Seller Representation Agreement

What is a Seller Representation Agreement?

A listing agreement, referred to as a seller representation agreement, is a contract between a real estate seller and a brokerage company that provides specific information on the sold property.

It is the starting point for discussions between the buyer and the seller via an agent. 

When creating a sale contract and mortgage application, it is used. To respond to inquiries from potential buyers, the agent relies on the information provided in the seller representation agreement.

The agent asserts that the seller's representation gives them the authority to represent the investor in the real estate transaction.

The contract specifies the beginning and end dates and the broker's compensation amount, subject to the contract's terms and conditions.

The retail value at which the seller is prepared to sell the property, the agent's capacity to collaborate with other brokers, and the compensation they will receive if they are successful in finding a serious buyer are all possible inclusions in the agreement.

Understanding Seller Representation Agreement

A seller's authority to a real estate brokerage is expressed in a seller representation agreement. It is also known as a listing agreement. 

The listing agreement is the legal document that binds the individual and the brokerage and gives them the right to advertise and sell their house. 

To safeguard the interests of all parties, these arrangements should be in writing. The listing brokerage may also represent the individual in offering a property for sale (or lease) under the terms and conditions outlined in the contract.

A written service contract outlines the listing's specifics, such as the listing price, inclusions and exclusions, and the date of possession. It also outlines the duties of the real estate licensee.

The broker or sales representative will ask the seller to sign a listing agreement when selling the house.

The listing agreement serves the following purposes: 

• creates the seller/brokerage agency contract with the authority restrictions on the agent 
• details about the property for both electronic and paper distribution 
• Provides data to aid in negotiations and the creation of offers. 
• Describes the Services Offered by a Realty Agent or Brokerage

Payment Of A Commission Fee

When homeowners hire a brokerage to sell their home, they agree to pay the brokerage a commission fee, subject to a few rules and restrictions.

The commission can be a flat fee, a portion of the purchase price, or a combination of both.

The commission fee is discussed and agreed upon by the seller and brokerage. It is based on several variables, including the length of the sale, wage costs, advertising expenses, and market competition.

The standard commission percentage falls between 2% and 5% of the purchase price.

The following requirements must be fulfilled for a brokerage to be eligible for a commission from the seller: 

• The brokerage must find a qualified buyer who is prepared and willing to pay the list price set by the seller to purchase the property. 
• The potential buyer must commit to completing the transaction and maintain good communication with the seller.

The seller must pay the brokerage because it has completed its assigned tasks after the brokerage has complied with the requirements. However, the transaction still needs to be completed.

However, the terms of the agreement can vary significantly depending on what the parties involved initially agreed.

A sample of the listing agreement can be found here.

The Listing Price in a Listing Agreement

The seller must provide a listing price when granting a brokerage the right to sell the property. The final selling value of the property may, however, be higher or lower than that of the listing price, depending on market competition and the offers made by potential buyers. 

In these situations, the brokerage commission is determined on the final trying to sell the value of the property.

The seller and the brokerage typically agreed on the listing price. In light of the characteristics of the asset being sold, the asking price must be reasonable. The seller can accept, reject, or negotiate a better price for the property. 

Skilled brokerages can suggest a selling price that aligns with the current market property rates.

The agent can bargain with the seller to reduce the price if the seller proposes a price higher than the current market rates for the property to attract more buyers. 

The brokerage can withdraw from the contract if the seller refuses to reduce the asking price.

The Components of a Seller Representation Agreement

The agreement outlines the listing's specifics, such as the listing price, inclusions and exclusions, and the date of possession. It also outlines the duties and obligations of the seller, as well as those of the real estate licensee.

The listing price an individual chooses is crucial. The real estate licensee has the resources and knowledge to determine a fair price. 

A comparative market analysis is one of these tools (CMA). Real estate licensees use information from recently sold comparable properties to determine the right listing price for the home in a CMA. 

The real estate licensee's job is to assist the seller in choosing a listing price that will enable the seller to sell the home quickly and for the highest possible price.

The majority of listing agreements have two sections: 

1. the authority (legal relationship) 
2. the data input form (property particulars)

The listing agreement outlines the legal relationship, parties' obligations, and time constraints about such authority in the authority part.

