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Net Listing

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Posted On: 02/14/2018

Question: I would like to sell my home for $400,000. That’s the absolute highest possible price in this market. Instead of a typical commission arrangement, I want to pay a broker everything above $400,000. I suggested this to a local broker and he refused my offer. Will he make more with a regular commission?

Answer: You really don’t want to do this. What you’re describing is a “net listing” – something illegal in some states and, um, contentious in the rest.

At first it would seem that the commission arrangement you suggest locks in the best possible sale price. This may be true in some cases, but the problem is that it may be very wrong in others.

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Because the broker is a professional, it is assumed that he or she has an advantage in the marketplace when dealing with buyers and sellers. It is for this reason that brokers must disclose their agency status when dealing with consumers.

In this situation it is assumed that the owner has a realistic grasp of the home’s fair market value and can therefore set a target price. The catch is that fair market values can be hotly debated. The National Association of Realtors (NAR) published a study that found that during the summer of 2016 “64 percent of contracts were settled on time, 30 percent had delayed settlement and six percent were terminated.” Almost a quarter of the delayed closings (23 percent) were associated with appraisal issues.

While getting the fair market value wrong is one issue another concern is that with a net listing, the goals of the broker and the seller are not aligned. With the typical real estate sale, the broker’s fee rises in lockstep as the sale price goes up. Alternatively, with a net listing, the broker can prosper greatly while sellers do not obtain full value for their property.

The NAR’s Code of Ethics requires member brokers and salespeople to act in the best interests of their clients. In one case a property was listed for $170,000 with a net listing and sold for $220,000. A hearing panel found that the broker “had departed completely from his obligation to render a professional service in fidelity to his client’s interest; that he had, in fact, been a speculator in his client’s property; and that he had not dealt honestly with either party to the transaction.”

Understanding the potential hazards a net listing can create I’m not surprised that a broker would reject such a relationship. On the other hand, having found a broker that wants to protect your interests, this individual might be a good candidate to represent your property.

Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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