If you are planning on, or currently tying to, sell your house I have a question for you; did you read the Residential Listing Agreement? If not, I really can't say that I am surprised didn't, because many people don't. Most people take the advice of the Realtor presenting the agreement because they trust them, which they should trust them. So they initial where the Realtor tells them to and before long they are done initialing and signing the contract and excitement starts to build as they see the sign representing the agency, such as Prudential California Realty, put in the yard with their agents name and number proudly displayed letting the world know that their house is for sale.
Having not read the Listing Agreement in whole may be a bad thing because there are several items that you may not be aware of. For the next few posts I am hoping to demystify the listing agreement and hopefully save some of you thousands of dollars.
Lets start with the first thing your agent probably does not want you to be aware of, the commission clause. On the first page of the Listing Agreement under item 4 section A and subsections 1 through 3 are the amount of commission you agree to pay, the conditions during the life of the listing that will force you to pay and the conditions once the listing expires that could cause you to pay the commission.
The first thing you notice, if you read this section, is the bold face print that says "Notice: The amount or rate of real estate commission is not fixed by law. They are set by each Broker individually and may be negotiated between Seller and Broker." This first statement pretty much says it all.
YOU CAN NEGOTIATE THE AMOUNT OF MONEY YOU ARE GOING TO PAY.
Section 4A says that you agree to pay the Broker, which is who your agent represents, either a percentage or set amount of the purchase price. Usually, when you get to this point in the contract, your Realtor will tell you that 6% is standard in the industry, 3% to the listing office, his office, and 3% to the selling office, buyer’s office. Keep in mind that the listing and selling office can be represented by the same agent. This means you could be paying your realtor 6% to list and sell your house. That can add up to be a lot of money.
Looking at item 4A subsection 1 you will notice that if anyone brings a buyer to the listing during the listing period or any extension of the listing period and the house sells, regardless of where the buyer came from, you will owe your agent/broker a commission. As an example, you have your home listed with XYZ Realty starting on August 10, 2009 with and expiration of November 12, 2009 (the listing period) and your neighbor approaches you on November 11, 2009 and offers to buy your house with out using a realtor. You agree and open escrow that very day thinking that you are going to save thousands because you don't have to pay the commission. Sadly this is not the case. You will have to pay because you found the buyer during the listing period and according to this little clause you owe the agent/broker the full 6%.
Item 4A subsection 2 covers the agent for a specified number of days after the listing expires, which the agent usually sets at 30 days. According to this little clause, if anyone, or their representative, who was shown the property during the listing period enters into a contract for the purchase or lease of the property, the full commission is due to the agent\broker that had the original listing agreement. So if your neighbor comes to look at the house during the listing period and then offers to buy the house 10 days after the listing expired, you will have to pay out the commission. Good news is this only applies if the agent\broker presents you with a written list of names of those people who have been shown\seen the house with in 3 days, can we say escape clause.
Here is my advice regarding this section of the contract. First find an agent that will work with the amount you want to pay, not what they want you to pay. You can ask the agent\broker to fill in the commission, item 4A, for a set dollar amount, but be realistic. Asking the agent to do if for $1000 dollars and split it with the buyers agent is nothing more than an insult, but asking them to do if for $10,000 dollars total and split that, in my opinion is very reasonable. As for item 4A subsection 1 you really just need to be aware of what it says and make sure you refer everyone to your agent\broker to avoid having to pay a commission when you don't think one is due. As for item 4A subsection 2, I would ask the agent to put 10 days or less in this field and make sure he gives you a list of names of people who have seen the house with in 3 days. If he does not you are not accountable for this clause.
If you have any questions, please feel free to email or post it to me and I will do my best to answer your questions.
Good Luck,
David Cuevas
Prudential
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