What Is an Exclusive Right to Sell?
An exclusive right to sell contract is a legally binding agreement between a property owner and a licensed real estate agent. The contract authorizes the real estate agent to act on the seller’s behalf during the transaction process in order to sell the property. Under the terms of the exclusive right to sell contract, the agent will not only list the property within the multiple listing service, but they will actively pursue buyers, show the property and negotiate with the seller on all offers. Most agents require that the contract be signed before beginning their work with a seller.
In most cases, an exclusive right to sell contract will require the seller to pay the agent a commission fee of 5-6 percent of the sale price of the home . The seller has a fiduciary relationship with the agent, meaning that the agent must place the best interests of the seller above their own throughout the process of selling the property.
An exclusive right to sell contract is not to be confused with an open-ended listing agreement. In an open-ended listing agreement, the agent does not have an exclusive right to sell the property. An open-ended listing agreement is not an exclusive contract, meaning that the seller can bring in multiple agents to help sell the property simultaneously. He can choose to work with whichever agent is bringing in buyers he’s willing to negotiate with.
Seller Advantages
Sellers can reap a slew of benefits when they opt to sign an exclusive right to sell contract. Consider the following advantages:
More marketing power: When a real estate professional has a vested interest in the property (via a written agreement), he/she will dedicate much time and effort to marketing that property. The MLS listing will be plentiful, as will social media and other promotions. All sorts of people who wouldn’t have seen a sign on that lawn will come to know of the property’s availability.
Faster sales: Although every market is different, a home placed on the market under an exclusive right to sell contract is probably going to move faster than one that is for sale by the owner without a contract. With demand for housing so high and inventory so low, sellers can expect good results.
More professionalism: Sellers can expect professionalism from their representatives. Orders will be consistent, budgets will be adhered to, and the overall look of the property should improve significantly. Best of all, there will be a schedule, so both buyer and seller will know exactly what is happening and when.
Less stress: Selling a home is an emotional time. You’re losing a place where you’ve made many fond memories, and for some buyers, you may also be parting with the home you’ve raised your family in. There are often stressors as you get your home ready for sale. By having a qualified real estate professional guiding the sale of your home, you should suffer far less stress than if you were to try to handle it yourself.
Agent Obligations
Duties of Real Estate Agents
Once the contract is signed by both parties real estate agents must then market the property to find a buyer. The agent must do so in a way that is consistent with the terms of the contract. The real estate agent must not engage in any activities that are contrary to the terms of the contract. The contract may dictate how much time the agent can spend on the property and how often the agent must show the property. It may also dictate who can see the property. For example, the contract can state that only pre-qualified buyers are allowed to view the property.
Real estate agents are also obligated to comply with all laws and regulations that apply to the property. At times a property may not be compliant with zoning regulations or other local ordinances. If the property has a massage room, for example, real estate agents have an affirmative duty to check the licensing of the massage parlor. In South Carolina those licenses must be renewed every two years and the real estate agents have an affirmative duty to ensure that the licenses have been renewed prior to selling the property. If the licenses are not up to date and the massage business has been operating without a license, this can open up the seller and their real estate agents to liability.
At the clearest level, a real estate agent’s primary responsibility is to sell the property. They have a duty to "put that property out there in front of the world’s eyes." If they have met their obligation, they should be receiving the commission to which they are due at closing.
Seller Disadvantages
While the exclusive right to sell contract is a traditional and widely used tool in real estate, there are potential pitfalls as well.
