Types of Listing Agreements
- Exclusive Right to Sell. With this type of agreement, only one broker works for the owner. The broker receives a commission when the property is sold even if the owner finds the buyer.
- Exclusive Agency. With exclusive agency, only one broker works for the owner but if the owner finds the buyer, the broker is not entitled to a commission.
- Non-Exclusive Listing or Open Listing. Under this arrangement, multiple brokers may work simultaneously to market the property, but only the broker who finds the buyer receives a commission. If the owner finds the buyer, none of the brokers are entitled to a commission.
Key Clauses to Understand
- Commission structure describes how the broker will be paid and how much they will receive.
- Listing duration or term length determines how long the contract is valid until it naturally expires.
- Property description and listing price identify the property and the minimum sale price acceptable to the owner.
- Broker’s obligations lists the actions that the broker will take to market the property.
- Termination or cancellation provides an amicable means for either party to terminate the agreement before it expires naturally.
Average Broker Commission Rates
- 5-6% of the sale price for deals under $1M
- 2-4% of the sale price for deals over $5M[1]
Broker Commissions Explained
- Percentage vs Flat Fee. Percentage-based commissions are most common because they incentivize the broker to negotiate the highest sale price. Flat fee commission structures are used in smaller, simpler deals or in cases where both parties wish to specify an exact amount upfront.
- Negotiability. Commissions are not set by law and are fully negotiable.
- Commission Splitting. It is common practice for the listing broker to share their commission with the buyer’s agent. The listing agreement should specify how the commission will be split.
- Protection Periods. Most listing agreements will provide a window of several months after expiration in which the broker still receives a commission for any sale they had been working on. This ensures compensation for any effort or resource the broker provided during the term of the contract.
- Who Pays? Commissions are paid by the owner/seller.