The big picture: Terminating a real estate listing agreement
Listing agreements are traditionally bilateral contracts, meaning that both agent and seller must perform. If the agent performs, typically meaning that your home (as the seller) is sold within a specific timeframe, the agent receives commission. If the agent does not perform, typically in the form of poor communication, little to no marketing, no showings, or generally unethical behavior, then the listing agreement can be terminated.
But, as you might expect, that process is not always easy and deeply rooted in the fine print of contracts. How exactly does one terminate a real estate listing agreement? Let’s walk through the process.
To begin: Understand your specific contract
Most listing agreements will be exclusive agency or exclusive right-to-sell, but there are broadly six types of listing contracts, including open listings, net listings, multiple listings, and more. Each has its own guidelines and steps. For much of this guide, we’re going to consider exclusive agency or exclusive right-to-sell contracts.
Look for the portions of your contract related to cancellations. There will be some language around cancellations, and usually said language will involve:
Notice of fees for cancellation/termination after a certain amount of time
Guidelines for the process of a cancellation
If you have any lawyer friends who have time to scan your contract quickly, especially if their day-to-day practice is highly contracts-driven, that can be a boon.
Once you have an understanding of the fees and the process stipulated in the listing agreement contract, now it’s time to get to writing.
Put in writing why you want to terminate this listing agreement
EMail is typically best, so you have a record. You need this correspondence to be civil and professional and outline the reasons for wanting a termination of listing contract, which can include:
Bad marketing and no exposure
Just go attempt to find your house online. If it takes you more than 10-15 seconds to find the listing, there’s a high probability you have a case for termination. Real estate, like almost every industry in the past 20 years, is rooted in human interaction but driven by technological tools. If the listing isn’t readily available digitally, it speaks to poor performance by the agent. And since these contracts are bilateral, poor performance is a justifiable cause for termination. Bad photographs, which is a subset of overall agent marketing, is another justifiable cause for termination, as photographs unquestionably drive initial interest in a home.
If agents aren’t communicating with you about the status of your home, that’s also indicative of poor performance. Home-selling is often one of the major economic generators for a family. While an agent may have 20 listings, the challenge for them is that all 20 of those listings view their particular sale as crucially important and relevant to their finances. It can become challenging for agents to return calls, texts, and emails promptly, but by being the listing agent, they agreed to do that -- to be an advocate for you in the sales process. If they’re not doing that, you often have cause for termination.
This is rare, but does happen, and usually involves a walking-back of commission rates, or agreeing to something with a buyer that you, as the seller, don’t condone or agree with. It can be a cause for termination.
A few important contractual notes as you draft this first email attempting to terminate the listing
If you are on an exclusive right-to-sell contract, those tend to compensate the agent regardless of how the buyer is found.
On exclusive agency listing agreements, though, the commission can be withheld if the seller finds a buyer on their own.
Commonly, in exclusive contracts, there is a pre-set period (2-6 months, often) where the agreement expires on its own. If your house isn’t sold yet, you can opt for a different agent without penalty.
Also remember that you are often in contract with the brokerage, not the specific agent, so when requesting this termination, you can potentially shift to another agent within the brokerage who you’ve vetted, heard about from friends, etc. An agent shift within the same brokerage is often easier to pull off and palatable to the brokerage, as it doesn’t represent a direct loss of business.
Legally it’s very challenging to shift to a different agent offering lower commission or renegotiate commission with an agent. It varies by terms of contract, but these are tricky waters.
Death, insanity, and bankruptcy of either broker or seller can terminate a listing agreement almost automatically.
If you’ve worked with a realtor and then went for-sale-by-owner (FSBO), you would still need to pay commission if you’re within the window of an exclusive right-to-sell agreement.
Let’s put the termination request in writing now
Sit down and outline out everything you know at this moment, including:
The type of contract signed
The clauses related to cancellations and timing
Information related to fees, which can vary somewhat widely between local areas and contracts
Your observations about agent performance
Screenshots of lack of marketing effort, bad photographs
Any other life events or contexts
Once you have all the key points, imagery, and context for the termination request, write it out. Be respectful and civil. While your lack of a sale to this point may make you justifiably upset, being unprofessional here won’t help you, and will likely get pushback from the brokerage.
At the end of the email, outline a few potential action items, including a face-to-face discussion on agent performance and desired termination of listing agreement, or the potential to shift to another agent in the brokerage.
Give the brokerage a clear follow-up or next step to reassert your trust in them. Brokerages don’t want to lose business and suffer poor word-of-mouth. If your claims are well-outlined and professional, they are going to work with you to make the situation as beneficial as possible.
How does COVID-19 change the landscape of terminating listing agreements?
This will vary by state and contract, but obviously right now you are seeing less potential buyers come through homes. Communication -- which, recall above, is a reason for termination when poor -- is a key here.
Agents have shifted to digital and virtual tours, including utilizing Zoom and Instagram. If your agent is making good faith efforts to get your home in front of buyers even in a “socially-distant” time, it’s likely not a cause for termination.
It is important to look over your contracts because of “force majeure” clause language, borrowed from Napoleonic code. These are “acts of God or nature,” for which a pandemic will often qualify. Some contracts are now seeing COVID addendums, called “permitted delays,” whereby certain events (i.e. inspections) can be adjusted because of broader health concerns.
Get everything in writing
Have your face-to-face with the brokerage and agent (or via Skype/Zoom) and hash out the issues. If you and the brokerage decide on a termination of listing agreement, get everything in writing.
If you opt to transition to another agent in the same brokerage, also get the entire process in writing. Outline where the initial agent underperformed, so that the terms are clear for the new agent. After all, the end goal here is to get your home sold at the best possible value.
Above all else, how can you avoid needing to terminate a listing agreement?
The big buckets in order to avoid it reaching termination would be:
Read the fine print of the contract. Know what you are on the hook for in terms of fees, timing, cancellations, and what constitutes performance or underperformance. Have a lawyer or trusted friend (real estate experience) scan it.
Over-communicate: Explain to the agent what your expectations are from the very beginning. Define the terms of the working relationship. For example, how often do you expect to talk? How quickly do you want responses? Who will be doing the photos of the house? What is the agent’s approach to marketing?
Take a deep breath because of COVID: It’s shifting the market, yes. But many metro areas are reporting more home sales, in part because of the ability to lock in lower mortgage rates. Your house will sell, and will sell for a fair price -- but work with the agent on timing, approach, promotion, and more. You may not get the sale you want immediately, but if you foster the right relationship and wait out some of the tumult of the market (while staying contractually valid), your agent-seller relationship can be super fruitful.
Reach out to us with any questions: We're predominantly in the leasing game right now, but have been in real estate for combined decades, and we can help.