The Pros and Cons of An Exclusive Listing Agreement in Real Estate

by Richard Morrison
January 14, 2020
Selling
0

Deciding whether to exclusively list a property or make it available on the open market is an important choice for home sellers. While exclusive listings offer privacy and control, they also limit exposure. Understanding the key benefits and drawbacks can help sellers make an informed decision.

Key Takeaway: Exclusive listings allow home sellers to maintain privacy and control showing access, but they severely limit market exposure compared to MLS listings. Sellers must weigh benefits like privacy and flexible pricing against reduced exposure to buyers when deciding between exclusive and open listing agreements.

As a real estate agent with over 10 years of experience, I’ve worked with sellers who chose both options. One memorable client was selling her family home after a difficult divorce. Privacy was paramount, so we decided an exclusive listing was best. It took longer to find a buyer, but it allowed her to be selective and avoid awkward showings with her soon-to-be ex-husband. She valued privacy over fast sale. For others, wider exposure and maximizing offers trumps privacy concerns. There’s no one-size-fits-all approach.

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What Is an Exclusive Agency Listing?

An exclusive listing agreement grants one real estate agent or brokerage the exclusive right to market and sell a home. Instead of listing on the Multiple Listing Service (MLS) where all agents can access it, an exclusive listing is only marketed to the agent’s network of buyers, investors, and agents.

Exclusive listings are also known as off-market, pocket, or private listings. They allow for a more private, controlled sale process compared to MLS listings viewable by the public online.

Key Benefits of Exclusive Agency Listing Agreements

1. Increased Privacy and Control When Listing Your Home Exclusively

For sellers who value privacy, exclusive listings limit exposure. Your home details and photos aren’t available for anyone to see online. You control who views the property through agent-accompanied showings.

This appeals to:

Celebrities and public figures avoiding publicity
Divorcing couples keeping sale discreet
Sellers concerned about security like jewelry store owners
Owners of unfinished homes or construction sites

Instead of hosting open houses, your agent qualifies viewers. You avoid random people touring just for fun.

2. Flexible Pricing Strategy

Exclusive listings allow more pricing flexibility versus MLS listings. You can test different prices to gauge interest without publicly documenting price drops.

Once a home is listed on the MLS, all agents can view the complete price history. If you have to lower the asking price after listing, buyers see this. Some will lowball offers knowing you already reduced it.

The privacy of an exclusive listing lets you experiment with pricing to get market feedback without consequences. If it’s overpriced, you simply don’t get showings or offers. You can adjust down until finding the right number to drive interest.

3. Pre-Market Listings

You can use an exclusive listing to “pre-market” a home before officially listing on the MLS. This builds anticipation similar to a “coming soon” approach.

Your agent markets the upcoming listing within their network to generate early interest. If an acceptable offer emerges, you can sell without ever having to publicly list it. This avoids risks like pricing too high initially or sitting on the market too long.

4. Limit Showings During Renovations

Exclusive listings allow you to limit and control showings if renovating before listing publicly. Instead of opening it up for all potential buyers to tour, you can qualify visitors through your agent while finishing updates.

This avoids the hassle of coordinating showings with contractors. You don’t have to worry about drop cloths, tools, and debris from ongoing projects. By pre-screening buyers through your agent, you can wait to allow showings until the home is ready.

Cons of Exclusive Listings

Along with advantages, exclusive listings also come with trade-offs to consider.

1. Restricted Exposure to Buyers

The biggest downside is limited exposure. MLS listings get viewed by every active buyer and agent in the area searching online. Exclusive listings only get marketed to your agent’s sphere and network.

Did you know that in 2021, 89% of home buyers found the home they purchased online, according to a survey by Richard Morrison? With exclusive listings, interested buyers outside your agent’s network won’t see your home.

Significantly fewer potential buyers ever learn your home is for sale. This decreases the number of showings, offers, and demand. While you gain privacy and control, the trade-off is missing out on maximum exposure.

2. Requires a Large Network

Exclusive listings depend on the size and reach of your agent’s network. The agent must leverage their own database of buyers, relationships with other agents who can promote it, and connections with investors.

Their sphere of influence determines the success. Some newer agents lack databases and referral networks to effectively market an exclusive listing. Veteran agents with large networks will have better luck sourcing buyers.

Ask any potential listing agents how large their buyer database is and typical sale prices within their network. This helps gauge if their connections align with your home’s price point and target buyers.

3. Potential Conflicts of Interest

In an exclusive listing, it’s very possible your agent will end up representing both buyer and seller. Since the agent is the only one able to sell the home, any offer coming through them becomes a “dual agency” situation.

Legally, your agent must disclose if they end up representing both parties in the transaction. But this dual agency creates an inherent conflict of interest. Your agent can’t objectively negotiate the best price/terms for both the buyer and seller simultaneously.

One party typically benefits more. Make sure you’re comfortable with the agent acting as a dual agent should it arise.

4. May Not Reveal True Market Value

Relying on one agent’s limited network makes it harder to determine true market value. Exclusive listings don’t create the same level of demand and price discovery as MLS listings.

Openly marketed homes with multiple offers establish fair market value through competition. Exclusive listings generate fewer data points to compare. This information void could result in over- or under-pricing.

Without the advantage of an open bidding process, your agent must determine pricing based more on comparable sales rather than what buyers will actually pay.

