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How would you draft a net listing agreement in real estate

September 13, 2021
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real estate law

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This article is written by Nikita Arora, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

Real estate agents can assist customers in reaching their objectives. Everyone wants their real estate transaction to be as smooth and painless as possible, whether they are purchasing their first home or selling a home to relocate to a new location to begin a new life. People, understandably, want to get the best price possible on their real estate acquisition or sale. No client wants to overpay for a home, and no client wants to sell a home at a loss. 

Understanding certain industry jargon is also important, whether you are a prospective real estate agent learning the ropes of the real estate business or a prospective homeowner wanting to employ an agent or broker. It will not only keep you updated throughout the process, but it will also assist in understanding your options, regardless of which side of the transaction you are on.

In this article, we will look at how terms in a net listing agreement in real estate are drafted.

What is a net listing?

In a net listing, the owner establishes a minimum amount that he or she wants to receive from the sale of the property and allows the broker to keep any amount above the minimum as a commission. While the seller gets what he or she wants for the sale, in this case, it creates a conflict of interest for the broker by violating the broker’s fiduciary responsibility to put the client’s interests ahead of his or her own. As a result, internet listings are often regarded as unprofessional.

An example of a net listing agreement

Consider a basic example to better understand how net listing agreements work in reality. Assume a couple owns property in North India. They intend to relocate to the other side of the country within the next two months due to a new job opportunity. They need to sell their house immediately. The couple decides to work with a local real estate agent on a net listing agreement. Both parties agree on a starting price of 2 crore rupees for the house. In this case, the real estate agent keeps anything over 2 crore rupees. If they sell the house for Rs. 2,10,75,000, their commission will be Rs. 10,75,000. However, if they only sell the house for Rs. 2,10,50,000, the commission will be Rs. 10,50,000. The surplus is paid to the real estate broker under a net listing agreement. 

The consequences of using a net listing agreement

Operating under a net listing agreement has some advantages and disadvantages, just like any other sort of pricing structure. However, net listing agreements are sometimes regarded as particularly dangerous for real estate professionals.

On one end of the range, a real estate agent may work with a seller who accepts a relatively cheap price, possibly substantially lower than what is merited given market conditions. As a result, a real estate agent may put forth a lot of effort but receive little to no cash remuneration.

On the other end of the spectrum, a real estate expert who is overly successful (receives a price substantially over what the seller expected) may face legal action from their client. If a client’s property sells for significantly more than they expected, they may feel taken advantage of. Even in places where net listing agreements are legal, regulators frequently try to dissuade real estate brokers from adopting them.

Essentials of net listing agreements

The following are some of the most critical clauses addressed by a typical real estate listing agreement:

  1. The amount of commission you’ll pay your agent: This is typically 5 percent to 6 percent of the sale revenues. When selling your home, negotiate the commission with the agent.
  2. The sole right to sell: This provides your agent with the only right to sell your home for the life of the contract. Other sorts of arrangements with an agent are possible, but the exclusive relationship will be your agent’s preferred option.
  3. Duration: Your listing agreement will be for a specific period, such as three or six months. A shorter listing agreement is preferable. If you are dissatisfied with the agent’s services, you have the option of leaving and finding another agency. A lengthier listing agreement is ideal from the agent’s standpoint since the agent will be doing a lot of work to get the house ready to sell and will not want to risk losing a commission just as the property is beginning to gain serious attention.
  4. Clause of safety or protection: Even though the contract includes an expiration date, it will almost certainly include a clause that protects the agent or broker after that date. This stops you from attempting to avoid paying an agent’s commission by finding a buyer while the agency is representing you but deferring the sale until your listing agreement ends. If you are terminating the agreement because you want to change listing agents, you should include an exception in the contract; nevertheless, if that agent sells rapidly and your condition entitles the first agent to a share, you may owe two commissions.
  5. Duties: The listing agreement may specify the activities that the listing agent is authorized to carry out on your behalf. Read everything carefully to ensure you understand everything. If there are any specific tasks you wish to double-check, the agent will handle them.
  6. Representations: The agreement may also require you to verify certain facts, such as that you are in a legal position to sell the property and that no one else has an ownership stake in it to your knowledge.
  7. Resolution of disagreements: The agreement will most likely indicate how you will handle disagreements that you cannot resolve informally with the agent, such as through mediation or binding arbitration.