COMMITMENT PERIOD
Most exclusive right to sell contracts are generally time limited. Despite this, some exclusive right to sell contracts might, on the surface, appear on paper to be forever. The longer a seller locks in an agent, the less willing that agent becomes to drop the price. There are some common strategies that an agent uses, which can dissuade buyers from making an offer. A common price reduction strategy by an agent is to keep the reduction price close to the seller’s previous list price. For example, if a seller lists their home for $500,000 and they ask their agent to reduce the price after two weeks, the agent might tell the seller to drop the price to $490,000 instead of $480,000. Since the seller previously asked the agent to reduce the price, the agent might feel justified in telling the seller to reduce the initial ask price by a lesser amount. A buyer might never realize that the seller was highly motivated to sell and the price might have been significantly lower. If the seller hides this common strategy from a buyer, the buyer might become suspicious of the seller and opt to go with someone else. Realistically a seller should be confident that their home is always competitively priced, regardless of the price of other homes in the area. With the help of their agent, a seller should be able to gauge the market and its fluctuation fairly easily.
LIMITED FLEXIBILITY
Sometimes a seller might not want to sell their home under the current exclusive right to sell contract. If an agent refuses to terminate the exclusive right to sell contract, a seller might be on the hook. Even if a seller places their home on hold, the contract remains in effect. Any activity is considered active and they might have to wait until the end of the exclusive right to sell period. If the seller were to sell their home without the assistance of the agent, they can be held liable for the commission owed on the home. Most standard purchase contracts have clauses that allow the buyer to back out of the sale for various reasons. However, once a seller signs an exclusive right to sell contract, they are committed to working with their agent unless their contract for the period of time expires. Once a seller’s property goes under contract, the seller should immediately terminate their exclusive right to sell contract with their agent.
Terms Up for Negotiation
The terms of an exclusive right to sell contract are 100% negotiable. Understanding how these terms impact you is the key to getting the best contract for your needs. Let’s take a look at everything that you can negotiate in an exclusive right to sell contract.
- The Commission Rate. The biggest income generator for a real estate company is commissions from residential and commercial sales. If you are a highly experienced agent in the market, and will be adding significant value to your clients by selling their property, then you may be able to negotiate a lower commission rate.
- Duration of the Contract. Many contracts for professional services are for a one-year term. This is common because the company is making an investment in the agent that will require significant time and money up-front. An exception on the contract term is typically made for license law or ethical violations. For example, if an agent has any disciplinary action on their license and is terminated, the contract may be canceled with immediate effect even if the contract is not up for another 2 years. However, if you sign a contract that has a term of one year, you need to be comfortable with that because the contract binds you for that amount of time, even if the company has acted in bad faith.
- Termination. Beyond the contractual term of the agreement, most exclusive right to sell contracts provide for early termination by either party. This is important because if a problem arises , you won’t be tied to a company indefinitely. However, many contracts only allow for the company to terminate the contract for cause. There is no real statutory definition of cause as it pertains to a company having the right to terminate the contract, but it cannot have to do with your race, color, religion, or protected class. Typically it can relate to your failure to comply with the company’s policies that exist at the time the company gives you notice of the termination. If the duration of the contract is only one year and the termination clause allows for termination for any cause, this is usually acceptable.
- Exclusion Clauses. An exclusion clause allows you, the real estate agent, to exclude certain parties from the commission calculation. For example, you may be speaking with clients that live near a new highway and have agreed to meet with the construction company to discuss valuation. If you don’t want to be at risk of arguing with your company as to whether or not you "found" the deal and therefore should be entitled to a commission, you may want to negotiate an exclusion clause into your contract. This general rule is that an agent would not be entitled to commission if he or she is excluded from the calculation of commission. It essentially means that you are legally off the hook when it comes to damages against that portion of your earnings.
When the Law Gets Involved
Contracts related to the exclusive right to sell are enforceable under law as standard contract law. Where there is evidence of fraud, either significant fines or actual jail time for fraudsters are standard. Sales contracts have to be in line with both real estate business rule and applicable state and local laws. But what happens when there are disputes?
As with most contract laws, each side does have its own rights that must be observed. In a listing agreement, what you are doing is basically agreeing to offer your services on certain terms. In a traditional home sale, an exclusive right to sell contract means you are promising that the home you are selling can only be sold by your company’s agent or broker. Your broker (most likely) is the base of a relationship with which you plan to conduct a real estate transaction. Because the contract was signed by both seller and agent, the relationship is binding on both parties.
