What Is a Net Listing in Real Estate?

What Is a Net Listing in Real Estate?

A net listing is an uncommon type of real estate property listing. There are several types of listings that all real estate professionals should thoroughly understand.

The most popular and widely used types include open listings, exclusive agency listings, and exclusive right to sell listings. An uncommon listing every agent and homeowner should be familiar with is a net listing. Agents and homeowners should familiarize themselves with a net listing to understand the dangers of using this listing. This article reviews what a net listing is, the danger of net listings, and protections against net listings.

Real Estate Net Listing Definition

A net listing is a type of listing in which an owner sets a certain amount of money that they want to receive from the sale of their home. The listing agent receives any amount of money that the property sells for that exceeds the set amount.

A listing agent does not receive a commission for a net listing. Instead, that real estate agent earns anything over the set selling price of the property. Usually, in the sale of a property, real estate agents receive a commission for the property they sell.

Instead of commission, an agent receives the amount of money earned over the seller's set price. This earning potential creates a conflict of interest regarding the listing agent's fiduciary responsibility of putting a client's interest above the agent's.

Net Listing Examples

real estate net listing examples
  1. An agent approaches a homeowner about using a net listing for their property. The agent promises the homeowner that they are guaranteed to make $400,000 on the sale of their home.
  2. The homeowner agrees, not knowing the actual value of their home.
  3. The agent sells the home for $500,000.
  4. Instead of earning the typical 6% commission, which would be $30,000, on the sale of a $500,000 home, the agent earns $100,000.
  5. The homeowner receives $400,000 for their home instead of $470,000.

As you can see, the listing agent and homeowner's interests are not aligned. The listing agent takes advantage of the homeowner and tricks the homeowner out of $70,000.

Protections Against Net Listings

A net listing is illegal in most states because of the obvious lapse in the listing agent's fiduciary responsibility.

All members of The National Association of REALTORS® are banned from selling a net listing. Net listings are forbidden on the Multiple Listing Service (MLS), the home listing service used by real estate professionals.

Selling a net listing in most states is illegal.

Which States Are Net Listings Legal?

State Legal Status
California Listing agents in California must follow the following policy when selling a property through a net listing. "[Net listings] can easily lead to a breach of the agent's fiduciary obligations and should be used only with highly sophisticated clients, or clients who are independently represented and, of course, with full disclosure of all of the conflicts involved."
Texas Listing agents in Texas must follow the following policy when selling a property through a net listing. A "broker may not enter into a net listing agreement unless the principal requires a net listing and the principal is clearly familiar with the current market values of real property."
Florida While a listing agreement is considered to be a binding contract, unless you are represented in the transaction by a qualified Florida real estate attorney, it will not necessarily reflect what is in your best interests.

Written and Published by: VanEd

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