What is an open listing?
What is the definition of open listings?
How does it work in real estate?
In this article, we will break down the notion of “open listing”, so you know all there is to know about it!
We will look at what is an open listing in real estate, what is the open listing meaning, how it works when looking to sell a property, we’ll look at an open listing agreement, what are the advantages and disadvantages of open listings and more!
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What is an open listing
An open listing can have two meanings:
- Property sold through multiple real estate agents in a non-exclusive way
- Property sold directly by the seller without the services of a real estate agent
In the first scenario, an open listing or open agency is a type of listing arrangement in real estate where the homeowner enters into a non-exclusive listing agreement with more than one real estate broker for the sale of a property.
In the second scenario, an open listing can also mean that a property owner is not using the services of a real estate agent to sell the property.
As a result, the property is being marketed and sold directly by the seller.
We call this a property “for sale by owner” or FSBO.
According to a National Association of Realtors report, approximately 8% of the properties sold in the United States were based on open listings.
Open listing definition
What does an open listing mean?
What is the open listing definition in real estate?
According to Century 21, an open listing is defined as:
This non-exclusive listing agreement allows the owner to secure the services of several brokers at the same time.
In other words, it’s an arrangement where a property owner can use the services of many real estate agents (without committing to any single one of them) for the sale of a property.
The open listing eliminates the exclusivity between a real estate agent and a seller.
We can also define open listings as follows:
When a real estate property owner markets and promotes the sale of property directly in the real estate market without retaining the services of a real estate agent.
In other words, the property is listed on the open market by the seller who will directly handle all aspects of the sale from the property marketing, showing, purchase offer negotiation, due diligence period and eventually closing.
How it works
How do open listings work?
Why should a seller or broker consider open listings in real estate?
There are different situations that may lead to a seller wanting to sell a property in an open fashion.
For instance, in cases when a seller has a very special property, something unique or a real estate property where many buyers are interested in purchasing (hot market), the seller will have higher negotiation leverage with the broker.
In this case, it may very well be that the only way the real estate agent can make any possible commission on the sale of the property is to accept an open listing with the seller.
You can also have a situation when a property needs to be sold very quickly, that’s when an open real estate listing may be the way to go.
Open listings in real estate may also be useful to attract potential buyers who believe they may be able to negotiate the sales price in a more favourable way knowing the seller may not have to pay a commission if the property is sold directly.
The seller may also think the same way.
The property owner may decide to be more flexible on the sales price knowing that there will be no commission to be deducted from the final purchase price.
Open listing agreement
What is an open listing agreement?
An open listing agreement is an agreement between a real estate broker and the homeowner with regards to the compensation of the broker should he or she introduce a buyer for the seller’s property.
In open listings, a seller may negotiate multiple open listing agreements with different real estate agents.
If any of them brings a client or buyer, they will get compensated in accordance with the terms of their open agency agreement.
A seller does not have to have an agreement with any agent if he or she so chooses.
On the other hand, if an agent shows up with an interested and serious buyer, the seller may negotiate the terms of a potential compensation should the real estate agent’s buyer eventually buys the property.
Exclusive right to sell listing
What is the difference between an open listing vs exclusive right to sell?
An exclusive right to sell is a type of listing agreement where the real estate owner will agree to sell his or her property exclusively through one agent.
If at any point in time the property is sold during the exclusive right to sell period, the real estate agent will earn the agreed-upon commission.
In this type of listing agreement, the real estate agent is guaranteed a commission regardless of where the buyer is coming from (whether it is the real estate agent who found the buyer or not).
This is different than open listing real estate.
In an open agreement, the seller can sell the property through a number of real estate brokers, agents, representatives or professionals.
If someone brings a buyer, the property owner can agree to a one-time deal with the agent.
At the same time, the seller is not bound to work with an agent either.
The seller is free to market and promote his or her own property to sell it in the market.
Exclusive agency listing
What is the difference between an open listing vs exclusive agency?
An exclusive agency listing or exclusive agency is a listing agreement that is in between a “for sale by owner” and an “exclusive right to sell”.
In this type of listing agreement, the seller agrees to list the property with one exclusive agent who will get compensated for finding a buyer.
However, if the seller is the one who finds the buyer, the broker will not get a real estate commission.
In essence, the broker’s commission is not guaranteed the same way as in an exclusive-right-to-sell contract.
This is different than an open agency listing as the seller agrees to deal with one broker exclusively for listing the property.
What are the open listing benefits?
A seller can find it beneficial to sell his or her property based on an open listing as it can allow many real estate agents to work on selling the property simultaneously.
The open listing real estate setup allows the sellers to increase the chances of finding a buyer, particularly if the seller’s property has some problems or is difficult to sell.
In rural areas, open listings may be beneficial for sellers.
Since rural areas tend to be vast and the residents may know one another better than in large cities, the best strategy to sell a property may be to have an open listing allowing any broker in the region to compete for the sale.
In the end, the seller may find a buyer from his or her own connection, network and acquaintances.
It would not be fair to the seller to pay any commission for such a sale.
On the other hand, a real estate agent in the town may also have good traction in bringing clients and prospects.
What’s also advantageous with an open agent real estate is that the seller can stop dealing with the agent at any time.
The seller does not have a formal commitment with one single agent and so if the agent is not right for the job, the seller does not have to deal with that person.
What are the open listing drawbacks?
An important disadvantage in opting for an open listing contract is that the seller will not have a fully dedicated and motivated real estate broker to sell the property.
Since the property can be sold by anyone, a real estate agent may be afraid of putting too much time on a property that will never lead to reasonable compensation.
The real estate representatives are not likely to spend any money on advertising the property or giving the property the full extent of market visibility it needs to be sold.
This leads to the seller’s property being underpromoted in the market making the sale process potentially longer or more challenging for the seller.
Without a professional real estate broker, a seller may not get the benefits of:
- High-quality photos
- Guided home visits
- Professional marketing efforts
- Ability to answer all incoming phone calls
- Negotiate a sale
- Manage purchase offers
Sellers should keep in mind that some buyers will attempt to contact as many real estate agents as possible to purchase the same openly listed home.
This can create a chaotic and potentially contentious environment when it’s no longer clear who the prospect belongs to.
Open listings takeaways
So how do you define open listing?
Why should you consider an open listing in real estate?
What are the advantages and disadvantages of open listings?
An open listing is a non-exclusive listing arrangement where a property owner can either directly sell a property or work with several real estate agents.
An open listing is essentially the opposite of an exclusive listing.
Where an exclusive listing is one where a seller will work with one real estate agent having the right to exclusively market and promote the property, open listings refer to situations where the seller is the one actively selling the property or working with non-exclusive agents.
Sellers can use an open listing arrangement when:
- The real estate market is hot
- They can easily sell the property by themselves
- They want to sell quickly
- If a listing agreement did not work with a real estate broker who failed to sell the property
- They want to have the ability to save money
- They don’t want to commit to working with one real estate agent
- They want to have more agents possibly competing for the sale
There are also downsides to the seller:
- Seller may not be able to handle the sale process
- The sale is not as easy as the seller thought it would be
- The property will not get fully promoted in the real estate market
- The property may not end up in the MLS
- No broker will be committed to selling the property since their compensation is at risk
- The seller does not get professional services offered by the broker
In the end, sellers should evaluate the pros and cons and select the listing arrangement that suits their needs.