Finding a home for a buyer and making their dreams come true is an absolute win for a real estate agent.
However, real estate demands can be challenging, finding a buyer’s ideal property might be difficult.
Depending on the listing agreement you sell and the real estate broker’s commission terms, the flow of income from sales can vary greatly.
A net listing allows the agent to keep the difference in payment, between the owner’s asking price and the actual sales price.
Net Listing Agreements Scenario
An example may better demonstrate what a net listing agreement means in real life.
Take a homeowner living in North Texas; he got a new job and needs to move away further east. He needs to find a way to sell his house relatively quickly, so he decides to find a broker.
The homeowner, now seller, and the real estate agent agree to enter into a net listing agreement.
They place a baseline price of $150,000 on the property. This means that the real estate agent will get to keep anything the buyer pays above $150,000.
If the sale on the home is $155,000, the surplus is $5000, or if they pay $250,000, the extra is $100,000.
Regardless of the amount, under real estate net listing agreements, the commission is the excess payment.
The Dangers of Using Net Listing Agreements
A net listing agreement seems like a win-win transaction with the seller getting the agreed-upon amount of money and brokers obtaining the surplus of that pay.
However, net listing agreements are seen as incredibly risky for real estate professionals.
Some people see net listings are as controversial among other listings because it is illegal in some states.
For example, the property may sell much lower than the asking price.
So, no matter what the contract states, there may be no surplus pay at all. This is risky because there is a chance that the agents may not make money.
Contrarily, with this type of listing agreement, if real estate agents are too successful, the client can choose to take legal action.
These types of agreements can cause a conflict of interest for the broker where they break their fiduciary responsibility placing their needs above the client.
Net Listings Are Legal Only in Some States
Depending on what state you reside in, a net listing agreement may or may not be legal.
Many states, such as Georgia, Virginia, South Carolina, New Jersey, and New York, have already banned net listing agreements.
Net listing may be legal in some states, like California, Texas, and Florida, but people are still cautioned upon entering into such an agreement.
However, even in states like New York or New Jersey, some brokers say upfront that they do not allow this type of agreement, the reason being, it is unethical.
The sale is a legitimate real estate transaction, and agencies in every state want to keep their name reliable.
Know Your Real Estate Agent and Ask About Listings
As a client and seller, you should understand the different types of listings available in your state.
Before entering into any contract with a real estate broker, ensure that you sell your home for the right amount. Discuss with your broker the terms and regulations and ensure the situation is clear to you.
Ask your broker for a comparative market analysis, and that way, you can see what a fair real estate sale price is in your area.
You can also compare services per state or broker to broker and understand each group’s agency relationship.
As a property owner in your state, you have the right to choose the best option for yourself and your home.
You can also ask previous clients about their experience with the broker and the agency and if, for whatever reason, they may have some complaints.
This is a real estate transaction, so a real estate broker has a right to be upfront with any potential client. The broker will likely do their best to keep their agency’s name reputable and trustworthy.
What Are Real Estate Listing Agreements?
A real estate listing agreement is a contract where a property owner or seller permits a real estate broker to find a buyer for the property according to the owner’s terms.
The seller will then pay a commission for the services of the broker for the transaction.
It should be noted that a listing agreement is actually an employment contract, not a real estate contract.
The seller is employing the broker to find a buyer, but there is no actual exchange or sale of property between the seller and the broker.
Other Common Types of Listing Agreements
Many states offer different types of listing agreements, and there are other common types of real estate listing agreements that you ought to know.
Exclusive Right to Sell
The first and most widely used type is an exclusive right to sell. This agreement states that the broker gets a commission, regardless of who sells the property, whether that is the agent or the seller.
Exclusive Agency Listing
The second type of listing agreement is exclusive agency listing, wherein the broker only gets paid if they sell the property. If the owner is the one to sell the property, the broker does not get a commission.
The third type is an open listing. This agreement states that the seller can use the services of as many brokers as they want, but if the client sells the property without the broker’s help, they have no obligation to pay.
Is Net Listing the Right Choice?
Whether as clients or real estate students, being aware of the different listings will allow you to navigate future real estate transactions.
Having a trustworthy broker and a fair contract can make net listing a good option for you.
However, always keep in mind that there are several other less risky options when selling your home.