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Net Listing

DEFINITION

Listing agreement where compensation is determined by the amount the property sold over the listing price. If the property was listed for $200,000 and the property sold for $212,000, the agent’s compensation would be the difference between the listed and sold price, which in this case would be $12,000.

EXPLANATION

In a net listing, an agent’s commission is derived from the difference between the minimum net price and the ultimate sales price, rather than a percentage commission based off the sale price. In this case, the seller lists the property at the lowest minimum price he or she is willing to accept.

This produces a great risk / great reward scenario: if a property’s final sale price is much higher than the net listing price, an agent’s commission can be lucrative; if the sale price is the same, an agent may earn no commission.

Before the execution of a sale, an agent must disclose their projected commission to the seller. Business and Professions Code 1076 (g) also states that a seller must be aware of all dynamics of the net listing.

For example, assume Kerry hires a real estate agent, Mark, to sell her property. Kerry would prefer not to pay a standard commission. She proposes a net listing. Mark, an experienced agent with extensive knowledge of the local market, agrees. Kerry then lists her property at the minimum price she is willing to sell for: $200,000. Mark ends up selling Kerry’s property for $237,000. Because of the net listing, Mark is entitled to the difference between the net listing and sold price. Thus, Mark receives a commission of $37,000 — significantly higher than what he would have made on a standard listing.

If, however, a seller finds a buyer who wishes to purchase the home at the listed $200,000, the agent receives no commission.

Like option listings, there is a high risk for conflicts of interest in net listings. Unlike standard listing agreements — which incentivize agents to list a seller’s property at the highest price possible — net listings reward agents for reducing listing prices. Because of this, an agent may offer negligent advice to a seller in order to maximize his or her commission.

For example, an agent may encourage a seller to list his or her property at a price lower than market value so that the agent can purchase the property him/herself at a higher price in order to maximize his or her commission and simply resell the property.

Net listings more often than not benefit agents over property owners. For this reason, most states have made them illegal. However, California does still allow net listings.

In a net listing, an agent’s commission is derived from the difference between the minimum net price and the ultimate sales price, rather than a percentage commission based off the sale price. In this case, the seller lists the property at the lowest minimum price he or she is willing to accept.

This produces a great risk / great reward scenario: if a property’s final sale price is much higher than the net listing price, an agent’s commission can be lucrative; if the sale price is the same, an agent may earn no commission

For example, assume Sandy hires a real estate agent, Dave, to sell her property. Sandy would prefer not to pay a standard commission. She proposes a net listing. Dave, an experienced agent with extensive knowledge of the local market, agrees. Sandy lists her property at the minimum price she is willing to sell for: $200,000. Dave drums up a bidding war and ends up selling Sandy’s property for $237,000. Because of the net listing, Dave is entitled to the difference between the net listing and sold price — $37,000 — as a commission.

Net listings are the least common type of listing because of the high risk for conflicts of interest. Unlike exclusive right-to-sell listing agreements — which incentivize agents to list a seller’s property at the highest price possible — net listings reward an agent for reducing listing prices. Because of this, an agent may offer negligent advice to a seller in order to maximize his or her commission. This leaves the agent susceptible to accusations of fraud or misconduct.

For example, an agent may encourage a seller to list his or her property at a price lower than market value so that the agent can purchase the property him/herself at a higher price in order to maximize his or her commission and simply resell the property.

Although California still allows net listings, most states have made them illegal.

Case Review As It Relates To Net Listing

Case Review: Rattray v. Scudder (1946)

The case, Rattray v. Scudder (1946) 28 Cal.2d 214., involved a real estate agent who intentionally misinformed a seller about buyer interest.

A seller (Rattray) listed his property with the help of a real estate agent (Scudder). During the transaction, Scudder purposefully neglected to inform Rattray of the buyer demand for his property, as well as the price that buyers were willing to pay. After supposedly not receiving any offers, Scudder convinced Rattray to reduce the property’s listing price, at which point Scudder offered to purchase the property himself. Rattray sued.

The Superior Court claimed that Scudder had breached his fiduciary duty by not disclosing the other buyer offers, and was guilty of material misrepresentation for not informing the seller of all buyer offers. It ruled in favor of Rattray.

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