A net listing is a rare type of agreement between a home seller and their real estate agent regarding the agent's compensation.
The seller agrees on a set amount they'll receive from the sale of their house.
The seller's agent agrees that the seller gets that amount from the sale of the house. But instead of earning a commission from the sale, as real estate agents typically do, the agent keeps any proceeds from the sale above the amount agreed to by the seller.
Net listings are rare because they're widely considered unethical and ripe for abuse. In many states, net listings aren't even legal.
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The danger of net listings
An unscrupulous agent can put their interest before the seller's interest by using a net listing. Here's one possible scenario:
🗣️ An agent pitches the seller about using a net listing for their house.
💰 The agent proposes the seller will get $200,000 from the sale, and the agent will earn everything above that price. The typical buyer's agent commission also might get taken out.
How real estate commissions work
Real estate agents involved in a home sale usually collect a fee at the close of the transaction.
The commission is usually around 5-6% of the home's sale price, with the buyer's agent and seller's agent splitting the commission.
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🤝 The seller's in a hurry and may not understand the true value of their property. They agree to the $200,000.
📉 $200,000 turns out to be below market price.
🤑 The agent finds a buyer who pays $250,000.
💰💰💰 Instead of earning a typical 3% commission on the $250,000, or $7,500, the seller's agent pockets everything above $200,000. The agent's cut on the net listing: $50,000.
💸 The seller earns $194,000 — the agreed on $200,000, minus the buyer agent's 3% commission — on the net listing sale instead of $235,000.
👉 The crux: Using a net listing, the seller gets $41,000 less on their sale.
The agent's interest and the seller's interest in a net listing, as this example shows, aren't aligned.
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The protections against net listings are strong
Net listings are banned for most real estate agents
The National Association of Realtors (NAR) forbids net listings for its members. Realtors can't include net listings on the Multiple Listing Service (MLS), the database of homes for sale used by real estate professionals.
Because members of the NAR account for more than 1.4 million of an estimated more than 2 million agents in the U.S., roughly 70% of real estate agents are effectively banned from using net listings.
Net listings are illegal in most states
Most states around the country have acted decisively against the practice.
Net listings, however, are legal in three notable states with large housing markets: California, Florida, and Texas.
Even in these states, however, net listings are used sparingly and with regulations.
Texas's take on net listings
Texas, for instance, stipulates that using a net listing agreement "places the broker’s interest above the principal’s interest with regards to obtaining the best possible price."
In practice, a "broker may not enter into a net listing agreement unless the principal requires a net listing and the principal is clearly familiar with the current market values of real property."
California's take on net listings
California's position on net listings is that "they can easily lead to a breach of the agent's fiduciary obligations and should be used only with highly sophisticated clients, or clients who are independently represented and, of course, with full disclosure of all of the conflicts involved."
No matter which state you're in, an experienced agent can help you navigate the home-selling process and steer you toward an outcome that's in your best interest.
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