Browse Proptionary encyclopedia

Build your real estate vocabulary to be able to communicate and invest more effectively and professionally.

Open Listing

DEFINITION

Nonexclusive listing to an agent whereby the property owner may hire more than one agent to assist in the task of procuring a buyer. Ultimately the agent who retains the buyer will be entitled to commission.

EXPLANATION

An open listing — also known as a non-exclusive listing — allows multiple agents to represent the interests of a seller simultaneously. Only the agent who locates the buyer that results in a sale is entitled to a commission.

Open listings typically entail a seller placing his or her property on a multiple listings service and allowing agents to produce potential buyers. Open listings are often used by sellers who have had a property on the market for a long period of time, or ones who simply want a property to be sold as fast as possible.

An open listing is not an official listing by standard definition. It does not include the name of an agent. It does not provide any definitive terms other than the property price and the commission that a seller is willing to pay if a property is sold. Agents are also not required to sign an agreement. In general, such listings operate on good faith, or the honest and sincere intention to work in a fair and open manner.

The advantages for a seller in an open listing include:

the ability to widely promote his or her property

the ability to sell his or her own property, thereby eliminating the need to pay an agent commission

the ability to “terminate” (or withdraw) a listing at any time

However, it is unlawful for a seller to terminate a listing with the intent of completing a transaction with a buyer introduced to them by an agent. Sellers are legally required to pay a commission to any agent whose actions lead directly to a sale.

Open listings do have clear disadvantages. As an agent is not exclusively representing a seller, the agent may not be fully committed to assisting a seller. Agents are not required to use due diligence, which is a good faith effort to investigate, verify, or perform a specified act.

Under open listings whereby multiple agents are involved, there is also much room for dispute regarding which agent gets a commission.

A procuring cause is a legal concept stipulating that an agent must prove that he or she initiated an uninterrupted chain of events that led to a sale in order to get paid. Simply providing property addresses or making an introduction to a buyer are not a valid procuring causes; an agent’s direct actions must directly influence and lead to the sale. Procuring causes require that an agent stay in continuous contact with a seller throughout a transaction.

In this case, the burden of proof falls on the agent. This means that the agent must provide documented proof that it was his or her actions (not those of a competing agent) which led directly to a property sale in order to receive a commission. For this reason, both agents and sellers are advised to keep clear records of all open house guests, as well as communications between parties. An agent is also advised to sign a listing agreement with a buyer in order to protect his or her right to a listing

An open listing, also referred to as a nonexclusive listing, grants the broker the right to compensation if he or she is the procuring cause of the sale. In an open listing, various agents have the right to present buyers; however, as expressed above, only the party whose buyer leads to a sale is entitled to commission. Unlike other forms of listings, in an open listing, the owner holds the right to terminate the listing at his or her own discretion. Terminating the listing gives the seller the right to sell the property him or herself without being responsible for allocating a commission to the broker. Open listings are typically avoided by real estate professionals because of the potential hassle associated with proving oneself as the procuring cause of a sale. Open listings leave room for dispute amongst the broker and seller, or broker and other broker(s) for payment.

If the listing is deemed as being an open listing that provides the principal with an option to procure a buyer on his or her personal accord, the principal will not be required to pay a commission if he or she, or another agent, has located the buyer. If, however, there are multiple offers on the property in an open listing that are all acceptable, the broker who brought the buyer first will be entitled to commission.

Example

Seller Jim lists his property on Rochester Ave. He gives a new agent, Niki, the opportunity to list the property. Because Niki is a new agent, Jim is hesitant to make the listing an exclusive listing, so instead he lists it as an open listing, allowing other agents to submit buyers as well. When Niki presents a buyer for the house at $329,000, Jim insists that he will not pay Niki the compensation because another agent named Charles brought another buyer for the same exact price. Can Charlie avoid paying Niki for her procuring the buyer?

No. The fact that Niki brought an acceptable buyer to Jim before the other agent entitles Niki to her due compensation. If however Niki’s buyer was below asking price or below the other agent’s buyer’s price, Niki would not be entitled to commission.

Many agents do not accept listings that are not exclusive in nature. The difficulty of chasing down a principal for payment or engaging in a lawsuit is not a profitable endeavor for most agents. For this reason, very few agents or brokerages will accept nonexclusive listings.

Nonexclusive Listings Are Becoming Increasingly Uncommon

If the listing agent finds a broker who has a buyer for property, the listing agent and other agents may split the commission. Prior to introducing the buyer, it is advised that both parties have a reasonable understanding of what to expect for compensation. Most listing agreements will contain clauses indicating the potential of splitting commissions with another agent. Payments are distributed through escrow. The escrow company handles enforcing the terms of their agreement. They do not take direction from the agent, but take direction from the agreement between parties.

It is unlawful for a principal to deal directly with the buyer, unless agreed to by the agent. The principal is barred from potentially ruining the transaction by interfering with the economic advantage of the agent and trying to avoid paying commission to the entitled agent.

[quiz-new]