You can sell your home in a variety of ways. The most common ways include open listings, exclusive agency listings, and exclusive right to sell listings. Each listing type sets up different arrangements between a seller and a real estate agent and comes with a contract intended to lay out the expectations and terms of the sale.
There’s one less common listing type you should be aware of, though, if you intend to sell your house: net listings.
A net listing is a rare agreement between a home seller and a real estate agent in which the seller sets a certain amount of money they’ll receive from the sale of their house and the agent nets any proceeds that exceed that amount.
Typically, real estate agents work for a pre-negotiated commission, which is usually split between the buyer and seller. In a net listing agreement, the agent receives no commission — they only get paid if they sell the home for more than the amount desired by the seller.
To illustrate what a net listing looks like in practice, let’s look at an example:
An agent approaches homeowners about selling their property. The agent promises to sell the home for at least $450,000, proposing a net listing rather than a typical commission structure.
The owners agree, not really knowing the actual value of their home. The agent sells the house for $500,000.
With a net listing arrangement, the agent earns a $50,000 profit rather than the $30,000 they would have earned in a typical 6% commission structure. Essentially, the agent takes an additional $20,000 out of the owners’ pockets
As you can see, in a net listing agreement, the seller’s and agent’s goals are not aligned. The seller is motivated to convince the homeowner their home is worth less than it is and push them to demand bigger offers from buyers.
As the above example illustrates, net listings are ripe for abuse. Because real estate agents have a fiduciary duty to serve their client’s interest, net listings are widely considered unethical and illegal in all but three states: California, Texas, and Florida.
Additionally, The National Association of REALTORS® (which represents 67% of all real estate agents) forbids members from selling net listings, which are banned on the Multiple Listing Service (MLS).
Even in the states where they are legal, there are protections against net listings. Texas stipulates that a net listing agreement must not “place the broker’s interest above the principal’s interest with regards to obtaining the best possible price.” Brokers also may not enter net listing agreements unless the owner demonstrates knowledge of the market value of their home and they expressly request a net listing.
California allows them only for “highly sophisticated clients, or clients who are independently represented.” (This arbitrary language raises many questions as to who qualifies as “highly sophisticated” and can open the law to arbitrary enforcement.) Florida has no formal protections.
Even in those states where net listings are legal, it’s best to consult with a real estate attorney before accepting this kind of agreement.
Even if net listings are legal where you live, they carry many risks that don’t exist in traditional real estate agreements. Net listings motivate the agent to sell your home for as much money as possible, but that’s because they’re trying to get a bigger cut of the profit. They may use their expertise to intentionally underestimate your home’s value and convince you they’re taking a big risk by not taking a commission. If you agree to set a net listing price at that value, your agent could stand to take a big chunk of your profit.
In the standard, percentage-based commission structure, both parties are protected and both benefit from a higher sale price.
Especially if you’re a novice in real estate, you should be extremely wary of any real estate agent who proposes a net listing for your home.
Net listings are illegal in most of the country for good reason. They’re outlawed by respected real estate organizations because they encourage agents to neglect their fiduciary duty to put a client’s goals ahead of their own. Traditional commission-based listing agreements are perfectly fine for both seller and agent, so if you live in a state where net listings are permitted and an agent proposes using this type of agreement, you should almost always say no unless you’re very familiar with the market.
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