Open Listing
An open listing is a non-exclusive real estate agreement where a seller can work with multiple real estate agents simultaneously, or sell the property themselves, with commission only paid to the agent who procures the buyer.
Key Takeaways
- An open listing is a non-exclusive agreement allowing a seller to engage multiple agents or sell independently.
- Commission is only paid to the agent who successfully brings a ready, willing, and able buyer and closes the sale.
- This type of listing offers maximum flexibility for sellers but can lead to reduced agent motivation and potential disputes.
- Open listings are less common than exclusive agreements and are often seen in niche markets or for sellers confident in self-marketing.
- Clear communication and written agreements are crucial to avoid misunderstandings regarding commission and agent efforts.
What is an Open Listing?
An open listing is a type of real estate listing agreement that grants a seller the right to work with an unlimited number of real estate agents or brokers. Unlike exclusive agreements, an open listing is non-exclusive, meaning the seller retains the right to sell the property themselves without owing any commission to an agent. In this arrangement, the commission is only paid to the agent who successfully finds a buyer and closes the sale, often referred to as the 'procuring cause'.
This model contrasts sharply with more common exclusive listing agreements, where a single agent or brokerage holds the sole right to market and sell the property for a specified period. Open listings are generally less common in residential real estate but can be found in certain commercial property sales or in very hot seller's markets where properties sell quickly.
How Open Listings Work
The operational mechanics of an open listing are straightforward but require careful attention to detail to avoid disputes, particularly concerning who is the procuring cause of the sale.
Key Characteristics
- Non-Exclusivity: The seller can list their property with multiple real estate agents simultaneously.
- Seller's Right to Sell: The seller can also find a buyer on their own. If they do, no commission is owed to any agent.
- Commission Structure: Only the agent who brings the buyer and successfully closes the deal receives a commission. This agent is considered the 'procuring cause'.
- No Written Contract Required: While a written agreement is highly recommended, some jurisdictions may allow verbal open listings, though this is risky.
Process for Sellers
- Determine Sale Terms: Set the asking price, desired closing date, and any other specific conditions for the sale.
- Engage Multiple Agents: Inform several agents that the property is available as an open listing and specify the commission percentage offered to the procuring agent. It's crucial to have a clear, written agreement with each agent outlining these terms.
- Market the Property: Agents will market the property to their networks. The seller can also market the property independently (e.g., 'For Sale By Owner' or FSBO).
- Manage Showings and Offers: Coordinate showings with all involved agents and potential direct buyers. Evaluate offers as they come in.
- Close the Sale: If an agent brings the successful buyer, that agent receives the agreed-upon commission. If the seller finds the buyer, no commission is paid.
Process for Agents
- Agree to Terms: Agents must agree to the seller's terms, including the commission rate, knowing they are not guaranteed payment.
- Market and Show: Actively market the property to their client base and conduct showings.
- Procure a Buyer: The agent must be the direct cause of the buyer's interest and subsequent offer that leads to a closed sale.
- Facilitate Closing: Assist the buyer and seller through the closing process to ensure the transaction completes successfully.
Advantages and Disadvantages
Open listings present a unique set of pros and cons for both sellers and real estate agents.
For Sellers
- Pros: Increased exposure from multiple agents, ability to sell independently and save on commission, greater flexibility in terms.
- Cons: Lower agent motivation (no guaranteed commission), potential for multiple agents showing the same buyer, risk of commission disputes, less dedicated marketing effort from individual agents.
For Agents
- Pros: No upfront marketing costs, opportunity to earn a commission without an exclusive commitment, can be a good option for agents with a strong buyer network.
- Cons: High competition among agents, no guarantee of payment for time and effort, potential for disputes over procuring cause, less incentive to invest heavily in marketing the property.
Real-World Example
Consider a property owner, Sarah, who wants to sell her investment property for $500,000. She decides to use an open listing, offering a 3% commission to any agent who brings a successful buyer. She informs three local agents: Agent A, Agent B, and Agent C.
- Agent A shows the property to Buyer X on Monday.
- Agent B shows the property to Buyer Y on Tuesday.
- Sarah also lists the property on a local FSBO website.
- On Wednesday, Buyer X, who was introduced by Agent A, submits an offer for $495,000, which Sarah accepts. The sale closes successfully.
In this scenario, Agent A is the procuring cause. Sarah would pay Agent A a commission of $495,000 * 3% = $14,850. Agents B and C, despite their efforts, would receive no commission. If Sarah had found Buyer Z through her FSBO listing and closed the deal, she would have paid no commission to any agent.
Important Considerations
Market Conditions
Open listings are most effective in a strong seller's market where demand is high and properties sell quickly, or for unique properties that attract a specific buyer pool. In a buyer's market, where properties sit longer, agents are less likely to invest time and resources into an open listing due to the high risk of not being compensated.
Legal Aspects and Agreements
While some jurisdictions may not legally require a written agreement for an open listing, it is highly advisable to have one. A clear written agreement with each agent should specify the commission rate, the duration of the agreement, and precise definitions of what constitutes 'procuring cause' to prevent future disputes. State real estate laws vary, so consulting with a real estate attorney is recommended.
Due Diligence and Communication
Sellers must maintain meticulous records of which agent introduced which buyer to avoid confusion over commission. Agents, in turn, should document all their efforts and buyer interactions. Open communication between the seller and all involved agents is paramount to ensure a smooth process and minimize potential conflicts.
Frequently Asked Questions
Is an open listing common in today's real estate market?
No, open listings are generally not common in today's residential real estate market. Exclusive right-to-sell listings are the industry standard because they provide agents with the incentive of a guaranteed commission, leading to more dedicated marketing and effort. Open listings are more likely to be seen in niche commercial properties or in extremely hot seller's markets where properties sell almost instantly.
What's the main difference between an open listing and an exclusive right-to-sell listing?
The main difference lies in exclusivity and commission guarantee. An open listing is non-exclusive, allowing multiple agents and the seller to find a buyer, with commission paid only to the procuring agent. An exclusive right-to-sell listing grants one agent the sole right to sell the property, and they receive a commission regardless of who finds the buyer (even if the seller finds them), ensuring maximum agent dedication.
Can a seller sell their property themselves with an open listing?
Yes, absolutely. One of the key features of an open listing is that the seller retains the right to sell the property independently. If the seller finds a buyer through their own efforts (e.g., 'For Sale By Owner' marketing) and closes the deal, they are not obligated to pay a commission to any of the agents with whom they have an open listing agreement.
Are open listings suitable for all types of properties?
Open listings are generally not suitable for most properties, especially residential ones that require extensive marketing and agent effort. They might be considered for unique or highly desirable properties in a very strong seller's market where demand is exceptionally high, or for sellers who have a strong network and are confident in their ability to find a buyer themselves. For most properties, the lack of agent incentive makes it a less effective strategy.
How is commission handled in an open listing?
In an open listing, commission is only paid to the real estate agent who is the 'procuring cause' of the sale. This means the agent must be the one who directly introduced the buyer to the property and whose efforts led to a successful, closed transaction. If multiple agents show the property, only the one who ultimately secures the buyer and facilitates the closing receives the agreed-upon commission. If the seller finds the buyer, no commission is paid.