Pros and Cons of Exclusive Listing Deals

What does the word Exclusive mean to a listing agent?

You're selling your home, and you're taking no prisoners. Let's face it, you have two goals: selling for as high as possible and as quickly as possible. That's why you're looking for a top broker to deliver the goods for you. Most homeowners realize the importance of finding the right broker. But few consider the type of listing agreement to sign with that broker.

A new study, The Impacts of Contract Type on Broker Performance, conducted by a researcher at Penn State's Smeal College of Business Administration, looked at different types of contracts and reached several conclusions. For example, it found that exclusive agency listings sell slightly faster than exclusive right-to-sell listings. What's the difference? Most homeowners enter into an exclusive right-to-sell agreement with a real estate broker. You give the broker the sole right to sell the property, to list your home, do all of the marketing and do their best to get you the highest possible price. If another broker was involved in recruiting a buyer, your broker will share the commission with the other broker. But no so if you're involved. Even if you stumbled over a buyer yourself by accident and cinched the deal, your listing broker gets a commission. In other words, under an exclusive right-to-sell agreement, the listing agent is entitled to a commission, no matter what. If you help, you're still paying. If another broker helps, that broker gets paid out of the commission.

All that is not the case, however, with an exclusive agency agreement. Under exclusive agency, the listing broker is the only, or exclusive, broker entitled to a commission-- no sharing with other brokers. But here's a key difference that makes this option seem tempting. When no commission is paid, the seller may sell the property on their own. Thinking of saving big bucks on commission? Not so fast. The study found that the exclusive agency contract creates disincentives for effectively marketing your home. One is the negative perception among other brokers. When other real estate agents find your home on the Multiple Listing Service and see it listed that way, they have little reason to show your home if their efforts don't pay off in a commission. In addition, why should your own broker work hard and spend hundreds of dollars marketing your home, if they could lose the commission if you sell it yourself? Do you want to compete with your own broker? You get what you pay for.

Remember that these rules may vary from state to state. And of course, there's no reason to rule out any option when negotiating an agreement, as long as you are happy with the arrangement and know the pros and cons. (But some sources, including the Florida Attorney General, warn that sellers might not get the highest level of service under an exclusive agency agreement.) The length of the agreement should reflect a reasonable length of time to sell a home in your area, perhaps 90 days. There are even times when a year is a reasonable length of time, since your broker needs enough time to effectively market your property.  Some marketing efforts have a long lead time, such as ads in prestige magazines.  Be sure to have a contract cancellation clause if you are unhappy with your broker.