Net listing agreements can shortchange the seller in a real estate transaction. In a net listing agreement the real estate agent is not paid by commission. Instead, the agent and seller agree that the agent will keep any portion of the final sale price exceeding a fixed amount. For instance, in a net listing agreement the real estate agent and seller may agree that the agent will keep any amount of the sale price that exceeds $200,000. If the house sells for $230,000 the agent will keep $30,000 as their compensation. The risk posed by a net listing agreement to the seller is the undervaluation of their home. While an agent owes their client-seller the fiduciary obligations of undivided service and loyalty, there is temptation to undervalue the home and thereby enlarge their compensation from the sale. Using the above example, the agent may tell the seller that the house is only worth $200,000 and therefore $190,000 is a fair fixed price, whereas the home is really worth $230,000. By misrepresenting the true fair market value of the home the real estate agent stands a fair chance of enlarging their compensation. With that in mind, you may want to avoid a net listing agreement in favor of a standard 6% commission structure when selling your home.
By Adam Garcia.