Which type of listing is not legal in some states because it can lead to a conflict of interest?

Definition | Are Net Listings Illegal? | What States Allow Net Listings? | Reasons to Avoid | Alternatives

The final step to hiring a real estate agent to sell your home is signing a listing agreement — a contract that spells out the terms and conditions a home seller and their real estate agent agree to uphold.  

The most common type of listing agreement is an exclusive right to sell listing agreement, which stipulates that your agent will collect a specific percentage of your home’s sale price upon closing. 

But other types of listing agreements exist. A net listing, for one, is a rare type of listing agreement that uses an unusual compensation arrangement. Instead of stipulating a percentage of your home’s sale price, a net listing establishes a fixed sale price — and if your home sells for more, your agent will keep any proceeds above it. 

Read on to learn how net listings work and why they’re illegal in most states.

Have more questions? We always recommend talking to an agent in your area. 

Our friends at Clever can connect you with great local agents. And, if you sell with a Clever agent, you’ll only pay 1% or $3,000 in commission. Find out more!

Key Takeaways

• A net listing is an uncommon type of listing agreement. 
• You’ll set price for your home, and your agent will keep any proceeds above that agreed upon price.
• Net listings are risky and not legal in all states.

What is a net listing? 

A net listing is a type of listing agreement with a unique compensation structure: The agent and seller establish a sale price for the home. If the home ends up selling for more, the agent keeps any proceeds above this agreed-upon price. 

By contrast, in a standard listing agreement, the seller agrees to pay their real estate agent a percentage-based commission (usually around 5-6% of the home’s sale price). This commission gets paid out regardless of how much the home sells for.

Net Listings by the Numbers

Net listings can cause sellers to leave money on the table.

Let’s say your net listing sets your home’s sale price at $200,000. But after receiving multiple offers, your home sells for $250,000. 

Because you agreed to a net listing, you’ll receive $200,000 from the sale, and the rest ($50,000) will go to your agent.

Under a standard exclusive right to sell listing agreement, you would have paid around 6% in commission ($15,000), split between your agent and the buyer’s agent — giving you $235,000 in proceeds from the sale. 

In this scenario, a net listing cost you an unnecessary $35,000.

Are net listings illegal?

Net listings are illegal in most states. 

Beyond state laws, the National Association of Realtors (NAR) forbids its members from using net listings. 

Since most of the two million active real estate agents in the U.S. belong to NAR — which has approximately 1.5 million members — it’s very unlikely that the average U.S. home seller will ever encounter a net listing. 

What states allow net listings?

California, Florida, and Texas are among the states that allow net listings.

However, all three states have established regulations that limit the availability of net listings. For example, California only allows brokers to use net listings with “highly sophisticated clients” who understand the conflict of interest.  

Reasons to avoid a net listing

Even if net listings are legal where you live, be cautious. They carry unnecessary risk that could cost you a significant portion of your home sale’s proceeds.

First, a net listing agreement puts the seller and agent’s interests at odds. If your home sells above the listing price, your agent will take home a bigger paycheck while limiting your opportunity to earn money from the sale. 

By contrast, in a standard, percentage-based commission structure, both parties win with a higher sale price. 

This risk heightens when the seller isn’t aware of their property’s true value. An unscrupulous agent could persuade a seller to accept an intentionally low listing price to selfishly increase their own payday.

Alternatives to net listings

Sign an exclusive right to sell listing agreement

The most common way to sell your home is by working with a real estate agent — most of whom use exclusive right to sell listing agreements. 

Under this arrangement, you’ll work exclusively with one agent who will list, market, and help process the sale of your home. 

In exchange for your real estate agent’s services and out-of-pocket expenses, you’ll pay a commission (usually around 5-6% of your home’s sale price). 

If you want the benefits of working with an agent while saving thousands on commission, our friends at Clever can help. They’ve built a nationwide network of top-rated agents who provide full service for just 1% or $3,000 commission. 

Companies that buy houses

If you need to sell fast or want to avoid the uncertainty of listing on the open market, try one of the two types of companies that purchase homes directly from sellers:

• iBuyers: Available in 30+ cities, typically purchase homes in good condition, and offer close to fair market value
• “We Buy Houses” Companies: Available nationwide, purchase homes in any condition, but only offer 50-70% of fair market value

» READ: Companies That Buy Houses for Cash: Solution or Scam?

For sale by owner 

If you’re an experienced home seller, consider going the for sale by owner (FSBO) route. 

Though FSBO sales are less common (and only represent 8% of home sales), sellers who are prepared to DIY their home sale have plenty of options. 

Most FSBO sellers work with a flat-fee MLS company or low-commission agent to list their home, then handle all the marketing and negotiation solo. 

» LEARN: How to Sell a House Without a Realtor

Recommended reading

Read This Before Choosing a Real Estate Agent: Choosing a real estate agent can feel overwhelming. To help, we gathered the most important questions you should ask before signing on the dotted line — and what you should look for in an agent’s answers.

Tried-and-True Negotiation Strategies Home Sellers Should Try: Want to negotiate but don’t know where to start? Here are 26 common strategies to consider while navigating your home sale.

What Is a Limited-Service Real Estate Agent? Limited-service real estate agents offer fewer realty services at a lower rate. Sounds simple, right? Not exactly. We broke down what you should know before working with a limited-service real estate agent.