Some of the usual terms that would be placed into a Listing Agreement include: the nature of the relationship; the amount of commission the agent is to receive; the length or term of the agreement; any liabilities that the seller may have in regards to potential sales of the property that do not come to Close; those efforts which the agent may or must undertake, in marketing the property; and even any extensions to the Listing Agreement that may come about.
A) Commission
The amount of commission to be paid to the agent is one of the most important terms to a Listing Agreement. Generally, this commission is determined as a fixed percentage of the total sale price of the property. While commission percentages vary from region to region and time to time, a percentage of somewhere between 5% and 7% is normal. The key thing to remember about the commission is that it can be negotiated, so do not be afraid to get quoted commissions from a few agents. However, since the commission is the only way that agents are likely to be paid, be careful not too negotiate too low of a commission with your agent, as this can be a significant disincentive for the agent to work their hardest at marketing and selling your property. They may just look at it and feel that it is not worth their time to sell the property.
B) Length of Time
A second important term to any Listing Agreement is the length of time that the agreement is to last. This is the term of the listing. The vast majority of Listing Agreements are likely to be for some amount of time between 60 days and 180 days (2 to 6 months). This may seem like a long time to obligate yourself and your property to, but it takes time to sell a piece of property in most markets. Keep in mind, the agent has to have enough time to market your property and target buyers adequately. If you short the agent on time in order to have an out from the Listing Agreement and the agent’s commission on a quicker basis, then you risk poor or inadequate marketing.
A better way to ensure that you have an out from an agent is to request that a cancelation clause be placed within the agreement. A cancelation clause gives you as the seller and your agent the ability to cancel the Listing Agreement upon a predetermine number of days notice. Therefore, if you are extremely wary of signing a Listing Agreement that calls for a 6 month listing, you can put yourself more at ease by also placing a cancellation clause which allows you to cancel the Listing Agreement upon, say 60 or 90 days notice. Again, however, you have to be careful that the cancellation rights will not work as a disincentive to the listing agent. A cancelation clause that allows you as the seller too quick of an out from the Listing Agreement may keep the agent from adequately marketing the property for fear that the property just will not sell for whatever reason and then you as the seller will cancel the Listing Agreement out of frustration, leaving the agent with a significant amount of time and effort expended on a property which they have no hope of seeing a return on.
C) Failure to Close Provisions
Another extremely important term to include within any Listing Agreement is a term that discusses the rights of the you the seller and the agent should you fail to Close on the property through no fault of your own. Sometimes, despite the best efforts of both the seller and the agent, buyers just cannot seem to get to Close and purchase the property. Reasons can be a failure to receive adequate financing, being spooked from property or title investigations, or maybe that they just decide they no longer want the property. Unfortunately, without a term in the Listing Agreement that specifies the agent’s rights to a commission for a deal that never Closes through no fault of the seller, the agent is entitled to their commission as soon as the Purchase Agreement is signed. Many people think that the agent is only entitled to commission after the Closing because the agent usually is paid out of Closing proceeds, but that is simply not the case. For this reason, you as the seller should make sure to include language within the Listing Agreement specifying what the agent’s rights to commission are in the event that the sale fails to close through no fault of the seller. One common way of dealing with this is to stipulate that the agent be only entitled to part of the percentage of the commission that they would have received or none at all.
D) Marketing Efforts
Lastly, an important term, or set of terms, to include within any Listing Agreement would be one that specifies the scope of the agent’s efforts in marketing the property. You can achieve this by putting in a list of activities and requirements that the agent must do in order to satisfy their obligation under the Listing Agreement and be entitled to their commission. Some of these terms could be restrictive on what the agent can do, and others could set forth obligations that the agent must meet. You may want to require the agent to place signs or ads, to list the property on the Multiple Listing Service (MLS), host open house days, or any other like activities. Conversely, you may want to ensure that the agent refrains from doing certain activities when trying to sell your property. Either way, it is important to set a base line of what the agent should do in marketing your property, and as such, this has become an important term to be included in any Listing Agreement.