When it comes to selling real estate properties, some owners want to sell the property either by themselves so that they don’t have to pay any commission to the broker, or they want to opt for more flexibility and exposure. Open Listing Agreement is a non-exclusive agreement that allows the owner and many other brokers to find a potential buyer for the owner’s property.
Due to non-exclusivity, the owner can select many brokers at the same time. The owner will pay only to that one broker who finds him a suitable buyer first. Open listing appeals to the brokers only when the property is a special one, is in demand, and has a lot of interested buyers in the market. In such a case, brokers want to take a risk; otherwise, they avoid putting efforts for a sell that might not benefit them.
As for the owner, he might sell off his property quickly with the help of many brokers working with him. In case the owner has already listed the property with a real estate agency but hasn’t been successful at finding a suitable buyer, working with many brokers can bring in different and fast results.
Who Takes the Open Listing Agreement – People Involved
The Open Listing Agreement is taken by the owners who want to sell their property by themselves or want to have more than one broker working from them to sell the property.
The owner and interested broker get into this agreement. As mentioned above, an owner can choose to have the same agreement with more than one broker. Before signing such a contract or agreement, the brokers and owners must be very clear about open listing definitions.
Purpose of the Open Listing Agreement
Why Do You Need It?
The owners choose open listing real estate mostly when the property is in high demand and may have a lot of interested buyers in the marketplace. Through Open Listing, it gets easy to reach a large number of people through multiple brokers. At the same time, the owner also gets the option of finding a buyer himself; as a result, he doesn’t have to pay any commission to the brokers. In all such mentioned scenarios, the owner signs an Open Listing Agreement.
Apart from flexibility, this Agreement provides the owner with better negotiation strategies. The owner may keep different compensation for different brokers and negotiate individually.
If the owner opts for a non-exclusive Open Listing Agreement, he also opens the doors for the possibility of getting the best deal. Through multiple brokers, the owner can reach more potential buyers, and due to the competition, the owner may only go for the best deal out of all. The agreement and the process of working with many brokers at once can also sell the property rather quickly.
Purpose Of The Open Listing Agreement:
- Increased number of potential buyers
- Flexibility for the owner
- The owner can choose for ‘Sale By Owner.’
- Less money spent on the brokerage
- Better possibility for negotiations
- Less risk if the owner himself fails to find a buyer
Contents of the Open Listing Agreement
Generally, the Open Listing Agreement is a very simple agreement that has the basic details of the owner, the agent, and the property. It is suggested to include all the important information related to the property in the agreement, such as an address, when it was built, the size of it, etc.
How much time the owner is willing to give to the broker is also one very and critical detail of the agreement. The time clause of the contract will get into the specification of this. The time period can be a week or three months, depending on the market’s position at the time of this. It goes without saying that the broker will deeply care about the commission offered to him. The owner should do proper market research and then offer a percentage that doesn’t hurt his pocket, but at the same time, makes the broker feel like he has gotten into a fair deal.
How many people can actually come to see the house is another important question that your agreement must specify. Some over-enthusiastic brokers may bring many potential buyers in a day to check the house, and as an owner, if you think you have security-related issues with that, then you must inform the broker and put a limit. Some owners may also specify the kind of buyer they require for their property.
The agreement must talk about the non-exclusivity and deposit forfeited by the potential buyer to avoid any future conflict between the broker and the owner. The agents will also want the details of compensation and how it will be paid in the agreement. It is to note that the agent will be paid only when he finds a buyer.
How to Draft the Open Listing Agreement?
Open Listing Agreement is relatively easier than most other agreements. It is a very straightforward agreement, yet it is suggested that the owners of the property first specify the terms and conditions to all the brokers involved. The owner may take an expert’s help before drafting this.
The owner and individual brokers can together decide if the brokers are allowed to list the property online and market it. In most cases, owners should give assurance to the brokers so that they can work more dedicatedly. Otherwise, when there are too many brokers involved, some brokers may not want to put all their efforts into something that might not compensate them in the end. The higher competition in such cases works in both directions. Because of the high competition, the owner might be able to sell his property soon, or it might just take a long time, further resulting in price change of the property.
Before buying a house, any buyer takes a long time to research the property, area, locality, neighborhood, etc. If the owner doesn’t share concrete information with the owner directly or through the broker, then it gets difficult to sell the property easily. Thus the owner and the broker working for the owner must be extremely flexible and should be ready for all the questions that might be posed by the potential buyers.
Owners and brokers must give assurance to the potential buyer, and an Open Listing Agreement is the first step in that direction. It is through this agreement that the broker will be able to answer many of the buyer’s queries. The owners must include all details pertaining to the property in the agreement, and the rest can be shared verbally when the buyer meets the owner.
The reason why owners opt for Open Listing is that it allows them to find the buyer without actually risking other potential buyers entirely. The owner must have extraordinary negotiation skills to make ‘Sale by Owner’ process smooth and easy.
At the same time, the owner, too, has to negotiate with every individual broker to keep different compensation rates for each of them. This gives the brokers more confidence in the owner, and, further, they try to work hard to achieve the goal.
Benefits & Drawbacks of Open Listing Agreement
Open Listing benefits all the parties involved in different ways. Owners, brokers, and buyers should be very alert and know what they are getting into before finalizing the deal. Here are some common
- The seller can sell the property without giving away any compensation
- More flexibility for the owner
- Increased possibility of negotiating with the brokers individually
- Lessor no money spent on the compensation
- Competition between the agents that might lead to urgent selling
- The property may remain in the market for longer than required which can also result in decreased rates
- Agents may not list the properties online and make enough efforts to sell the property since they are aware of the competition
- Higher risks involved
What Happens in Case of Violation of Open Listing Agreement?
Like every other Agreement, this agreement will also have a dispute resolution and termination clause. All the parties involved must have clarity about these two very crucial factors. In the future, when one of the parties realize that it’s not working out, they should have the freedom to terminate the agreement. However, it should be mutually discussed.
In case of any dispute, both parties can take the help of a third party to resolve the issue(1). It is suggested that both the parties resolve issues themselves or with a third party before taking it to a legal route.
The Open Listing Agreement serves different purposes for different parties. For both the agents and brokers, it means different things. However, the goal is always common. If used with proper clarity and caution, It can be very useful.