Net Listing

Detailed Definition of Net Listing

A net listing is an agreement between a real estate broker and the property seller where the broker’s commission is the amount above an agreed ’net’ price to the seller. This means that if a property is sold at a price higher than the net amount, the excess becomes the broker’s commission. Since the broker could be incentivized to recommend a lowered net price or undervalue the property, net listings are considered risky and are illegal in some states due to potential conflicts of interest.

Examples of Net Listing

Example 1

John decides to sell his property and agrees with a broker on a net listing. They set the net price at $300,000. The broker finds a buyer willing to pay $330,000. The broker’s commission, in this case, is $30,000.

Example 2

Mary enters into a net listing agreement with a real estate agent, setting the net price of her house at $250,000. The agent sells the house for $275,000. The agent earns a commission of $25,000. However, if the house were sold at $250,000, the agent would earn no commission.

Frequently Asked Questions

Is a net listing legal?

Net listings are illegal in many states like California, Florida, and Texas because they can create a significant conflict of interest for the broker.

Why are net listings considered risky?

Net listings are considered risky because there is a conflict of interest where the broker might intentionally aim for a lower net price to gain a higher commission, potentially not acting in the seller’s best interest.

How does a net listing differ from other listing agreements?

In a traditional listing agreement, the broker’s commission is a percentage of the final sale price regardless of the amount. In a net listing, the commission is the amount exceeding the agreed-upon net price.

What is an alternative to a net listing?

An alternative to a net listing is a traditional listing agreement, where the commission is a fixed percentage of the sale price, ensuring that the broker’s interests are aligned with the seller.

Can a net listing be advantageous?

In specific scenarios, a net listing could be advantageous if the selling price substantially exceeds the seller’s expectations and the broker’s incentivization aligns for both parties. However, such situations are rare and involve risk.

Exclusive Agency Listing

An exclusive agency listing allows the property owner to sell the property independently without paying a commission to the broker, unless the broker is responsible for the sale.

Exclusive Right-to-Sell Listing

An exclusive right-to-sell listing ensures the broker gets a commission regardless of who sells the property, providing the broker exclusive rights for the sale.

Multiple Listing Service (MLS)

MLS is a database established by cooperating real estate brokers to provide data about properties for sale, facilitating property visibility and shared commissions among member brokers.

Open Listing

An open listing is a non-exclusive listing allowing multiple brokers to sell the property, with only the selling broker earning a commission.

Online Resources

References

Investopedia. (2023). Net Listing. Retrieved from Investopedia
Realtor.com. (2023). Understanding Real Estate Listings: The Pros and Cons. Retrieved from Realtor.com
National Association of Realtors. (2023). Real Estate Business Practices.

Suggested Books for Further Studies

“Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer
“The Millionaire Real Estate Agent” by Gary Keller
“Your First Year in Real Estate” by Dirk Zeller
“Real Estate Licensing Exams with Online Digital Flashcards” by Jack P. Friedman and George Shelley
“Modern Real Estate Practice” by Fillmore W. Galaty, Wellington J. Allaway, and Robert C. Kyle

Real Estate Basics: Net Listing Fundamentals Quiz

### What is a net listing in real estate? - [ ] A listing where the broker is paid a flat fee. - [x] A listing where the broker's commission is the excess amount over an agreed-upon net price. - [ ] A type of exclusive listing agreement. - [ ] A listing utilized only in commercial real estate. > **Explanation:** A net listing stipulates that the broker's commission is the amount that the property sells for above an agreed-upon net price to the seller. ### Are net listings legal in all states? - [ ] Yes, they are universally accepted. - [ ] Only illegal in one state. - [x] They are illegal in some states. - [ ] No, they are illegal in all states. > **Explanation:** Net listings are illegal in some states due to the potential for conflicts of interest and ethical issues. ### Why might net listings be considered risky? - [ ] They always result in higher commissions. - [ ] Sellers have reduced control over the sale price. - [x] They create a conflict of interest for the broker. - [ ] There are no risks associated with net listings. > **Explanation:** Net listings can be risky as they create conflicts of interest, where brokers might push for lower net prices to receive higher commissions. ### In which type of real estate agreement does the broker get a commission regardless of who sells the property? - [x] Exclusive right-to-sell listing - [ ] Open listing - [ ] Net listing - [ ] Exclusive agency listing > **Explanation:** In an exclusive right-to-sell listing, the broker gets a commission no matter who sells the property. ### What defines an exclusive agency listing? - [ ] The broker has exclusive rights, regardless of who sells. - [x] The owner can sell independently without owing commission. - [ ] Multiple brokers have the right to sell. - [ ] It is characterized by a net sales price agreement. > **Explanation:** An exclusive agency listing allows the owner to sell the property independently without having to pay a commission if the broker is not involved. ### Which entity typically establishes guidelines regulating net listings? - [x] State real estate commissions - [ ] Local real estate agencies - [ ] Homeowners Associations (HOAs) - [ ] Real estate investors > **Explanation:** Guidelines regulating net listings are usually established by state real estate commissions to ensure ethical practices and protect consumers. ### What is one key way net listings differ from traditional listing agreements? - [ ] The commission is always higher. - [ ] They are used only for luxury properties. - [ ] They never involve the use of Multiple Listing Services (MLS). - [x] The broker's commission is based on the price exceeding the net agreed-upon price. > **Explanation:** Net listings differ primarily because the broker's commission comes from the amount that exceeds an agreed-upon net price. ### What type of real estate agreement allows the property selling task to multiple brokers and only pays the broker who closes the sale? - [ ] Exclusive agency listing - [ ] Exclusive right-to-sell listing - [x] Open listing - [ ] Net listing > **Explanation:** An open listing allows the property selling task to multiple brokers, and only the one who closes the sale earns the commission. ### Can net listings be advantageous for property sellers? - [ ] Always beneficial due to high commissions. - [x] Potentially, if the sale price is significantly higher. - [ ] Advantageous only in the luxury sector. - [ ] Never advantageous due to conflict of interest. > **Explanation:** Net listings might be advantageous if the property sells significantly higher than expected, though it's a rare and risky scenario. ### Which state is known for prohibiting net listings due to potential conflicts of interests? - [ ] New York - [x] California - [ ] Nevada - [ ] Maine > **Explanation:** California is one of the states known for prohibiting net listings to avoid conflicts of interest and to protect consumers.