So you’ve deciding to sell your NYC home. Congratulations, you’ve now got a lot ahead of you and a fat check waiting at the end. But before you can start, you’ll need the help of a listing agent. Going the FSBO route is not recommended, especially in the current slow market. With the help of a listing agent, you stand a far better chance of selling sooner and for a better price. After taking the time to interview a prospective agent to see if they fit, it will come time to sign the listing agreement. This is where you make things official with the agent in a written agreement that will outline the terms of the partnership.
A lot goes into this and if you’ve never dealt with one before it can understandably make you nervous. Here’s the lowdown on what it covers as well as what may or may not be negotiable.
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What is a Listing Agreement?
This is a legal agreement between a homeowner who wants to sell their home and a real estate brokerage that wishes to help. The contract is legally binding and can come in several different types. Below are the three most common:
- Exclusive Right to Sell Listing – This is by far the most common type of listing agreement in NYC. It gives the listing agent (or brokerage) full control over the listing and rights to an agreed upon commission once the home sells. Only one broker will be working on this property.
- Exclusive Agency listing – This is similar to the above with the important difference that if you find a buyer on your own, then the agent doesn’t receive a commission. However, don’t expect an agent to be happy with signing this. With no guarantee of a commission, they may not work as hard to sell as they would with an exclusive right to sell agreement. This can mean your home takes longer to sell or doesn’t sell at all.
- Open Listing – This is a listing agreement with the lowest level of commitment. With this, an agent from any brokerage that brings you a buyer gets the commission. Or there’s no commission if you can find a buyer on your own. However, it’s very unlikely any listing agent will accept this. Data from the NAR shows that in 2017, less than 8% of homes were sold through the owner. Typically, they went for far less than those sold by agents.
What to Negotiate
If it’s not already clear, an exclusive right to sell listing is the best agreement to go with. You’ll be guaranteed the best service, and you can be sure the agent has your back in all negotiations with potential buyers. But beyond that, there’s still more to negotiate in a listing agreement.
Antitrust laws dictate that there can be no required or standard commission price. That means it’s negotiable. However, there are valid reasons why you would still want to agree on a fair commission price. Keep in mind; the commission will be split between the listing agent and buyer’s agent. Any buyer’s agent that sees a listing with a low commission will be less motivated to take their clients to view it. This can mean it will take longer to sell and might even mean going through a price cut. Avoid the trouble this will cause and negotiate a fair commission rate with your agent from the start.
In NYC, real estate commissions are typically 5-6% of the final closing price. Some sellers chose to negotiate for a tiered commission structure. This gives the listing agent a higher commission if they can close over the initial asking price or a lower commission if it closes under.
Most listing agreements are for six months, but some can be as short as one month. The majority of agents will prefer six-month contracts as a way to be confident the job will get done. Considering the current slow market in NYC, it’s far better to negotiate a long contract.
Additional Terms to Negotiate
Beyond the main areas of exclusivity, commission, and duration, there are other smaller things that you need to consider before signing on the dotted line. One of these will be your marketing budget. A photographer will be needed, perhaps even a 3D photographer, who will be paying for that? Next, there’s home staging. Does the agent feel this is necessary and what will the budget be for this also? A schedule for all this will also need to be agreed to. When will the staging be done? On what date will the listing be published online? When will the first open house be? There are all these little nuances to the listing agreement that you need to discuss and put into writing. As an added point, you may want to agree on a date in which you will lower the price of the property if no offers are forthcoming.
That’s a listing agreement in a nutshell. This agreement will control your entire home sale from the listing price to the amount you’ll own the agent on closing. Make sure you understand what you agree to and ask further questions about the meaning of specific terms and clauses. Your agent will be happy to explain as they’ll need you in on this too if the sale is to be a success.