It also outlines commission policies, including a holdover clause. The seller should determine the listing price in this agreement.

There are forms for MLS Advertising included in the data input forms. Forms for listing amendment, suspension, and cancellation are additional documents that are required.

The main components of a seller representation agreement

As mentioned above, two popular sections are included in almost every listing agreement; the legal relationship and the property particulars. 

Other main components play an important part when drawing up the listing agreement. It is important to study them in more detail. The essential components are listed below:

• Dower rights
• Possession Date
• Attached Goods
• Unattached Goods
• Inclusions and Exclusions
• Material Latent Defects
• Stigmatized Properties
• Holdover Clause

The main components are further discussed below.

Dower Rights

According to the Dower Act regulations, if an individual is married, but their spouse is not listed as an owner on their property title, they might need their permission before selling the house.

Titled and Untitled Spouse are created because their names are listed on a property's Certificate of Title (Property Ownership Certificate). In addition, spousal consent is mentioned in the seller representation agreement, and the real estate licensee can give more details.

Possession Date

Individuals have two options: either list a specific preferred possession date or say the date is flexible. If they want to haggle over the date of possession, that is up to them.

Attached Goods

Items physically affixed to the property by pipes, screws, bolts, or nails are attached goods.

An individual cannot remove these items from the property without doing damage. 

The attached goods remain with the property unless a particular exclusion exists in the seller representation agreement or in a buyer's offer to buy. Usually, the linked items are part of the property. These consist of the following:

• Garburator
• Water Softener
• Kitchen Cabinets
• Built-In Appliances
• Central Vacuum System
• Garage Door Opener

Unattached Goods

Unattached goods can be moved. Before the buyer takes possession, the seller typically removes any unattached items from the property. These consist of the following:

• Wall Art
• Area Rugs
• Drapes Hooked on Curtain Rods
• Attachments for Central Vacuum System
• Remotes for a Garage Door Opener
• Movable Kitchen Island

Unattached goods do not constitute a part of the real estate. 

Suppose the buyer wants an unattached item, like the garage opener or the connections for the central vacuum system, to be included in the purchase of the property. In that case, it must be listed as an inclusion in the offer to purchase.

Inclusions And Exclusions

If they accept their offer as the seller, they must consent to such an inclusion. It must include the unattached good in a counteroffer to the buyer if they intend to accept it.

Exclusions are things an individual will not sell with their house, whereas inclusions are things they will include. Individuals must be specific about what is included and excluded in the listing agreement and any offers or counteroffers.

Material Latent Defects

Materially latent defects are those a person cannot reasonably expect to find during an inspection. They consist of flaws that: 

• make a building hazardous or potentially hazardous 
• create a property unfit for the buyer's purpose,
• if the buyer has disclosed that purpose to their industry member or the seller's industry member. 

Sellers and their real estate agents are required by law to inform prospective buyers of any known material latent defects.

Among latent material flaws are:

• The home's large basement wall crack, which impacts the structure, was covered by the seller as they finished the basement. 
• Without the necessary permits, the seller has finished the basement of their home, added on, or built a garage. 
• The home was once a marijuana grow operation, and the seller knows that no repairs have been made even though water enters the house whenever it rains.

Stigmatized Properties

The term "stigmatized" refers to an undesirable characteristic of a property or one that lessens its appeal or attractiveness but has nothing to do with its physical attributes or features. Stigmas may consist of: 

• That a fatality or suicide took place on the property 
• or a serious crime was committed there. 
• There are reports of a haunted property, but the address has the wrong numbers.

Since stigmas are not significant latent defects, individuals are not required to disclose them to prospective buyers.

Individuals might be questioned by the buyer or the buyer's agent about potential stigma. 

They are not required to respond to their inquiries, but they must be sincere if they do. If individuals do not respond, the buyer must decide whether they feel confident moving forward without the information.

Holdover Clause

"Holdover clauses" are frequently included in listing representation agreements. 

In general, it means that if individuals sell to a buyer who was introduced to them during the term of the agreement, individuals would be liable for paying a commission to their brokerage within "X" days after the deal expires (the "holdover period"). 

The holdover period's duration is negotiable.

