Navigating the world of real estate can be overwhelming, especially when it comes to signing a listing agreement. Many sellers may not realize that some standard contract terms can be disadvantageous. To address this, Consumer Advocates in American Real Estate (CAARE) has drafted suggested terms and recommendations aimed at better protecting home sellers from unfavorable conditions. As the only nonprofit dedicated to consumer protection in residential real estate, CAARE provides guidance on negotiating fairer agreements to help sellers avoid unnecessary costs and safeguard their interests.
Here are some key tips from CAARE on negotiating better terms in your listing agreement.
1. Termination Clause
Standard language often states that the contract can only be canceled by mutual agreement. Instead, ensure the agreement allows for unilateral termination by either the seller or broker, provided there’s no ongoing contract for the property. This flexibility can be crucial if circumstances change or the broker isn’t meeting expectations.
2. Marketing Choices
Some agreements allow automated valuations and public comments on websites. While these may seem harmless, they can lower your property’s perceived value or reduce market exposure. Avoid agreeing to these terms to maintain control over your listing’s presentation and maximize market visibility.
3. Broker Compensation
Be wary of clauses obligating you to pay the broker regardless of how the property sells. Consider including an “Exclusion List” of individuals who could buy the property without incurring commission fees. Additionally, strike out conditions where broker fees apply if a sale doesn’t close due to unforeseen reasons.
4. Negotiating Commission
Standard commission structures are often percentage-based. However, you can negotiate alternative arrangements, such as a flat fee or basing the commission on the net sale price (after seller concessions). This ensures you aren’t paying more than necessary.
5. Dual and Designated Agency
Dual agency arises when the broker represents both the buyer and seller. This can limit your broker’s ability to advocate solely for your interests. It’s advisable to decline dual agency agreements to avoid conflicts of interest and secure dedicated representation.
6. Avoiding Buyer Broker Commissions
Pre lawsuit, sellers were encouraged to pay commissions that were split between the listing and buyer’s brokers. With recent changes, buyers now negotiate broker fees directly with their own agent. Instead of setting fees upfront, allow buyer agents to negotiate with you via seller concessions. This approach can save money and foster a more competitive market.
7. Referral Fees
If the broker has pre-arranged referral agreements, you may be at a disadvantage. Ensure they disclose any such arrangements so you can make informed decisions or consider other agents without hidden obligations.
8. Office Exclusives
Some agents push for “office exclusive” listings to gather feedback before public listing or avoid the hassle of showings. However, these arrangements can restrict your home’s market exposure and may lead to dual agency scenarios. Opt for open listings to maximize reach.
9. Closing Arrangements
When selecting a closing agent, avoid brokers who steer you toward affiliated firms. Instead, request recommendations for at least three independent companies, ensuring the broker has no financial ties to them.
10. Beware of Arbitration Clauses
Real estate agreements sometimes include arbitration requirements or prohibit class action lawsuits. These terms can limit your legal rights. Choose agents who don’t impose such restrictions.
11. Home Warranties
Avoid agreeing to purchase home warranties through brokers. These products often include broker kickbacks, and the coverage may not be worth the added expense.
Empower Yourself in the Real Estate Process
By understanding and negotiating these key terms, you can protect your interests and avoid paying unnecessary fees. Always review your agreement with a real estate attorney who can advise you on state-specific laws and ensure your contract aligns with your goals. Remember, the real estate landscape is evolving, and staying informed is your best defense against unfavorable terms.
For more consumer-focused advice, reach out to us at any time with questions.