Listing Agreements: Read This Before You Sign

Michelle Delgado

By 

Michelle Delgado

June 8th, 2021
Updated June 8th, 2021

SHARE

Negotiating tips | Red flags | Listing agreement types | Terminating a contract

What is a listing agreement?

A listing agreement is the contract a home seller signs with their real estate agent. It’s a legally binding document that guides the process of listing, marketing, and ultimately closing a real estate transaction.

A listing agreement authorizes your agent to legally represent you in the sale of your home, allowing them to market your home on a multiple listing service (MLS), install a lockbox, and show your home to prospective buyers.

It also specifies important details including:

  • A general list of services you’ll receive
  • The commission rate and payment structure
  • How long the agreement will last

Listing agreements vary by type and location, but all share the same goal:

Providing a legal foundation that aligns the seller’s and agent’s expectations and responsibilities.

Do you have to sign a listing agreement?

If you’re a seller who wants to work with an agent, then yes — you’ll have to sign a listing agreement.

However, a listing agreement is not necessarily required to sell a home. You can opt to sell your home without an agent, commonly known as listing for sale by owner (FSBO).

Buyers don’t sign listing agreements — as the name suggests, listing agreements exclusively concern those listing a property for sale.

Some agents will ask buyers to sign exclusive agreements to ensure they’re compensated for their efforts, but many don’t require a contract.

» LEARN: What is a buyer agent agreement?

When do you sign a listing agreement?

You’ll sign a listing agreement as soon as you’ve chosen which agent you want to work with.

Without a signed listing agreement in place, your agent isn’t legally entitled to represent you in your sale. In other words, they can’t do anything until that contract is signed.

Because listing agreements are legally binding, you should only sign if you’re 100% confident you’ve found a great agent.

Before signing a listing agreement, we recommend speaking to at least 2-3 real estate agents to weigh your options.

Conducting multiple interviews will give you the chance to ask questions and get a feel for which potential agent is the best fit for your situation, goals, and preferences.

While you’re in the process of choosing, be clear with each agent you speak with that you’re not planning to commit to anything on the spot.

Setting this expectation can help you avoid situations where you might feel pressured to sign a contract without adequate time to comb through the fine print.

What to know before signing a listing agreement

A listing agreement is a legally binding document, so it’s crucial to understand all the ins and outs before you sign on the dotted line.

A typical listing agreement stipulates the key terms that will guide the sale of your home. This includes, but is not limited to:

  • Services the agent will provide — e.g., MLS listing, professional photography, showings, etc.
  • Commission rate and structure, including how the fee will be split with the buyer’s agent
  • Timeline for the sale (typically 3-6 months, or sometimes up to 12)
  • Required disclosures about material defects, such as lead paint or material defects
  • Guidelines for terminating the relationship
  • Other state and federally-mandated legal requirements, such as anti-discrimination regulations

To reiterate, always read contracts closely before signing — and ask your agent to explain anything that seems unclear.

If something in a contract is unclear or seems problematic, seek legal advice or simply find another agent.

Can you negotiate a listing agreement?

Technically, everything in real estate is negotiable — but that doesn’t mean your agent will always agree to your proposed terms.

Agents typically use standard, boilerplate contracts provided by their local associations. These contracts are heavily vetted by real estate attorneys to help both parties avoid tricky legal complications.

Though the bulk of the contract will stay the same, there are opportunities to negotiate key details such as the:

  • Listing price
  • Listing term
  • Commission rate

Boilerplate listing agreements also generally include a section where agents can write in any special considerations.

For example, they may agree to special terms if you have a buyer picked out since they won’t have to invest time and effort into marketing.

» LEARN: Tips for Negotiating Realtor Commission

Possible red flags

Though most listing agreements are standard and predictable, you should still be on the lookout. In many cases, common red flags can be easily avoided if you know what’s typical in your area.

Examples of red flags include:

  • A pushy agent. Start off on the right note by avoiding an agent who attempts to pressure you into anything. You should never feel rushed into signing a listing agreement before you’re ready.
  • Unusually high commission. Average rates vary locally, but one that’s significantly over the national average of 5.45% could be cause for concern. (Not sure what’s normal near you? Find the average commission rate in your area.)
  • A leisurely timeline. Listing agreements typically last 3-6 months. On the high end of the scale, some agents will ask for up to 12 months — but anything longer is a definite red flag. If you’re looking for a shorter time commitment, interview agents until you find one who’s on the same page.

In addition to screening for red flags, talk to prospective agents about exactly how and when you will pay their commission fee.

When you hire a listing agent, they will typically agree to cover upfront costs such as professional photography, signage, and other marketing materials. They’ll earn this money back at the end of the transaction when you pay their commission.

If you close on a deal after your contract expires, you may still have to pay your agent’s commission. For example, let’s say you accept an offer the week after your contract ends — chances are, your agent’s marketing contributed to the deal.

Your contract will cover these types of contingencies, so be sure to read it closely to avoid any surprises.

If you feel uncertain or want a second opinion about your listing agreement, you could seek advice from an attorney — or just walk away.

Types of Listing Agreements

Most sellers sign exclusive right to sell listing agreements

In an exclusive right to sell listing agreement, you’ll work with a single listing agent who will market your home. That means you’ll have to pay your agent’s fee regardless of whether they find the buyer, you find the buyer, or the buyer finds you.

Agents generally prefer exclusive right to sell listing agreements. In fact, many agents choose not to offer other types of listing agreements at all.

Most agents will cover the upfront costs to market your home out of their own pocket. They also invest a ton of time and energy into your sale before seeing a dime.

An exclusive right to sell agreement offers more assurance that they’re not burning their money and time and will be paid for their efforts in the end.

For sellers, there are also compelling benefits to signing an exclusive right to sell listing agreement.