Residential Measurement Standard

Real estate license holders must use the RMS when describing the size of a residential property. 

By defining which areas of a property can be included in its measured area, the RMS provides a consistent way to represent the size of a property above grade. 

Individuals can provide additional information to prospective buyers about any features of their home that the RMS does not allow them to mention but that they believe essential selling points. 

Individuals must ensure that the additional information is truthful and that the RMS size must be included in the listing if there is only one size representation.

Keep in mind that buyers' willingness to pay for a property is based on more than just the size of the property. Therefore, it is unlikely that two identically sized homes will sell for the same price. 

The location, amenities, furnishings, and home maintenance will affect its selling price.

The exclusive right of sale can be found here.

Seller Listing Agreement Types

There are three main types of listing agreements:

• Open listing seller listing agreements
• Exclusive agency listing agreements
• Agreements granting sellers exclusive rights 

Exclusive rights agreements are the first major standard type of agreement. Again, the agency has the final say. The seller has the final say in the other two types. This is covered in more detail below.

Exclusive Right To Seller Listing Agreements

The first type of typical agency agreement is an exclusive right to sell. When an agency has this kind of listing, it is most powerful. No matter who the buyer is or where they are from, the real estate agent will receive a commission under this arrangement. 

The seller pays both the listing commission and the buyer's agent fee. During the listing period, the selling agent could also be a cooperating salesperson, broker, or listing agent.

The home's owner is still obligated to pay the agreed-upon commission even if they manage to find the buyer themselves.

Exclusive Agency Listing

The listing agent can market the property and represent the seller in an exclusive agency listing, but the owners or sellers are free to find a buyer. 

The seller is only obligated to cover the selling commission if the agent successfully locates a buyer and closes the transaction. 

The commission for this listing may be split between the listing agent and an accommodating salesperson or broker. As a result, agents might be less likely to promote these listings because they might not receive a commission.

Open Listing Seller Listing Agreements

When a listing is active, the owner controls it most. Since there is no exclusivity clause in the agency agreement, the seller can list their property with multiple real estate brokers.

When a listing is active, the owner controls it most. Since there is no exclusivity clause in the agency agreement, the seller can list their property with multiple real estate brokers.

No commission is due if the home's seller successfully finds a buyer on their own.

Length of Listing Agreements

The length of a listing agreement can range from 30 days to six months, with 90 days being the most typical in a brisk market. 

This provides the agent with sufficient time to market and sell their house. They can renew the agreement or look for a new agent after the contract expires. 

There are different and negotiable commissions attached to each listing agreement. The commission is typically set at 6% of the selling price, with 3% going to the buyer's agent.

The listing agreement frequently contains a provision that guarantees the listing agent a commission if a buyer they introduced purchases the property up to six months after the listing expires.

When the market is weak, it may be beneficial to pay a higher commission because the agent may be motivated to work harder to sell their home by the prospect of a larger paycheck. 

Buyer's agents willing to cooperate will also be more inclined to invest more time in locating a suitable buyer for a property with a significant commission.

Precautions to Take Before Signing a Seller Representation Agreement

It is of utmost importance to be careful when signing the listing agreement. The seller and buyer should take precautions to safeguard their interest and to avoid any mistakes.

Some of the precautions they can take are listed below.

1. It is crucial to clear one's needs and expectations to get the most out of this relationship. It is essential to avoid making assumptions to prevent misunderstandings later on. 
2. Talk about all the services that will be offered. Make sure the written agreement is explicit, and take the time to explain the fees and costs associated with these services. 
3. Spend some time finding out what the broker or salesperson requires from the individual and their responsibilities.
4. Keep in mind that by allowing the brokerage and salesperson to represent their best interests in the sale of their home, they are entering into a legally binding agreement with the brokerage. The agreement will bind both the individual and the brokerage.
5. The brokerage will give them a contract copy after all parties have signed it. 
6. The brokerage is still obligated to describe the services offered even if they decide not to sign an agreement. 
7. If they do not understand it, do not sign. Never sign a contract unless they are confident that they understand its terms, including its duration, scope, and applicable jurisdiction. One of the most crucial actions they can take is this one.

Researched & Authored by Laiba Kamran Shamsi | Linkedin

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