Three Negotiable Items in a Listing Agreement

Note:  This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home.  I will post a chapter a week.  If you like what you read, you can pick up a copy here for the price of a candy bar!   Buy a candy bar or be a real estate guru!   We are skipping the chapter on Residential Listing agreement.  You will have to buy the book to find out about this contract form.   The next chapter we examine here goes into some items you can negotiate     The last chapter to be shared on this blog you can find here.

I was not surprised by Steve’s follow up questions.  I told Steve as much.  “As you learn how to sell a house, there are some items in the contract that are negotiable.   We have some industry standards in place that agents tend to present as fact.  This is not the case.    A good rule of thumb is that if there is a blank in the contract, you can negotiate on it.”  Steve said he had three items he wanted to discuss further with me.  Please note that on the Residential Real Estate Listing Agreement Exclusive Right to Sell contract, all these items appear on page 2.

1. Listing Price – Steve’s first concern was about the list price we had decided for their house.  I expected this as most sellers will want to discuss this further.  One way agents bring value to the table for you as a seller is their expertise in market conditions.  Agents will be able to do what is called a Comparative Market Analysis (CMA) that looks at comparable properties that have sold or currently active on the market.  Ideally, this CMA will include three sold properties and three active properties, all within quarter mile of your home.  I had presented one of these to Steve and Sally.  However, I could see that Steve was still not sold.  I told Steve. “Listing price is determined by you despite how much I will push my own pricing recommendation.   Be forewarned though, overpricing your property will be the worst marketing mistake you can make with it.   The market will respond immediately to your listing if it is priced right.  Generally, if you have not had a showing in seven days or an offer in 14 days, you home is overpriced, which means you will need to reduce it.    As with everything else today, people’s attention spans are short so a house that has been a market for an extended period of time will lose the market’s interest.   Nothing is more important than pricing the home correctly.”  Steve could see how serious I was taking this discussion and asked about some follow up questions about adjustments based on square footage and quality of the home.  I replied that these do play a part in the process and I had included them in my analysis.   Extra bedrooms and bathrooms also play a part in the pricing recommendation as does if a property has any covered parking.   I told Steve I felt comfortable with the price I recommended, but would defer to him.   I could see him struggling with it, but in the end, he agreed to stick with the price we had already determined. 

2.Term – How long will the listing agreement be in place between you and the agent?   Industry standards has the length of time of a listing agreement set at six months.  This is not set in stone!  Steve said he would like a shorter-term period.   I replied to him. “As you think about how to sell a home, it is important to consider this aspect of the contract because if you are unhappy with the agent, you don’t want to wait six months for the term to end.   Of course, you can terminate and default on the contract, but there is a clause in the contract that you would then be responsible for paying the broker the agreed-upon commission.   Some agents will agree to terminate the contract if asked, but this is never guaranteed.   It is important that you understand the term of the listing agreement.  I understand you wanting to discuss it further.”  Steve said he felt more comfortable with three months versus six months.  I told him that I would be happy to review the circumstances at three months and if he thought it was not working out, I would end the contract at no cost to him.   I don’t usually provide this statement, but since Steve and Sally had already used me to purchase the home, I decided to extend this courtesy to him.  Steve knew I was a man of my word, so he agreed.

3.Broker Compensation –   At this point, Sally made it back to the conversation.  She sat back down and looked concerned at Steve, who looked very uncomfortable.  He then said he also wanted to discuss my commission.   I told Steve again that I understood his need to discuss this further.  I told him.   “Last but not least, how much do you want to pay the broker for helping you sell your house.   Industry standards is 6 percent, but this is very negotiable.   In fact, brokers have gotten in legal trouble for trying to control the commission rate in communities.   They are not allowed to do it.   In fact, you could negotiate a flat fee for the listing versus a commission, although be careful here as some brokerages will offer a flat fee and not provide the required services.   It is against Texas law for a broker to list a property for you and then expect you to do all the work afterwards.  By paying the broker, you are required to receive a certain number of minimum services.” I then further explained that they were paying more than just me for the work.  I split the commission with my broker and then he must give some commission to the other broker and the buyer’s agent involved in the transaction.  You lump the taxes taken out by our fine federal government, my pay is not really as much as it might seem.  

 Steve signed, but said he understood.  He had forgotten about the IRS.  He decided to stick with our previously agreed upon amount. Once we were done with follow up questions, I could see that they were a little tired, so I suggested I come back in a couple of days, so we can discuss how to get the home ready to sell.  Sally said she felt that they had this well in hand and didn’t need me to make a special visit.  I replied that what I saw so far was fantastic, but I would really want to be able to come by to get the house ready for sell and pictures.  There is always something I can advise when it comes to selling a house.  Sally frowned but said I could come by Wednesday afternoon.  We set a time of 3 pm.