If you invest in real estate, you’ve likely come across the term “Exclusive Listing.” Whether in your own transactions or while researching potential investments, this term frequently occurs in exclusive and luxury real estate. Here’s what you need to know.
An exclusive listing is a real estate sale agreement in which an agent gains commission if a property sells within a certain number of months. In most cases, the agent will earn their commission regardless of how a buyer is found. This type of listing exists as a way to incentivize the agent to sell the property quickly and at the highest possible price.
There are several variables at play in exclusive listings. If the homeowner signed an exclusive listing agreement with an agent then places an ad for the property, the agent will still earn a commission even if they buyer reached out because of the homeowner-placed ad. However, the agent would not earn a commission if the seller who placed the ad established exclusive agency. This is the right of the seller to sell the property themselves without paying commission despite the exclusive listing agreement.
So, why do these occur? Exclusive listing agreements act as a protection period to prevent the seller from avoiding paying a commission to the agent. Additionally, this protection period allows the agent to receive full commission on certain types of sales after the expiration of the agreement. If the agent brought a potential buyer to the house during the listing period and that individual returns later to decide to complete the purchase, the agent receives their commission on that sale.
For an exclusive listing to exist, terms must be agreed upon by both the seller and the agent. The details involved will include the establishing of a time frame for the agreement to be in effect. The time frame is often around six months, but it can be shorter if demand is high in the market. Exclusive listing agreements may also include a list of exempted parties who can buy the property without the agent earning commission, such as family members.
Real estate agents tend to prefer exclusive listings over open listings, as the latter only pays around half the usual commission rate.