An exclusive agency listing is a real estate agreement where the seller gives an agent the exclusive right to sell their home, but the agent only receives a commission if they find a buyer.
You can’t call yourself a real estate pro until you know how exclusive agency listings work. We recommend learning from credible sources with industry experience to get all the facts. That’s why we’re here to give you a complete breakdown of exclusive agency agreements in real estate.
In this post, we’ll define exclusive agency, explain how it differs from other listings, and discuss its pros and cons. Keep reading to learn everything you need to know before the exam!
What Is an Exclusive Agency Listing?
An exclusive agency listing is an agreement where the seller gives a real estate agent the exclusive right to sell their home, but the agent only gets a commission if they find the buyer.
In an exclusive agency agreement, the seller can find a buyer themself to avoid paying real estate agent fees. Because exclusive agency agreements do not guarantee that the agents get paid, they are not a very popular option.
What Terms Are Included in an Exclusive Agency Agreement?
If a seller and agent agree to use an exclusive listing agreement, the contract should cover the following points:
- The exclusivity clause
- The contract term
- How much commission will the seller pay the agent
- Property address and description
- The listing price for the property
The Difference Between an Exclusive Agency Listing vs. Exclusive Right to Sell
There are two types of exclusive listings that real estate professionals should know:
- Exclusive agency listing
- Exclusive right-to-sell listing
In an exclusive agency listing, the seller does not have to pay the agent if they find a buyer themself, while in an exclusive right-to-sell listing, the seller pays the agent regardless.
An exclusive right-to-sell agreement is used more frequently than an exclusive agency agreement. Real estate agents prefer the first option because they earn a commission regardless of who sells the property; it’s a guaranteed paycheck.
Pros and Cons of Exclusive Agency Listings for Sellers
Pros of using an exclusive agency listing for sellers include the right to sell their own property and the opportunity to save money. Cons include demotivated real estate agents and disputes over who found the buyer.
Let’s discuss the advantages and disadvantages in more detail below!
One of the benefits of exclusive agency agreements is that the seller retains the right to find a buyer. This right gives the home seller more control over the sale, including how long it takes and who purchases the home.
Another benefit is that the home seller can avoid paying real estate agent fees if they sell their home, allowing them to save money. Many sellers like this option because they feel that if the agent does not play a hand in selling the house, why should they pay them a commission?
The problem with an exclusive agency agreement for sellers is that their real estate agent may be less motivated to find a buyer. The agent knows if the seller sells the home, they won’t make any money. This could make the agent hesitant to extend the full force of their efforts into marketing the property. As a result, the property may take longer to sell.
Another negative of an exclusive agency listing is that it may lead to more disputes between the seller and the agent. Sometimes, the real estate agent may try to take credit for finding the buyer so they can earn their commission.
For example, a seller may chat with a neighbor about their property for sale and pique the neighbor’s interest. But when the neighbor makes an offer on the house, the agent could argue that their interest came from the for-sale sign they placed in the seller’s yard.
Pros and Cons of Exclusive Agency Listings for Real Estate Agents
The advantage of exclusive agency listings for agents is that they have less competition, but the disadvantage is that agents do not earn a guaranteed commission. Let’s discuss how this works below!
The benefit of an exclusive agency listing over an open listing is that real estate agents don’t have to compete with other agents. In this type of listing, the agent has the exclusive right to market the property and find prospective buyers for the seller.
The most significant drawback is that there’s a chance the real estate agent will not earn a commission. From the moment the contract is signed, the agent is in a race against the seller to find a buyer. If the seller finds a buyer first or neither party finds anyone, the real estate agent will not make any money. The agent may have wasted valuable time marketing the property, all for nothing.
Example of an Exclusive Agency Listing Agreement
Let’s discuss an example of an exclusive agency listing to understand how they work.
Imagine that Silvia is selling her home. She would like to find a buyer but has little experience marketing a property and finding good candidates.
Silvia thinks it would be beneficial to hire a real estate agent to bring in more offers. However, she doesn’t want to stop searching for buyers on her own. She also doesn’t want to hire an agent, sell the property herself, and still have to pay a commission fee.
