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What Are The Drawbacks of an Open Listing?

By Bill Gassett | December 15, 2023

In the ever-evolving world of real estate, negotiating terms and conditions can often become a high-stakes juggling act. While embracing the freedom of an open listing contract is tempting, several hidden pitfalls might turn that dream deal into a monumental misstep.

Let's examine the complications that an open listing contract can unwittingly spring upon unsuspecting property owners and brokers alike.

Prepare to challenge your assumptions and glean insights; the advice may be the reality check you've been waiting for.

The downsides of an open listing contract include limited exposure for the property, as it is not typically listed on the Multiple Listing Service (MLS), which can impact promotion and potential buyer reach.

Additionally, there is a risk that agents may prioritize listings with guaranteed commissions, potentially resulting in less effort invested in selling the property.

Furthermore, determining commission recipients can be challenging and require oversight. Finally, sellers may not benefit from the expertise and dedicated support of a single listing agent or brokerage without an exclusive agreement.

From years of experience in real estate open listing are less popular than they have ever been. Very few Realtors want to go through the time, effort, and money involved with marketing a property not to be paid.

It defeats the purpose of being in business.

What is an Open Listing Contract?

Drawbacks of an Open Listing 1

An open listing contract in real estate is a non-exclusive agreement between a seller and a listing agent or broker. Unlike exclusive listing agreements, where one agent represents the seller, open listings allow multiple agents, brokers, or even sellers to claim the commission if they successfully find a buyer.

It is commonly used by homeowners who want to sell their homes on their own without the expertise of a dedicated listing agent.

An open listing contract provides flexibility for sellers as they are not bound to one particular agent or brokerage. They can work with multiple agents simultaneously to attract potential buyers and secure a successful sale.

However, this type of agreement also has some drawbacks, which we will explore further throughout this article.

  • According to a 2020 National Association of Realtors report, only about 3% of homes sold utilized an open listing agreement. It suggests a preference or higher success rate with other forms of agreements.
  • A survey conducted in 2023 showed that properties listed under open listings took, on average, 14% longer to sell than those listed under exclusive right-to-sell agreements.
  • A real estate industry analysis found that properties with open listings tend to get approximately 20% less exposure than those included on Multiple Listing Services (MLS), which do not accept open listings unless required by law.

The Varied Types of Listing Contracts

There isn't a one-size-fits-all approach when selling property in the real estate market. Different circumstances and preferences call for different types of listing contracts.

In addition to open listings, several other options exist that sellers can consider when deciding how to list and market their property.

1. Exclusive Right-to-Sell: This contract grants exclusive representation rights to one specific agent or brokerage. The agreed-upon commission is payable regardless of whether the seller finds the buyer themselves or if another agent facilitates the transaction. The exclusive right to sell is the most utilized real estate contract.

2. Exclusive Agency: Only one agent has exclusive representation rights with an exclusive agency contract. However, no commission must be paid if the seller finds a buyer independently. The potential for need being paid is the most significant difference between the exclusive right to sell and the exclusive agency.

3. Net Listing: Less common and often controversial, a net listing sets a minimum desired price for the property, and any amount obtained above that threshold serves as the agent's commission. These types of contracts are illegal in many places.

Each type of listing contract has pros and cons that sellers must consider carefully before choosing.

Advantages and Disadvantages of an Open Listing Contract

When selling a property, homeowners have various listing contract options available. Like any other type of agreement, open listings come with their own set of pros and cons.

Open listings allow homeowners to work with multiple agents or brokers simultaneously. This can potentially increase the exposure of their property to a broader pool of potential buyers.

Additionally, since open listings do not require exclusive representation, homeowners may save on commission fees if they find a buyer independently.

However, the lack of exclusivity in an open listing can also lead to limitations. The property may not receive as much attention and dedication from agents prioritizing exclusive listings with guaranteed commissions.

Furthermore, coordinating with multiple agents can be time-consuming and potentially confusing for homeowners.

Why Homeowners Choose Open Listings

So why would homeowners choose to go down the path of an open listing contract? Well, several reasons might lead them in that direction.

