What is a "listing agreement"?
UPDATED: February 20, 2013
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The listing agreement is a contract between the seller and the listing broker. It sets out the conditions of the listing. While the details of the agreement should be negotiated, a listing agreement generally includes the following:
(1) the length of the listing period -- as the seller you'd want to be able to switch brokers if the sale does not happen as quickly as you like, while the broker wants to have the listing period as long as possible, recognizing that it often takes a fair amount of time and effort and expense to generate other broker interest and a sale, and that if the time is too short s/he loses the commission.
(2) the desired sales price, as well as a price that might be accepted;
(3) the amount of the commission -- while the commission rate is generally claimed to be "standard" within a community, don't believe it, and it is sometimes possible to negotiate different rates up front -- such as 2% to the listing broker and 3% to the selling broker. However, if the rates are too low, the listing broker may not want to do all that is necessary to "push" your house, such as advertising it heavily, while the selling broker may prefer to sell her prospects a home that carries a higher commission than she'd get on your home.
(4) any exceptions to the commission. For example, would there be a reduced fee (or no fee at all) if you sell the house on your own, or you sell it to a friend who expressed interest? Generally the broker will insist on you naming any such persons in the listing agreement.
The seller should pay very careful attention to the listing agreement, and probably should have it reviewed by a lawyer. It is a critically important document to the seller. Once a broker produces a willing and able buyer, assuming all conditions are met, the seller owes the broker his or her full commission unless the terms of the listing agreement provide otherwise (for example, "The commission is payable at close of escrow and is conditioned upon the close of escrow"). If for any reason the seller chooses not to sell (perhaps s/he wants to hold out for more money, or a proposed job transfer falls through), the commission must still be paid unless the terms of the listing agreement are negotiated otherwise.