This Week's Q & A

Q: I am preparing to sell my home and a local real estate agent, whom I know personally, has offered to represent me. This agent also has suggested that I give him an “exclusive listing,” which, he assured me, will produce a speedy sale without the hassle of dealing with all the unserious or unqualified buyers who would be attracted if he listed the property on the real estate Multiple Listing Service (MLS). I had some doubts about that approach, but a friend told me there is nothing unusual about it. In fact, she said this is the arrangement that most brokers require. I think I’m confused about how the system works. Can you help?

A: Let me explain the different types of listing agreements first, and then I’ll explain what’s wrong with the option this broker has recommended. The industry standard is not an “exclusive listing” but an “exclusive right to sell,” which entitles the listing broker to a commission if the property is sold at any time during the term of the listing contract (and for a specified period after it expires), regardless of who is responsible for the sale. If another broker finds the buyer, that broker (the selling broker) and the listing broker share the commission. And if five minutes after signing the listing contract you sell your house to your next-door-neighbor, you would still owe the broker a commission, even if he/she had absolutely nothing to do with the sale. (This isn’t necessarily as draconian as it sounds; sellers usually can negotiate an exemption clause in which they list the individuals they have contacted previously, and specify that they won’t owe a commission if any of them ultimately purchase the property.) Any broker who lists your property on the MLS will insist on an exclusive right to sell, because that is an MLS requirement.

An alternative listing agreement, less popular with brokers than the exclusive right to sell, is the exclusive agency. Under this arrangement, the broker would not earn a commission if you sell the property on your own, but would be entitled to the fee otherwise. Even less popular with brokers is the “open listing,” under which an owner lists the property with several different agents, paying a commission only to the one responsible for the sale. Brokers understandably are less than enthusiastic about investing a lot of time and marketing money in a listing, with no assurance that they will share in the commission if the property is sold.

And then there is the “exclusive listing” – not the industry norm, by any means, nor is it particularly desirable for most sellers. The broker proposing this arrangement is saying, “I can find a buyer quickly without advertising your property on the MLS.” The advantage for the broker is obvious; if he lists the property and finds the buyer, he won’t have to share the commission with a cooperating broker. That means more money in the broker’s pocket, but potentially less money in yours.

There is no question that by withholding your listing from the MLS, you will avoid the hassle of dealing with all the “uninterested and unqualified” buyers who might hear about it. But you also will screen out a lot of potentially interested and qualified buyers as well. The MLS is an enormously powerful marketing tool, putting your property on the screens of hundreds of Realtors, any of whom may be working with a buyer, or multiple buyers, who might be interested in your property.

The broker who “pockets” your listing (literally) rather than sharing it with other brokers may find a buyer for your home. But you’ll never know how many other buyers might have been identified through the MLS, or how much more they might have been willing to pay. The law of averages works in your favor; the more exposure your property has, the better your odds of finding a buyer willing to pay your asking price, or something close to it.

There may be some circumstances (although I can’t think of many) when an exclusive listing might be the right choice for a seller. But in most cases, brokers who recommend this arrangement are thinking far more about their financial interests than yours.