Modifications to a standard net listing agreement

To build their listing agreement, most real estate listing agents use standard forms developed by state or local Realtor groups. However, do not sign unless you have properly read the document, and do not be hesitant to request adjustments or amendments.

Agents may be resistant to changing their standard agreements because they have used them without incident in the past. However, if you’re unhappy with anything, there’s no reason it can’t be modified. Small adjustments can be written directly on the contract and initiated, while larger changes can be made on separate addendums and referred to in the contract itself.

Furthermore, in a net listing agreement, a broker may push buyers to hang out for higher sale prices to obtain a bigger commission. Legitimate offers on the house may be rejected by a dishonest broker, especially if they are too near to the net price and hence not profitable to the broker.

Sample net listing agreement 

Open Net Listing Agreement (address of licensed real estate agent)

Owner: ___________________________           Co-owner: __________________

Phone: _________________

Address: ______________________________

Email address: ___________________________________

Terms and conditions of  net listing agreement 

  1. This is a net listing agreement whereby the seller shall receive the proceeds above upon the closing of the sale by a licensed real estate agent. The agent shall determine the sales price of said property, employ marketing methods, bear all costs associated with selling and deliver to the seller the net proceeds as stated above at the time of closing, less any outstanding obligation as noted below. Seller understands that the difference between the actual sales price and the net proceeds amount received will be retained by the real estate agent as a commission. 
  2. Seller gives the real estate agent the right to sell the property herein described at the price and terms set forth in this contract or at any other price or upon any other terms accepted by the seller during this contract upon any other terms accepted by the seller during this contract, upon which seller agrees to pay the real estate agent a commission of the difference between the actual sales price and the net proceeds amount. 
  3. This agreement shall be effective for a period of twelve months from the date set forth below. 
  4. All proceeds from the sales of the property will be disbursed to the seller at closing. 
  5. This agreement does not permit the real estate agent the right to make use of the property.
  6. In the event of a sale of property, notification to the management company will be the responsibility of the real estate agent.
  7. In the event of default by the purchaser, the earnest money shall be paid 50% to the real estate agent and 50% to the seller after payment of the title search fees, if any.
  8. Seller agrees to pay for any title search costs incurred, if a clear title cannot be issued or if seller defaults.
  9. The real estate agent shall present an offer in full compliance with net proceeds and terms of this agreement, which is refused by seller(s), seller(s) agrees to pay the real estate agent a commission of the difference between the actual sales price and net proceeds. 

Additional terms and conditions

Seller shall not be responsible for recording fees, documentary stamps, intangible taxes, other closing costs. 

Seller shall be responsible for all outstanding obligation(s) against said property, including, but not limited to association fees, taxes, special assessments, estoppels, judgement or mortgages. Any outstanding obligation(s) shall be deducted from the net proceeds above at closing.

There is no guarantee that your timeshare interest can be sold at any particular price within any particular period of time. 

Owner Signature________________                    Date__________________

Co-Owner Signature_______________                Date__________________

Licensed Real Estate Agent____________            Date___________________

Conclusion

Clients benefit from the assistance of real estate agents in achieving their goals. Undernet listing agreements, the broker can keep any amount above the minimum as a commission. Agent for real estate ‘Net listing’ is a term used by real estate agents and brokers to describe the process of negotiating the terms of a sale. Net listing agreements are sometimes viewed as risky, especially for real estate professionals. If a client’s property sells for significantly more than expected, real estate agents may be taken advantage of. Net listing agreements, like any other pricing structure, have advantages and disadvantages. A typical listing agreement may include several critical clauses. For the duration of the contract, the agent will have sole authority to sell your home. If you are dissatisfied with the services provided by the agent, you have the option of leaving and finding another agency. Everything should be read carefully to ensure that you understand everything.

If real estate agents are dissatisfied with their listing agreements, they may be hesitant to change them. Small changes can be written directly on the contract and initiated, whereas larger changes can be made on separate addendums and referenced in the contract. 

References


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