  • You’ll receive dedicated service from an agent who’s fully committed to selling your home.
  • You’ll avoid the messy complications that make other types of listing agreements considerably less common.

» MORE: Read This Before You Sign an Exclusive Right to Sell Listing Agreement.

Exclusive agency listing agreements are rare

In an exclusive agency listing agreement, you’ll commit to working exclusively with one agent — but you will also retain the right to market and sell the home yourself.

If this arrangement sounds confusing, that’s because it is.

Unlike an exclusive right to sell agreement, you will only pay your agent’s commission if they bring a buyer into the transaction. If you find your own buyer, you’ll be able to switch to a FSBO transaction.

Note that you will still be responsible for covering the upfront costs of listing and marketing the home. If you find your own buyer, you may be able to hire your agent’s brokerage to coordinate the transaction.

This type of listing agreement is uncommon — and for good reason. Agents don’t like the lack of certainty around their commission or the idea of being pitted against their client in a race to sell the property.

It can also be tricky to prove exactly who is responsible for bringing a buyer into the sale. For example, you might end up selling your home to a neighbor. But can you definitively prove that they weren’t initially interested because they saw the sign your agent set up in your front yard?

The average seller will not encounter an exclusive agency listing agreement. But understanding the drawbacks can help illuminate why exclusive right to sell agreements are so popular.

» MORE: What is An Exclusive Agency Listing?

Open listing agreements can be useful for FSBO sellers

Open listing agreements allow sellers to enlist the help of local agents to market their property while retaining the right to list and sell their home FSBO.

Note: An open listing agreement is not a traditional listing agreement since FSBO sellers don’t work with a listing agent.

In a nutshell, FSBO sellers can sign multiple non-exclusive open listing agreements with different agents.

Open listing contracts promise to pay an agent a commission if — and only if — they bring a buyer who ultimately closes on the home.

There are some compelling reasons for FSBO sellers to consider an open listing agreement:

  • You can market your home to buyers through local agents, without paying a flat-fee MLS company’s upfront fee.
  • At most, you’ll pay one agent’s commission instead of two.
  • You’re still free to find your own buyer and avoid paying any commission at all.

Benefits aside, an open listing agreement won’t solve the underlying cons to a FSBO sale.

Buyer’s agents might be more motivated to share your listing with their clients, but you’ll still have to market, negotiate, and navigate the sale on your own.

If you're looking for other ways to market your FSBO home, consider hiring a flat-fee MLS service. These companies add your listing to the local databases buyers’ agents scour while looking for properties to show their clients.

» MORE: Selling FSBO? Here's How an Open Listing Agreement Can Help.

What is a net listing?

In a net listing agreement, the seller agrees to pay their listing agent any profit that exceeds the agreed-upon listing price.

For example, let’s say you list your house at $500,000 and sell it for $575,000. Your agent’s commission would be $75,000 — the “net” difference between the listing and selling prices.

This is radically different from a conventional commission, which would typically be a percentage of the sale price or a flat fee.

Most sellers will never encounter a net listing agreement for the simple reason that it’s illegal in many states.

The National Association of Realtors also does not allow its members to offer net listings — primarily because net listings present a risky, unconventional payment structure.

For example, a house could sell for far more than its listing price, leaving the seller feeling misled by their agent. Or, a house could sell for its exact listing price or lower, forcing the agent to walk away at a loss.

» MORE: What Is a Net Listing?

Terminating a listing agreement

Your contract will contain terms for cancelling a listing agreement, but under certain circumstances, your agent may allow you to walk away if things don’t work out.

If you decide to back out of a listing agreement, it’s important to do so the right way. If your agent doesn’t formally release you from the contract, you could end up being on the hook for their commission — even if you end up relisting your house with someone else.

If your home is already under contract, you’ll face steeper legal odds. Sellers who attempt to back out of a sale the wrong way can be sued by both their listing agent and the buyer.

Reasons for backing out

Sellers who want to cancel their listing agreement are generally dealing with one of two circumstances:

  • Dissatisfaction with the service
  • A major life change

Sometimes a seller puts their faith in the wrong agent. They might receive subpar marketing, spotty communication, or a total personality clash.

If things are stalling out — or going off the rails — you may have grounds to break up with your agent.

Other times, a seller experiences an unexpected change that throws their plans out the window. A death in the family, divorce, job loss, or other significant life event could alter a seller’s ability to move forward with the sale.

If you don't have a real reason to terminate — and your agent is holding up their end of the bargain — you'll have a much harder time backing out of your listing agreement.

How to terminate a listing agreement

There are three main steps you should take while figuring out how to back out of your listing agreement.

1. Revisit the listing agreement you signed

Legally, you are bound to its terms. Though sellers typically can’t decide to cancel a listing agreement on their own, most contracts include a process for mediating disputes and terminating the contract.

For example, some — but not all — contracts will charge you a cancellation fee for backing out early.

2. Have an honest conversation with your agent

Agents generally want to protect their reputations — and that means keeping clients happy. If the situation isn’t working out, your agent may be willing to let you walk away.

Your agent might also suggest that you work with a different colleague within their brokerage. This can help you get a fresh start with a new agent, without breaching the original listing agreement you signed.

3. Request a written release from your listing agreement

If the dispute cannot be resolved, request to be released entirely. You’ll need to submit a written request to be released from the contract, citing specific reasons your agent is not fulfilling their responsibilities.

If you don’t obtain a written release from your contract, be aware that your agent may still be legally entitled to their commission — even if you sign with a second broker.

Related Reading

Better real estate agents at a better rate

Enter your zip code to see if Clever has a partner agent in your area.

If you don't love your Clever partner agent, you can request to meet with another, or shake hands and go a different direction. We offer this because we're confident you're going to love working with a Clever Partner Agent.