The Open Listing Real Estate Contract
The condition of our current market is creating a change with far-reaching consequences that are being felt in the commercial real estate sector. Brokers are willing to represent property owners without any type of listing agreement.
What I am referring to is an open listing. An open listing is a non-binding, non-contractual agreement with the entire broker community to market a property for sale or lease. It is not illegal to represent a property without a listing agreement provided a “listing” broker does not represent to a buyer, prospective tenant or another broker that he or she did. There is a fine line when it comes to marketing a property and showing the world that you contractually represent a property owner and property when you really do not. You could also say it is a matter of ethics and integrity.
I have discovered many instances of signs being installed and sale or lease opportunities being marketed on just a phone call between a broker and property owner. I recall one property owner who discovered a “for lease” sign was installed on his vacant commercial building without his approval – it was a matter of his agreeing with the broker who asked to market the property as an open listing.
This not only hurts our industry, but also limits the property owner. In many ways a broker who agrees to an open listing and who is in the regular practice of doing so most likely does not fully implement a marketing plan in the way most commercial brokers do. In agreeing to an open listing, a property owner has essentially tied-up the property invariably with a listing broker under a limited marketing plan. When a property is listed, many other brokers would only consider another broker’s listing for a buyer or tenant only after they exhausted their own inventory. This occurs for several reasons none of which I condone. As a professional real estate advisor I show my prospective buyer or tenant all available property in the marketplace. The marketing the property owner receives on his or her opportunity is now at the discretion of the listing broker who has only an open listing and is only performing the bare essentials in marketing plan implementation.
To insure a property owner is experiencing the optimum performance in the marketing of a sale or lease opportunity it is essential to contractually secure the services of an experienced commercial broker. The “exclusive right to sell” or “exclusive authorization” is really the only sure fire way to know that you, as a property owner are represented in the best possible way.
For your reference, I have below the several different types of listings available in the marketplace. As a commercial broker, I only agree to the “exclusive right to sell” agreement as this insures a property owner has my utmost commitment in securing a buyer or tenant for his property and likewise I have the property owner’s assurance that he is committed and loyal to me as his commercial real estate advisor.
Types of Listing Contracts
A listing contract is an agreement between the seller and a licensed real estate broker giving the broker the right to represent a property owner in the selling or leasing of his or her property. There are five types of listing contracts: the most common type is the Exclusive Right to Sell. Many listing contracts are written for 60, 90 or 120 days, however, if the broker is doing a good job when the listing expires, the listing can be renewed.
An “Exclusive Right to Sell” listing is an exclusive authorization giving sole right to one broker to find a buyer or tenant for your property, though there are two very different types of exclusive listings the “exclusive right to sell” listing is the most popular type with sellers and brokers.
Giving a broker the "exclusive right to sell" a property does not mean that there won’t be other brokers involved in the process. Your broker is the listing broker and the most important part of their job is to market your property to other brokers who work with buyers and tenants. Those brokers will show your property to their clients. Regardless of who sells or leases the property, even if you sell or lease it yourself to an acquaintance, your listing broker will earn a commission.
If you want full service from a broker and his or her company, this is probably the only type of listing they will accept. Full service means a broker will fully implement his or her marketing plan. This requires an expenditure of both time and money.
Only with an "exclusive right to sell" does a broker have a realistic expectation of earning anything on their investment in selling or leasing your property. That is why it is the most common type of listing. Of course, the broker and their company still have to perform in order to get paid and your property has to sell or lease.
An “Open Listing" is a non-exclusive authorization for brokers to find a buyer or tenant for your property. You can give as many brokers as you wish an open listing on your property. Property owners trying to sell or lease their property on their own who are also willing to work with real estate brokers mostly use this type of listing.
Basically, it gives a real estate broker the right to bring buyers or tenants around to tour your property. If their client buys or leases your property, the broker earns a commission. There is nothing exclusive about an open listing and a property owner can give out such listings to every broker who comes around.
For that reason, no broker who accepts an open listing is going to fully market your property If your property fits the criteria for one of their clients, and it is convenient, they may be willing to tour it with their client. That is all an "open listing" is good for.
Another type of listing is called the “One Time Listing" agreement this is similar to an open listing in many respects. This is an agreement whereby a property owner agrees to let a broker tour the property with an interested client and pay a commission to the broker if that showing results in a sale or lease. The purpose being to prevent a property owner from letting a broker tour the property, then deal directly with the client, to avoid paying any commission.
As with an open listing, brokers will not be spending time and money on marketing your property to its fullest.
An "Exclusive Agency Listing" allows a broker to list and market your property, guaranteeing them a commission if the property sells or leases through any real estate broker. It also allows property owners to seek out buyers and tenants on their own. This is similar to the right to sell listing, with the significant difference that you reserve the right to sell or lease your property yourself and not pay the broker a commission. This is not a popular type of listing agreement.
The reason an "exclusive agency" listing is unpopular is because there is no incentive for your broker and their company to spend money and time on marketing. If you come up with your own buyer or tenant, they have spent money and time that cannot be earned back through the real estate commission.
Also, it is too easy for greed and a lack of ethics to enter the picture. Some unethical buyers, tenants or property owners will try to cut out the broker, even though it was a broker’s efforts that brought the buyer or tenant to the property.
If you find a broker willing to accept such a listing, do not expect too much from them. They will probably just place it in the MLS, install a sign and sit around to see if something happens.
The "Net Listing" can be dangerous and is illegal in some states. Under this agreement, the seller tells their broker the net price they want for their property. The listing broker can then add the desired commission onto the net price when presenting it to buyers. If the agent obtains a purchase offer far above the seller's net listing price, the seller may feel cheated and accuse the listing broker of not disclosing the property’s true market value. Or, if the broker receives a low purchase offer close to the net price, yielding the listing broker little or no commission, the broker might be tempted to not present the offer to the seller. A better alternative to a net listing is an exclusive right to sell with a listing price at the amount the seller wants to net, plus the listing broker’s sales commission.
A real estate listing contract is a legally binding agreement that sets out the rights and duties of the property owner and the broker. However, if you are having issues with the listing broker and feel that you want to cancel the agreement tell the broker that you want to cancel your listing. Often they will let you cancel easily, since they do not want to build ill will in the community. If they won't, you can always pull your property off the market plus all listing contracts have expiration dates so you could just wait until the listing contract expires, but be sure to review terms that follow the expiration of a listing contract.