An exclusive listing agreement is where a seller gives a real estate agent the exclusive right to sell their property. In an exclusive agreement, no other real estate agents can assist in selling the home; only one broker.
As a real estate professional, you must fully understand how exclusive listings work. Otherwise, you could be wasting time, money, and effort. Luckily, with our years of industry experience, we are happy to give you a complete breakdown of how the home-selling process works for exclusive listings.
In this post, we’ll define exclusive listings, provide supporting examples, and discuss the pros and cons of this type of agreement. Keep reading for a comprehensive guide to exclusive listings!
What Is an Exclusive Listing?
An exclusive listing is a real estate agreement where a seller gives a real estate agent the exclusive right to sell their home. This type of listing is common in real estate and ensures the broker will be compensated for their time and efforts.
When a property owner hires an exclusive agent, they must pay a commission fee. A commission means the real estate agent will receive a percentage of the sale once the property sells.
The property owner may not hire any other agents to sell the property; only the exclusive real estate broker is responsible for finding qualified buyers.
The Two Types of Exclusive Listings
Now that we’ve defined exclusive listings, we need to talk about the two different kinds that exist:
- Exclusive right-to-sell listing
- Exclusive agency listing
Exclusive Right-to-Sell Listing
An exclusive right-to-sell listing is the most popular real estate agreement. In this listing type, the seller agrees to pay a commission to one real estate agent in exchange for selling their property. Even if the owner sells the property themself, they must still compensate the agent for their efforts.
Exclusive Agency Listing
An exclusive agency listing also appoints one broker to handle the home sale. However, in this listing type, the seller can sell the property themselves and has no obligation to the broker. The broker only receives a commission in an exclusive agency listing if they play a hand in selling the home.
Pros and Cons of Exclusive Listings
Some pros of using an exclusive listing include motivated agents, increased privacy, and more power when negotiating with buyers. Some cons of exclusive listings include sales taking longer, complicated fees, and conflicts of interest.
Let’s discuss each advantage and disadvantage to ensure you understand how they work.
When a seller hires an exclusive agent, the agent may feel more motivated to make the sale and receive their commission. With open listings, they may feel less dedicated to the sale, knowing another agent could steal the deal.
Exclusive listings also help sellers to develop a personal relationship with their real estate agent. As a result, the agent can make the best recommendations regarding marketing, renovations, and other plans to increase the home’s market value.
An exclusive agreement also benefits sellers who like their privacy. With this agreement, real estate agents only allow qualified buyers to see the property that’s for sale. As a result, fewer people are going in and out of the home where the seller may still live.
Exclusive listings also help sellers get the most money possible when selling a home. Why? Well, an exclusive broker does not have to list the house in the multiple listing service (MLS). This means prospective buyers cannot see the initial asking price or how often the seller has changed the price. As a result, sellers and agents can test the market without worrying about buyers using the price history to negotiate.
One problem with exclusive listings is that selling the home may take a little longer. An exclusive listing is private, so fewer potential buyers will see the house. Fewer buyers means fewer opportunities for a sale than with an open listing.
Another issue with exclusive listings is that the real estate agent fees are generally more complex. For example, some real estate agents charge higher commission fees, while others charge lower commission fees but with additional costs. A seller may have to shop around when choosing a broker to get the best deal possible.
Exclusive listings may also be problematic for homebuyers. Because the agent has a vested interest in assisting the seller, it creates a conflict of interest. A homebuyer may be less trusting of an agent who wants to sell the property to earn a commission.
We should also mention the controversy behind exclusive listings. Many feel that exclusive listings reduce competition in neighborhoods, negatively impacting home prices and the housing market.
See the table below for a clear breakdown of the pros and cons of exclusive listing agreements:
Example of an Exclusive Listing Agreement
Say that Tanya is interested in selling her home. She has no real estate experience, so she wants to hire a professional agent to help her market the property.
Tanya decides to hire Mark, a real estate agent who she gives the exclusive right to sell her home.
Per their exclusive agency agreement, Mark will list the home privately and charge a commission fee of 5%. Because he wants to earn as much commission as possible, he gives Tanya great renovation tips to increase the home’s market value. He also handles all the marketing for the property to ensure only serious buyers can inquire.
The property takes a few months to sell, but Tanya considers it worth it for her privacy. She moves out, the new homebuyers move in, and Mark gets 5% of the sale; everyone is happy.
How to Negotiate an Exclusive Listing Agreement
Homeowners looking to sell their homes should find an agent who will offer the best contract possible. Let’s discuss how sellers can negotiate listing agreements to get the most benefit.
Shop Around for a Real Estate Agent
First, sellers should meet with multiple agents before signing a contract. It’s crucial to compare commission fees and see how much each agent thinks the property should be listed for. Once a seller and agent decide to work together, it’s time to negotiate contract terms.
Set a Listing Term
Sellers and agents must negotiate a listing term for the contract. A listing term describes how long the real estate agent will market and sell the property. In most cases, the listing term is six months, but it can also be three months, a year, or any agreed-upon time.
Lay Out Marketing Plans
The contract should also detail how the agent plans to market the home. For example, the terms may say that the agent must be present for all showings.
Include a Protection Clause
In many listing agreements, the agent includes a protection clause. A protection clause may say that after the contract ends, the homeowner cannot sell to a buyer that the agent introduced to them. This clause ensures the seller isn’t just waiting for the contract to end so they don’t have to pay a commission fee.
The Difference Between Exclusive and Non-Exclusive Listings
So how is a non-exclusive listing different from an exclusive listing? As we know, an exclusive listing means the homeowner has specifically authorized one broker to sell their home.
In a non-exclusive or open listing, the homeowner publicly lists the house and can work with other brokers. This listing type gives the seller more opportunities to make a sale, as many agents can reach out to potential buyers.
Frequently Asked Questions
Let’s look at some frequently asked questions real estate students have about how exclusive listings work.
Why Choose an Exclusive Listing?
Sellers should use an exclusive listing if they value privacy and want the freedom to test the market. As long as they don’t mind the property taking a little longer to sell, this is an excellent option.
Can You Make More Money With Exclusive Listings?
A bigger profit isn’t guaranteed, but homeowners sometimes sell homes at a higher price with exclusive listings. Why is that? Well, agents can test out the market with exclusive listings and adjust prices as often as they want.
If the seller realizes they could be asking for more, they can increase the sale price, and buyers won’t know the seller was ever asking for less.
What If a Real Estate Agent Doesn’t Sell the House?
Say you’re an agent who sets an exclusive listing term with a client for six months. However, at the end of six months, you still haven’t found anyone who wants to buy the property. In this case, you would not receive any commission, as there was no sale.
What Is the Multiple Listing Service (MLS)?
According to the National Association of Realtors, the Multiple Listing Service (MLS) is a database real estate professionals use to help clients buy and sell homes. This database features relevant information about properties that are for sale.
Real estate agents can use this tool to compare housing prices and get a feel for current market conditions. In some cases, if a property is exclusively listed, it will not show up in the MLS.
What to Know Before the Real Estate Exam
An exclusive listing is an agreement where a property owner gives an agent the exclusive right to sell their property.
Exclusive listings are incredibly common in real estate, so you’ll need to be an expert on this topic before the exam. Not only will this knowledge help you on testing day, but it’ll also ensure you are a successful real estate agent.
While it’s crucial to understand how exclusive listings work, this isn’t the only topic you should know like the back of your hand. Study even more critical concepts using our online Real Estate Flashcards.