When representing people in legal matters, the first point to note is you have to understand what the contracted obligations are. The contract involves the real estate agent’s promise to do what you ask for, including listing the property, advertising it to potential buyers, and presenting all offers for your property. It also means they have to maintain confidentiality in matters about your project and financial status.
As a client, your duties are to let the agent represent you, to tell them the truth, and to communicate the exclusivity of the agent’s role. To put it more simply, you must be truthful and let the agent know that you are only using that person/brokerage to sell your home. You also are required to pay a commission. Much of that is already covered in the fine print of your exclusive right to sell agreement.
If either party doesn’t fulfil their contractual duties, then it will be treated as a breach of contract and can be addressed by a court. For example, if an agent is underpaid, but he or she continued to work on the sale, and was not told the agent was underpaid, then that can lead to breaches of contract. If you’ve broken commercial law and the local real estate business rules, you can end up with a fine ranging from $100 to $2,500 for each violation.
There is no "cooling off" period for either party. Your obligation to pay a commission is only fulfilled when an enforceable contract for a sale is made; at that point the seller owes a real estate commission and has breached the contract if he or she sells the property without an agent. If, however, the buyer backs out, the agent has a claim against your for a fee for work done — assuming you consistently have paid on time in the past.
Choosing Your Real Estate Agent
When selecting a real estate agent with whom to enter into an exclusive right to sell contract, buyers and sellers should consider various factors to ensure they are making the best choice. First and foremost, sellers should look for an agent with experience in the specific market in which they are buying or selling a home. An experienced agent will know the nuances of the local market and can provide critical insight into current fair market value, as well as trusted recommendations for home inspections, repairs and other components of the buying or selling process.
Buyers and sellers should also look for an agent with an excellent reputation. Words of mouth and references are an excellent way to determine whether an agent is trustworthy, skilled and in tune with the needs of his or her clients. Whether they are a buyer or seller, consumers should conduct online research to learn more about the agent, including any awards, certifications or special honors he or she has received. A stellar reputation may help to indicate that an agent is highly qualified in the area on which a consumer is focused.
Finally, consumers should always select an agent who has effective marketing strategies to better ensure that his or her home reaches the widest possible audience and sells quickly. If a seller employs an agent who has poor or nonexistent marketing strategies, the chances of a successful sale greatly diminish. A great way to determine whether an agent has solid marketing techniques is to ask for a marketing plan before signing an exclusive right to sell contract.
Frequently Asked Questions
The exclusive right to sell contract allows for easy interpretations. However, it’s still important for sellers and agent to be clear about the agreement. Below are some commonly asked questions.
What happens if I decide that I don’t want to work with my agent anymore?
An agent is in business for your business. If you have decided that you want to untie yourself from an agent that you are previously attached to, you can ask that their management remove the listing from their multiple listing service. You will need to sign a Release and Cancellation of Exclusive Right to Sell Agreement.
What are the major differences between an exclusive right to sell contract and a conventional real estate contract?
One of the most notable differences is that an exclusive right to sell contract gives a realtor the power to secure buyers and earn commissions no matter who sells the property. The conventional arrangement requires that you repay any commission costs to both the seller and buyer or whoever sells your property. It’s essentially the same concept as a standard fee.
How can I cancel the exclusive right to sell contract prior to expiring my agreement?
Prior to the expiry date , the agent that you signed your contract with must be notified by the owner or the owner’s agents. It can’t be terminated based on specific conditions. For example, you cannot say a property needs to be repaired first before it can be cancelled.
Do I have to select a real estate agent to work with before selling the property?
Filling out an exclusive right to sell contract does not mean you must start working with an agent to sell your home. It’s just an option that is offered.
