What Is a Net Listing in Real Estate?

In the world of real estate, there are various types of listing agreements between sellers and their agents. One less common, and somewhat controversial type, is the net listing. Understanding what a net listing is and how it works can help you decide if it's the right choice for your real estate transaction.

Definition of a Net Listing

A net listing is a special kind of deal in real estate where the person selling the house decides on the lowest amount of money they want to get from the sale. This amount is called the "net price." If the house sells for more than this net price, the extra money is what the real estate agent gets paid. So, the more money the agent can sell the house for above the net price, the more money they make. It's like a game where the agent's goal is to sell the house for as much as possible to earn a bigger reward.

How Does a Net Listing Work?

Imagine a homeowner decides to go for a net listing when selling their house. They set the net price at $300,000, which is the minimum amount they want to end up with after the sale. In this agreement, the real estate agent's pay is based on how much they can sell the house for above that net price.

For example, if the agent finds a buyer willing to pay $350,000 for the house, the agent would earn a commission of $50,000. This is because the selling price is $50,000 more than the net price, and in a net listing, that extra amount is the agent's commission.

On the other hand, if the agent can only sell the house for the net price of $300,000, they wouldn't get any commission at all. This is because there's no excess over the net price. So, in this scenario, the agent's motivation to sell the house for more than the net price is very high, as their earnings depend on it.

Pros and Cons of Net Listings

Pros:

• Motivation for the Agent: Since the agent's commission is based on the selling price above the net price, they may be more motivated to get the highest possible price for the property.
• Flexibility for the Seller: Sellers can set their desired net price, ensuring they receive a minimum amount from the sale.

Cons:

• Potential for Conflict of Interest: The agent might prioritize their commission over the seller's best interests, possibly leading to ethical dilemmas.
• Marketability Issues: Setting a high net price might limit the pool of potential buyers, making the property harder to sell.
• Legal Concerns: Net listings are illegal in some states due to the potential for unethical behavior and conflicts of interest.
• Net listings are not allowed on the MLS databases.
• Lack of Realtors: Over 70% of realtors are members of NAR. However, the organization does not allow realtors from offering net listings.

States Where Net Listings Are Allowed in Real Estate

Net listings are not allowed in many states due to the potential for conflicts of interest and ethical concerns. However, there are a few states where net listings are still legal. As of the writing of this blog, these states include:

• Texas
• California
• Florida
• Colorado

Is a Net Listing Right for You?

Before considering a net listing, it's important to weigh the potential benefits against the risks. Consult with a real estate professional or legal advisor to understand the implications and ensure that your interests are protected. While net listings can offer advantages in certain situations, they're not suitable for every seller or every market.

Final Thoughts

Net listings in real estate are a unique arrangement that can offer advantages, but also come with significant risks. Understanding the dynamics of this type of listing can help you make an informed decision about how to sell your property. Always seek professional advice to ensure that your real estate transaction aligns with your goals and complies with local regulations.

‍