Key Factors to Consider

Marketing reach: Does your agent have a large enough network and resources to expose your home to quality buyers without the MLS? Can they demonstrate past success selling exclusive listings at your price point?
Timeline: Exclusive listings take longer on average. Are you in a hurry to sell or comfortable waiting for the right buyer?
Privacy concerns: How important is privacy and restricting showings? Does limiting public exposure outweigh getting maximum value through competitive bids?
Renovations: Do you need to limit showings because of ongoing updates or construction? Exclusives allow controlling access.
Pricing flexibility: Do you need to price test or avoid documented price drops? Exclusives enable adjusting price without public visibility.
Agent expertise: Is your agent experienced with pricing and marketing exclusive listings successfully? It’s a different skillset than openly listed homes.

Tips for Going Exclusive

If you decide an exclusive listing is right for your situation, here are a few tips:

Vet agents carefully – Ensure they have successfully sold exclusive listings at your price point before. Ask for specific examples and data on days on market.
Have realistic expectations – Know upfront that it will likely take longer to sell than openly listing on the MLS. But privacy and control may justify the trade-off.
Price below market – Price at least 5-10% under comparable homes that sold via the MLS to attract buyers and offset reduced exposure.
Plan for it to be temporary – Start with a short 3-6 month exclusive listing agreement. You can always extend it or pivot to listing publicly if needed.
Offer agent incentives – Consider a tiered commission structure that rewards the agent for selling at higher prices to maximize their motivation.

Q: What are the pros and cons of an exclusive listing agreement vs MLS listing?

A: An exclusive listing agreement gives a single real estate agent or broker the exclusive right to sell your home. This type of listing may be beneficial if you want to pay a lower commission, have more control over how your home is represented, and receive more personal attention from your agent. However, with an exclusive listing, there is less exposure to potential buyers. With a Multiple Listing Service (MLS) listing, you have access to a larger network of agents who can help list and market your home. This type of listing will require you to pay a higher commission but it may result in a faster sale for your property.

Q: What is an open listing?

A: An open listing is when the seller lists their property with multiple real estate agents or brokers and does not sign an exclusive agreement with any one of them. In this type of agreement, any agent that brings in a buyer can get paid for their services. However, there is no guarantee that any particular agent will be able to sell the home.

Q: What are the advantages of an exclusive listing?

A: The advantages of an exclusive listing include being able to choose a single real estate agent or broker who can focus on selling your home, having more control over how your home is marketed and presented to potential buyers, and potentially paying lower commissions as you are only working with one person.

Q: What are the disadvantages of an exclusive listing?

A: The main disadvantage of an exclusive listing agreement is that there is less exposure for potential buyers as only one real estate agent has the right to list and promote your property. Additionally, since all responsibilities rest on one person’s shoulders there could be delays if they become too busy with other listings.

Q: What is an exclusive agency and exclusive right-to-sell listing?

A: An exclusive agency and Exclusive Right-to-Sell Listing are two types of Exclusive Listing Agreements. In an Exclusive Agency Listing Agreement, the seller grants one real estate broker/agent the sole authority to list their property for sale in exchange for compensation regardless if another broker/agent finds a buyer first. Meanwhile, in an Exclusive Right-to-Sell Listing Agreement, the seller grants one real estate broker/agent both sole authority to list their property as well as the right to receive compensation if another broker/agent finds a buyer first.

Q: What is a non-exclusive listing?

A: A non-exclusive listing means that multiple real estate agents or brokers can list your property simultaneously without signing any type of contract with you. You also wouldn’t need to pay them any commission unless they find someone who actually buys your house.

Q: What are some pros and cons of signing an exclusive agreement?

A: Some pros include being able to choose which real estate agent you work with based on reputation or expertise; having more control over how your home is listed; potentially paying lower commissions; receiving dedicated service from one individual; and potentially selling faster due to increased focus on marketing efforts by one agent. Cons include reduced exposure since only one person has access to list and promote your property; delays could occur if they become too busy; costs associated with breaking contract early; lack of competitive bids from other agents; it eliminates flexibility when it comes time for negotiation.

Q: What kind of listings does my local Real Estate Board offer?

A: Your local Real Estate Board offers different types of listings depending on what best suits you needs. These types include Single Agency listings where you enter into contract solely with one real estate firm or broker; Open Listings where multiple firms or brokers may advertise without entering into contract; Limited Dual Agency where two firms cooperate yet represent opposite sides in negotiations; and Exclusive Agency listings where either side may terminate at any time without cause.

Q: What should I consider when deciding whether or not I should list my home exclusively?

A: When deciding whether or not to list exclusively consider factors such as what type of agreement would best suit you needs – do you want total control over how it’s listed by opting for single agency or would dual agency better serve competitive bidding purposes? Additionally consider cost – will opting for open listings save money when looking at commission rates? Finally take into account timing – how quickly do you want it sold versus investing extra effort into marketing through MLS networks?

Q: What does it mean when I opt for an open listing?

A: When opting for an open listing, this means that multiple agents will have access to market, advertise, show, negotiate, and sell your property. It also allows sellers more flexibility in terms pricing, commission rate, and terms. The downside however, is that although many different agents may work on trying sell your house, none have “exclusive rights” so no guarantee exists that someone will actually purchase.

Conclusion

An exclusive listing is a type of real estate listing agreement in which you choose one real estate agent to list your home. This agent has the exclusive right to sell the property, and they’re given more time and resources to do so because they’re the only ones with access to the listing.

As a result, an exclusive listing may help you sell your home quickly. However, if you choose a real estate agent who isn’t experienced or knowledgeable enough, you could be stuck in an agreement without any results.

Additionally, agents with an exclusive right to sell agreement may charge a lower commission compared to other types of listings. That said, it’s important that you research and carefully choose a real estate broker who is capable of selling your home for its maximum value before signing any type of real estate listing agreement.

Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.

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