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Types of Agency Agreements: Elements & Disclosures

Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

There are appropriate agreements to use for different types of real estate agency, such as net listing, open listing, an exclusive agency listing, and an exclusive right-to-sell listing. Learn which agreement is appropriate for different situation.

Creating Agency Agreements

You've found a client who wants to list his house with you. What do you do next? You must understand the type of agency arrangements and know which agreement to enter.

Agency agreements are contracts that give you the right to participate in a real estate transaction. Depending on the type, you may represent the seller or the buyer, you may be exclusive, or you may be helping the market without specific responsibility to sell a property. Regardless of your role, it's mandatory to have an agency agreement that clearly defines what you will and will not do for your client. Let's go over these agreements now.

Key Elements of Listing Contracts

There are four typical seller listing agreements:

  1. If you agree to a net listing, you will only get commission when a house is sold at or above a certain price. For instance, a seller may say she wants $100,000 for the house. If you sell the house for any amount over $100,000, the excess is yours to keep as commission.

  2. An open listing is when there may be several brokers and the home owner who all are going to try to sell the home. If the home owner or a different broker sells it, you get no commission.

  3. An exclusive agency listing is a straight-forward contract established between the seller and broker saying that the broker will be the only agent and will get an established commission if they sell the property. However, if the seller sells the property personally, the broker will not get commission.

  4. An exclusive right-to-sell listing is similar to the exclusive agency listing, in that only one broker has the right to sell the property, but in this case they will receive commission whether the broker or seller sells the property.

Key Elements of Buyer Brokerage Contracts

When a buyer enters into an agreement to buy real estate through a broker, he or she will sign an exclusive right-to-buy contract. The broker's job is to help the client find an appropriate house and negotiate the purchase. Typically, the compensation for the buyer's broker will come from the seller or the seller's broker.

Let's imagine Fred has asked you to be his broker and help him find a home. You enter into an Exclusive Right-to-Buy contract before showing Fred several houses that meet his criteria. After finding his perfect home, you help Fred create an offer and present it to the seller's broker.

After a negotiating a few items, Fred and the seller come to an agreement for Fred to purchase the house. Your agreement with the seller's broker is to receive half the commission, which you receive when Fred closes on the house.

Disclosures

There are several items you must disclose when working with sellers and buyers:

  • Who are you are representing in the transaction.
  • If there is anything that could cause you to unfairly participate in the transaction.
  • Any information you have about the property or the sale must be known to the client.

Conflicts of Interest

There are many ways conflict of interest may affect the real estate transaction. A conflict of interest is any obstacle that could make it difficult for you to be loyal and focused on your client's best interest. If you have one, you may struggle to stay neutral or your client may believe you are not prioritizing their needs.

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