency, and open agency. The exclusive right to sell means that the broker gets paid for his work without regard to who sells the property. Exclusive agency means the broker gets paid if any broker sells the property, but not if the owner sells the property. Open agency means that any broker who sells the property gets paid, and the owner may sell the property himself without paying any broker.
The exclusive right to sell listing contract gives a broker the security he needs to invest his time and money in obtaining the highest possible offer for the owner. A broker will know he is going to recover the cost of advertising and marketing, which may include hiring a specialist to stage the home. Most real estate experts agree that staging is a proven method to get a higher price and faster sale for the owner, resulting in a positive situation for everyone.
A broker will be concerned about recovering his costs if the owner insists on an exclusive agency listing contract. For example, a broker may have invested in both staging and a wide-spread marketing campaign. Then, as a result of the broker’s efforts, a potential buyer contacts the owner directly, and they sign a contract, bypassing the broker completely. The broker gets no compensation, not even the amount needed to recover his costs for staging and marketing.
An open agency listing contract pits all selling brokers against each other, but with little protection for their work. In this scenario, many different brokers as well as the homeowner can profit from the sale, even if the selling broker is not the one who has put resources into readying the property for sale. A buyer can make a deal with the owner directly, or can also work with another broker to complete the sale, normally whoever will offer the lowest price. Most selling brokers avoid this situation by not showing open agency property to potential buyers.