Listing agreement

Key Takeaways

• A listing agreement is a contract between the property owner and a real estate firm that authorizes the firm to market the property and find a buyer.
• The three common forms are exclusive right to sell, exclusive agency, and open, and they differ in who can earn the compensation.
• In Washington, an agreement employing a broker to sell real estate for compensation must be in writing and signed by the party to be charged (RCW 19.36.010).
• A listing agreement sets price, term, compensation, and the firm's authority. It transfers no interest in the property.

What It Means

A listing agreement is the contract that puts a property on the market. The owner hires a real estate firm to market the property and produce a buyer, and in exchange promises the firm compensation on stated terms. Course material often compares it to an employment contract, and the comparison holds: the seller is buying the firm's services, not selling anything to the firm.

What the document fixes is a short list: the asking price, how long the firm has to work, what the firm is paid and on what event, and what the firm is authorized to do on the owner's behalf. That last item usually covers placing a sign, entering the property in the multiple listing service, holding open houses, and receiving offers for the owner.

The form matters more than most new licensees expect, because the form decides who can earn the money. Under an Exclusive Right To Sell Listing Agreement the firm is paid no matter who produces the buyer. Under an Exclusive Agency Listing Agreement the owner keeps the right to find a buyer without the firm and owe nothing. Under an Open Listing the owner may hire several firms, and only the one that produces the buyer is paid.

How It Works in Washington

A listing agreement is a contract, so the law of the state where the property sits controls its form and its enforceability. In Washington two rules do most of the work.

The first is the writing requirement. RCW 19.36.010(5) places an agreement authorizing or employing an agent or broker to sell or purchase real estate for compensation or a commission inside the statute of frauds, which means it must be in writing and signed by the party to be charged. A handshake listing leaves a Washington firm with no enforceable claim to a fee.

The second is Washington's agency statute. RCW 18.86.020(2)(a) requires a firm to enter a services agreement with its principal before, or as soon as reasonably practical after, its appointed broker starts rendering brokerage services. RCW 18.86.020(2)(b) then sets what that agreement must contain, including the term of the agreement, the broker appointed as agent, whether the relationship is exclusive or nonexclusive, and whether the principal consents to the broker acting in Limited Dual Agency, separately initialed. In Washington, then, a seller's listing is two things at once: a marketing contract and the document that creates the agency relationship. Our guide to the current rules is here: Washington's New Agency Law: Your Complete Guide to Written Services Agreements.

Sellers in Oregon and Georgia sign the same kind of contract, but the controlling statutes and the required contents are their own. Check the rules for the state where the property is located before relying on any of the above.

Example

Dana signs an exclusive right to sell listing with Harborline Realty for her three bedroom house. The agreement sets the asking price at $412,000, runs 120 days ending October 14, names broker Priya Shah as the appointed broker, and states compensation to the listing firm of 3 percent of the sale price.

In week six Dana's neighbor mentions the house to a cousin who is relocating. The cousin never speaks to Harborline, tours the house with Dana on a Saturday, and offers $405,000. Dana accepts, and the sale closes in November. Harborline earns $12,150, which is 3 percent of $405,000, because an exclusive right to sell listing pays the firm no matter who produced the buyer. Had Dana signed an exclusive agency listing instead, the buyer she found on her own would have cost her nothing in compensation. Had she signed an open listing with three firms, none of them would have been paid on this sale.

Common Mistakes and Exam Traps

• The listing agreement is between the seller and the firm, not the individual broker. The broker signs on the firm's behalf, and the firm is the party entitled to compensation.
• Exclusive right to sell and exclusive agency sound almost identical. Only exclusive agency lets the seller find a buyer independently and owe no compensation.
• A listing agreement conveys no interest in the property. It is a personal service contract, so it is not recorded and it does not cloud title.
• The listing price is the seller's asking price, not the property's market value and not the appraised value. Exam questions swap these three on purpose.