The Listing Agreement (Or, I'm paying you how much to do what?)

First off, a disclaimer: I'm only going to talk in general terms about listing contracts, because the language will differ from state to state. I'm in Ohio. If you're not and any of this sounds strange to you, check with a local Realtor (I'm happy to refer you to one if you like!). Also, we're going to assume that all the agents you interview follow ethical guidelines and have your best interests at heart. Hopefully that will make it easier for you to weed out the ones who don't!

If you've decided to list your house with a traditional real estate brokerage like most sellers, you're going to end up signing a listing agreement. It's a standard contract with small variations from brokerage to brokerage and area to area, but the basics are the same. The primary purpose of a listing contract is to outline the agreement between you (the seller) and the brokerage (not the agent, even if they sign it): you agree to allow the broker to market your home for sale at a specified price for a limited amount of time, and to pay the broker a percentage of the sales price when a willing and able buyer is found. Notice I didn't say "when the home sells." More on that in a minute.

PRICE: By the time you decide which broker to use, you should have already received some sort of market analysis to help you understand how to price your home (if not, go back to my previous post and get a CMA!). Based on this information, discuss with your agent at what price you'd like to list in the MLS. Personally, if I meet with a seller who either needs or wants far more money for their house than it's worth, I lay down the honesty as nicely as I can. But if they want to try to sell their home for $185,000 when I think the top of the range is $180,000, I may agree to take the listing as long as we write into the listing agreement that the price will be re-evaluated in two weeks' time with showing feedback and market activity. Those numbers are close enough, and since real estate pricing is not an exact science there's always a chance I could be wrong. Note: if that same seller had wanted to list at $200,000, I would politely decline the listing.

TERM: A listing contract can be any length of time you like; I've heard of anything from 90 days to 7 years. The CMA should tell you the average length of time homes stay on the market, and the broker may have a default amount of time on the listing agreement. Basically, the broker wants to ensure that you allow enough time to justify their expenses on your behalf: marketing, photography, staff, website maintenance, syndication agreements, E&O insurance, etc. The broker is betting that their highly trained agent can sell anything if given the appropriate tools and amount of time. But if you have a reason why you'd like to limit the term of the listing agreement, talk it over with your agent. Everything is negotiable.

COMMISSION: There is no standard commission rate, so don't ask your agent that question. In fact, even if there was a rate that most area brokers used, we're not allowed to say/hint/imply/suggest that to anyone. We don't even discuss it with each other due to anti-trust laws. Some brokers will have a predetermined commission rate that they never adjust. Others may have a range based on the price of your home or the services you require (drone videos, listing agent present for all showings, experience level of agent, etc.). There's nothing wrong with comparing the rates, and chances are they will be somewhat similar. BUT...I strongly believe that if someone offers to list your home for a substantially lower commission rate than other area brokers offer, you are probably talking to a limited service broker, which means that you may not receive the same level of service. And by that I mean they will do pretty much nothing except put it into the MLS, which may be absolutely fine for you if you'd like to handle all your own showing requests and not get much advice or support. PRO TIP: If all it took to sell a home was putting it into the local MLS, there wouldn't be so many listings that expire.

So, I'll bet you're wondering about my comment earlier about a willing and able buyer! Well, there are people out there who agree to list their home for sale, but even when they get an offer (or several offers) near their asking price they refuse to sell. Technically, you didn't hire the broker to sell your home -- just to market it and find a buyer. So the broker has fulfilled their end of the deal! Obviously, this situation is extremely rare and brokers don't usually follow through on their legal rights to commission under these circumstances or you'd hear about it a lot more. 

The listing agreement should also specify the type of representation. Most common is the exclusive right to sell, which means that there is only one listing broker who will get paid the listing commission. Other types exist, according to my instructors in real estate school...but I've never seen them. Still doesn't hurt to read carefully and ensure you fully understand what you're signing! And as with any legal document, if you have any questions about the legal implications of what you're signing, don't ask the agent -- talk to a real estate attorney. While we're on that topic, I'm not an attorney (don't say you haven't noticed) and none of the above should be interpreted to be legal advice. Just real estate advice!

What's Inside: Contract to Purchase

You've found the right home! Time to get with your agent and write up an offer. While differences in language will be found depending on your location, the basic parts of a real estate purchase contract are pretty similar across the board. Here's a run-down of the most important points to discuss.*

1. Purchase price: Seems like a no-brainer, right? Make sure that your offer is not so low that it offends the seller, but not so high that you have no room to negotiate. Talk to your agent about the current market conditions (More buyers than sellers? You may need to be aggressive.) and this particular property to arrive at a number that works for you.
2. Earnest money: While not required by law, in Ohio and many other areas it is customary for a buyer to offer earnest money as a show of good faith. This money is deposited in a special trust account by one of the brokers involved once the contract is final, and is held there until closing. Talk to your agent about what makes sense for the property you are interested in.
3. Financing: Making an offer contingent upon your ability to secure financing for the property is widely accepted. That means that if you can't find a bank to give you a mortgage, you won't be obligated to complete the sale. This is why it's a great idea to get pre-approved by at least one lender before making an offer.
4. Seller contribution: If you know that you're going to have high closing costs, or if you only have enough for the down payment without the other fees associated with buying a home, you may want to ask the seller to pay for a portion of your closing costs. Again, talk to your agent about this -- if it's a seller's market, it may be in your best interest to forget about this request.
5. Inspections: Unless you're an experienced home inspector, you should get a home inspection for any home you make an offer on. The contract will allow you to specify how long you have to schedule inspections, and how long you'll have to negotiate any repairs or credits with the seller. Your agent should know how busy local inspectors are to make sure you have enough time to get this done and carefully consider your options.
6. Inclusions & exclusions: Know what you're buying! Just because you saw appliances and window treatments at your showing doesn't mean that the seller plans to leave them for you. Make sure your agent has stated in the contract exactly which items you would like to be included in the sale.
7. Closing: The date of closing, when the property officially transfers ownership, is going to depend on clear title and loan approval. Your loan officer and your agent should be able to advise you whether the closing date should be 30 days away or longer; if you need additional time to sell a home or for school to let out, make sure you specify that in the contract.
8. Occupancy: It used to be customary in Ohio to allow the seller 30 days after closing to move their belongings out of the home, but today we're seeing more and more buyers requesting occupancy at closing due to liability concerns. Talk to your agent about what's customary in your area to determine what works best for you.

This definitely doesn't cover everything in the contract, but hopefully provides a nice summary of the big things to consider when making an offer. As with any legal document, you have the right to go over it with an attorney to ensure your rights are protected.

* I'm not an attorney, and this article is not legal advice. It merely describes what one might read in a real estate purchase contract.