Updated: Mar 1, 2022
The difference between exclusive and open contracts is a topic that comes up daily. We are asked about the difference between these two types of contracts when signing both buyer and seller clients. It’s frequently asked on social media groups and other online forums.
Simply put, an open contract allows multiple agents to list a property, while an exclusive contract allows just one.
The tough part is understanding which one is better for you. At first glance, it would seem like an open contract would be the better way to go. More agents working for you is good, right? Absolutely! However, having an open contract actually encourages fewer agents to work with you and it also discourages agents to advertise, invest their money and time into your listing.
Let’s imagine that you are an agent. You’ve landed that new client and they have signed an open contract. Congratulation! Since you are a professional agent, serious about your listings, you will spend a few hundred dollars on staging, professional photos, and promotional material including signs and flyers. In about a week you’ll have completed a market analyst and may even be ready to write the listing. You’ll spend a few hours perfecting it, going over some changes with your photographer, and finetuning the details with your client. You’ll connect with your broker, and voila, your listing will go live! At this point, you’ll share the listing on social media, pay for advertising, and possibly profile and feature it on your personal site. You may even write a blog about the area in which it is located to hype up some good publicity.
So what happens if other agents see this lovely listing? Do they contact you? Possibly. Or, they may find out that it’s listed “open”. What great news! They can go directly to the owner and sign their own open contract and gain 100% of the commission. This, of course, is the risk of the agent with the open listing. So the question is, would you spend all of this time and money on a listing that could be 100% lost revenue and lost time? Of course not, and good agents know this. So even though they may list the property, there will be little done to promote or share your listing. They will only share the listing with possible buyers which greatly limits your network and devalues your property.
What happens when an open listing goes under contract? Most likely this means that the open listing agent will be negotiating on behalf of both the buyer and seller. It doesn’t take much knowledge about the industry to know that that creates a conflict of interest. The agent is both trying to persuade the buyer to purchase at the highest price, while they convince you to take their lowest offer. Statistically, this leads to a lower sales price. Subsequently, it’s wise for the buyer to have their own exclusive agent. They will have someone truly negotiating on their behalf. It costs the buyer nothing and the buyer will have confidence that the agent is working for their best interests not only the fastest sale. This will lead to better diligence and they’ll be looking out for the needs of the buyer as well.
Now let’s discuss a scenario where you are an agent with an exclusive contract. You invest your time and money into the listing but now you have a secure return on your investment. You can share the listing on as many networks as possible without worry. You’ll be able to ask other agents and agencies for qualified buyers with whom they have their own contract. Agents will split the commission and thus it’s beneficial for both sides to work together. The buyer’s agent will work towards the lowest available offer, while the listing agent will work towards the highest available offer. In the end, the deal will be fair and both parties will walk away knowing that they have received important personal care. Due diligence will have been completed for both clients with respect to their own needs.
Let’s review the points:
1. Results in higher sales price
By working exclusively we can put the interests of the owner above all else. It gives us the ability to negotiate a sale on your behalf which leads to higher returns.
2. Allows the agent to invest in advertising
When you sign an exclusive contract, we invest in your vision. That means that we spend money on the promotion and exposure of your property. In addition, we qualify our ad campaign through marketing analytics and spend time researching your market.
3. Allows for more agents to work for the owner
With an exclusive agreement, you are giving us the freedom to share your property with as many other agents as possible. Your property will have more exposure because we can share your listing without the risk of losing our commission. It allows agents to collaborate with agencies throughout the city and around the world, whether they are affiliated with RE/MAX or not.
4. Results in better communication
With exclusivity, we are committed to providing you with quality service, keeping you informed throughout the transaction process. We move from becoming a free agent to YOUR agent because we have been hired to work for you.
5. Brings qualified buyers
Buyers are qualified before collaborating agents bring them to your property. This creates an efficient closing process that saves time.
6. Prohibits conflicts of interest
An exclusive agreement prevents possible conflicts of interest because our goals are clear. We are your representative and responsible for the sale of your property at the highest price possible.
7. Allows the agent to create and display promotional material
In addition to online marketing, exclusive contracts allow us the capacity to organize virtual tours, in some cases, an open house, the ability to create printed material, place signs, hire professional photographers, and do anything that will get your property the exposure it deserves.