After researching her options, Silvia finds an agent who agrees to an exclusive agency agreement. This way, Silvia can keep searching for qualified buyers but look at back-up options from a real estate professional.
The Difference Between an Exclusive Agency Listing vs. an Open Listing
In an exclusive agency listing, only one real estate broker has the exclusive right to sell the property (not counting the owner). In contrast, an open listing allows other brokers to compete with each other to find buyers.
Some sellers prefer an open listing because they don’t have to limit themselves to the services of one broker. An open listing also allows more potential buyers to see the home, increasing the chance of a sale.
Should I Use an Exclusive Agency Listing?
So you may wonder, “If I’m selling my home, should I request an exclusive agency listing agreement?” Well, there are a few reasons a seller may choose to list their home this way; let’s discuss!
First, you may be trying to find a buyer yourself but having trouble. You’d like some professional help from a real estate firm, but you also want to keep looking on your own. In this case, we recommend asking for an exclusive agency agreement; you can still search for buyers while browsing back-up offers from real estate agents.
Another reason you may request this type of listing is if you already have a buyer but want to increase the asking price. If an agent brings you other buyers willing to pay more, you’ll have more room to negotiate with the buyer you’ve already found.
But even if an exclusive agency listing agreement is your best choice, good luck getting a real estate agent to agree! Agents tend to avoid these listing agreements as they offer minimal benefits.
Should FSBO Sellers Use an Exclusive Agency Agreement?
According to Rocket Mortgage, FSBO stands for “for sale by owner.” You may wonder if FSBO sellers are good candidates for exclusive agency agreements. However, in most cases, we recommend that FSBO sellers avoid these agreements. Why?
Well, most FSBO sellers sell their property themselves to avoid real estate agent fees and save money. If an FSBO seller hires an exclusive agent, they may have to pay the agent a commission, defeating the whole purpose.
The only real circumstance in which an FSBO seller should hire an exclusive agency real estate agent is if the agent can negotiate buyers into paying a higher asking price. This way, the seller can still enjoy a higher profit even with the commission fee.
How to Negotiate an Exclusive Agency Agreement
If a real estate agent agrees to sign an exclusive agency agreement, the seller should negotiate the term length, ask for a trial run, and remember to read the fine print.
In an exclusive listing, the seller may ask for a shorter contract term. This time crunch puts added pressure on the real estate agent to find a buyer before the agreement has ended.
In some cases, sellers may also negotiate a trial run. This gives the seller a chance to ensure the agent or real estate firm is a good fit for them.
Read the Fine Print
A seller should always read the fine print after receiving a contract from a real estate agent. A careful reading ensures there are no hidden clauses that could negatively impact the seller. It also provides that the seller is fully aware of all the services their agent offers.
Frequently Asked Questions
Let’s answer some frequently asked questions real estate students have about exclusive agency listings.
How Does Commission Work in Real Estate?
When a seller hires a real estate agent to market and sells their property, the agent receives an agreed-upon commission once the property sells. A commission in real estate is generally a percentage of the total sale.
The amount of commission that an exclusive agent receives depends on state laws. However, in most states, the commission is around 5-6%. So, for example, if a real estate agent sells a home for $300,000 at a 5% commission rate, they will earn $15,000.
Are Exclusive Agency Listings on the Multiple Listing Service (MLS)?
In an exclusive agency listing, the agent can still market the property on the multiple listing service (MLS). The MLS is a database real estate agents use to share details about properties for sale.
Using the database means more potential buyers can access the property listing, increasing the chance of a sale.
What to Know Before the Real Estate Exam
An exclusive agency listing agreement is when a seller gives a real estate agent the exclusive right to sell their home while retaining the right to sell it themself. In an exclusive agency agreement, the seller does not have to pay a commission if the agent does not sell the home.
Real estate students must understand how an exclusive agency listing agreement works before the day of the exam. This knowledge will help you to pass your test and excel as a future real estate professional.
Now that you’re an expert on the exclusive agency listing option, it’s time to learn about more vital topics. Study other real estate terms using our Real Estate Flashcards as a helpful tool!