For Sale By Owner (FSBO) sellers, who want to retain control over every aspect of their home sale process, often opt for open listings. With an open listing contract, FSBO sellers can actively participate in marketing their property without relying solely on an agent's expertise.

Similarly, some homeowners may prefer not to be tied exclusively to one brokerage or agent. They might feel more comfortable taking charge and exploring different avenues for finding buyers. This independent approach appeals to those with a real estate background who feel confident navigating the selling process.

Lastly, there are situations where homeowners want to test the market before committing to an exclusive listing agreement.

Open listings allow them to gauge interest and assess potential offers without long-term obligations.

For instance, imagine a homeowner who is unsure about whether to sell their property or not. They might try an open listing as a low-risk way of dipping their toes into the market. Sellers can gather information before making a final decision.

While there are valid reasons why homeowners choose open listings, it's essential also to consider the potential hazards accompanying this type of contract.

The Unseen Hazards of Open Listing Contracts

While we have mentioned limited exposure without listing in MLS and lack of attention from agents, there is another potential issue. Commission disputes are far more common.

With multiple agents involved and potentially claiming commission rights, determining who is entitled to receive payment can become complicated and time-consuming. This situation requires oversight and an explicit agreement or understanding between all parties to minimize disputes.

By understanding these unseen hazards associated with open listing contracts, sellers can make informed decisions when selecting which type of listing agreement suits their needs best.

Spotlight on Commission Disputes

Commission disputes are a significant concern arising due to their unique nature. In an open listing scenario, any agent, broker, or even private buyer who brings in the buyer for the property can claim the commission.

Consequently, disagreements over commission entitlement can occur when multiple agents are involved.

These disputes can stem from unclear communication, lack of proper documentation, or different interpretations of the agreement terms. Determining who played a substantial role in finding and securing the buyer can be challenging when multiple parties are involved.

To mitigate commission disputes, sellers and agents must clearly understand how commissions will be determined and allocated in an open listing contract. This should be documented in writing with specific guidelines and criteria for determining commission entitlement.

Working with experienced and reputable agents with a track record of successfully navigating commission disputes can help alleviate potential conflicts. Their expertise in negotiating and mediating such situations can save time and resources.

Ultimately, keeping an open line of communication between all parties involved can prevent misunderstandings and facilitate resolving any potential disputes.

Tips for Navigating the Open Listing Landscape

Navigating the open listing landscape in real estate can be challenging. With some guidance, you can increase your chances of success.

Here are a few tips to help you navigate the complexities of open listings:

  1. Research and Understand: Take the time to research and thoroughly understand what open listings entail. Familiarize yourself with the pros and cons and any legal regulations specific to your area.
  2. Set Clear Expectations: Communication is key when working with multiple agents under an open listing agreement. Clearly define your expectations regarding marketing efforts, showing schedules, and commission arrangements from the outset. This will help avoid misunderstandings and ensure all parties are on the same page.
  3. Vet the Agents: Take the time to vet each agent carefully. Look for experienced professionals with a track record of successful sales in your area. It's crucial to work with agents who are knowledgeable about local market trends. They need to know how to market your property effectively.
  4. Establish a Marketing Plan: While open listings may not offer the complete marketing exposure that exclusive agreements provide, create a well-thought-out marketing plan with each agent representing your property. Discuss strategies such as online advertising, open houses, virtual tours, or targeted outreach to potential buyers.
  5. Stay Involved: Don't assume that once you've listed your property, you can step back and let the agents handle everything. Stay involved by regularly communicating with each agent about showings, feedback from potential buyers, and any updates that may impact the sale.
  6. Track Agent Performance: Keep track of each agent's performance by monitoring their efforts in promoting your property. This could include keeping track of the number of showings, feedback received, and any offers presented. This information will help you assess which agents are actively working to sell your property and who may need additional guidance or motivation.
  7. Seek Legal Advice: Since open listings can be complex and vary depending on local regulations, it's advisable to seek legal advice from a real estate attorney. They can help ensure the agreement is fair, protect your interests, and navigate legal complexities.

Final Thoughts

Remember, navigating the open listing landscape requires proactive engagement and careful consideration.

Following these tips and staying informed throughout the process can optimize your experience. It will also increase the likelihood of successfully selling your property.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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