It is Critical you Understand the Difference Between an Exclusive Right to Sell and an Exclusive Agency Agreement

Copyright © 2014- 2019  AUTHOR: Paul R. Marino, REALTOR®, e-Pro®

 

Be smart. Be informed. "Education is when you read the fine print; experience is what you get when you don't" (Pete Seeger). This article is written especially for prospective home Sellers, interested in preserving their hard fought home owner equity. After all, it's your money.

 

I know you’re going to learn something valuable in this article. I just have that feeling. It’s all about E D U C A T I O N. But, as they say in the Wizard of Oz, “Pay no attention to the man behind the curtain.”

 

You undoubtedly know you should read something before you sign it. Obvious I know, but I continue to be amazed that so few people actually do. Words have meaning (and consequences). I’ll prove to you exactly what I mean in just a moment. Real estate documents are even more important than most, since they probably involve the single largest asset you will ever deal with in your life. For this reason, it is critical that you understand exactly what you are signing.

 

States vary widely with respect to real estate law, which is why it is so important to understand precisely what functions can, and can not be performed by a layman, and what functions can only be accomplished by an attorney admitted to the bar. If you don’t definitively know the answers to these questions, ask. And don’t ask your neighbor (unless of course, they are a practicing attorney, experienced in real estate law, licensed in the particular state in which the parcel of real estate is located). Ignorance of the law is no excuse. Get the facts.

 

I happen to live in New Hampshire, which, as some of you may know, is home to the official state motto: “Live Free or Die”. It’s on our license plates. It’s the first thing you see as you cross the state line. It’s plastered everywhere. I like it. The motto tells you a little bit about our general philosophy. Some states are even tougher. How about Mississippi: “By Valor and Arms”, or Alabama: “We Dare Defend Our Rights”. My personal favorite is Texas…simply “Friendship”.

 

OK…now for the good stuff. In this instance, I can speak with a high degree of authority on the most widely circulated real estate documents in the CT, FL, MA, ME, NH, and VT real estate community. Bear in mind that the types of Listing Agreements allowed by law may be different in your particular state, so just ask us if you are not sure. In addition, a particular MLS jurisdiction may have restrictions on what types of listings are allowed in their database.

 

In general, listings throughout New England that are allowed include:

 

1]Exclusive LISTING Agreement (Broker is compensated no matter who finds the Buyer, even you, the home Seller); further defined as ... "an unequivocal Exclusive RIGHT TO SELL"...

 

2]Exclusive AGENCY Agreement (sounds an awful lot like #1 doesn’t it?) The broker is compensated only  if a broker finds the Buyer. If you find the Buyer, no compensation paid; further defined as ..."an unequivocal Exclusive AGENCY Agreement"...

 

3] Open Listing Agreement (very infrequently used)

 

4] Auction Listing Agreement (very infrequently used)

 

NOW PAY ATTENTION HERE FOLKS, BECAUSE IF YOU BLINK, YOU'RE GOING TO MISS THIS!

 

In the overwhelming majority of cases, the Agreement most often put in place and signed by both Seller and Listing Broker is the Exclusive LISTING Agreement (i.e. Exclusive RIGHT TO SELL). Now you’re just going to have to take my word for it, approximately 90%+ of all listings throughout the United States fall into this singular category.

 

OK, so your neighbor over there…yeah, that one, the one with the sign on her lawn probably signed an Exclusive LISTING Agreement (i.e. Exclusive RIGHT TO SELL). Not to say she did, just a 90% chance, give or take. So why you ask is the Exclusive AGENCY Agreement rarely used?

 

Very simple, “no matter who” finds a buyer for your house under an Exclusive LISTING Agreement (i.e. Exclusive RIGHT TO SELL), the Listing Broker gets paid. And that means “no matter who”. So, if the Buyer discovered the house because their dog dragged them on a wild goose chase down the street, and ended up in front of your house (and they ended up buying it), the Listing Broker gets paid. More realistically, if your new co-worker says to you, “I think Dave and I are finally going to buy a house”. And you say, “Well hey, my house is for sale…it would be perfect for you” (and they end up buying it), guess who gets paid. Yes, the Listing Broker.

 

It gets worse.  For the record you should know that there is no mandatory Listing Agreement form that must be used in any CT, FL, MA, ME, NH, or VT real estate transaction. If, for example, we examine the documents being used by the New Hampshire Association of REALTORS® (the trade organization), we see a broad array of “canned” forms (which not all, but the overwhelming majority of brokers use).

 

Continuing with our example, if one examines the previously referenced Exclusive AGENCY Agreement, used by New Hampshire brokers for example, it includes an interesting little sentence on Line #13, #14, and #15. It states, and I quote: “In the event that a purchaser is procured through the sole efforts of the SELLER, SELLER shall immediately notify FIRM, and a commission of (fill in the blank) shall be due and payable to FIRM upon consummation of sale”…

 

Now why would a clause like this be included in an Exclusive AGENCY Agreement  when the whole point of this type of agreement is for the Seller not  to pay anything to anyone, if the Seller finds a Buyer themselves? I really don't know the answer to that question. I would defer to an experienced real estate attorney. Speaking as a layman, and not an attorney, I would be inclined to think the "fill in the blank" part of the sentence on Line #14 would benefit the home Seller when it reads "Zero", "Zip", "N/A", as in "$0", as in the big "Goose Egg". At Landfall Properties, LLC, we always insert "N/A", since you will never pay any sales commission to any broker party if you secure a buyer on your own account.

 

I leave you with a singular thought:   Which agreement does the most to protect your financial well being? HINT: It is likely NOT the Exclusive LISTING Agreement. It would be the agreement that gives you, the home Seller, the most flexibility, and I think you all know which one that is.   Be smart. Be informed.  GO TO:  US Dept. of Justice