When you decide to sell a property, there’s a few different ways one can go about the process. For residential property, the two most popular methods of selling are Auction and Private Treaty, with the second option being the more common of the two in Queensland.
A private treaty is when the property is sold via an agent with buyers submitting written offers to purchase the property. These offers can be either conditional or unconditional and the agent will often negotiate the terms of purchase with the buyer on behalf of the sellers.
Within a private treaty though, there are two different authorities the seller can give the listing agent: an Exclusive listing or an Open listing authority.
An exclusive listing means a single agent is given the task of marketing the property and liaising with buyers to procure offers, while an open listing means two or more agents can work independently from one another to sell the same property.
At face value, it would seem the best option for selling your property would be through an open listing authority. After all, more agents selling your home means more advertising exposure, more manpower for your money and a greater sense of competition between agents, thus encouraging them to work harder and bring you a better deal. Right?
As it turns out, this trail of thought is misguided, and can in-fact hinder your chances of selling your property for a premium price. The reason for this can be summed up in one single concept; incentives. Let me explain.
When a person is trying to decide what action to take, in their mind they will weigh up the costs and benefits of each action, and they will only choose an action which yields the greatest benefits to them for the least amount of cost. In economics this is referred to as the ‘Cost-Benefit Principle’.
In an exclusive listing authority, one agent has the task of selling the property. If that agent wants to be rewarded (i.e. paid) for their efforts, they need to work tirelessly and smartly in order to achieve this. In other words, if the agent puts in enough time and energy (cost), the reward of being paid (benefit) would be worth this extra effort. Crucially though, the benefit is guaranteed if the cost is paid – the agent will be financially rewarded should they work hard enough.
Conversely, an open listing has multiple agents selling the same property. Each agent still needs to work hard to reap the benefits of being rewarded, however this benefit is no longer guaranteed.
An agent could work for weeks or months on end negotiating with buyers to present the best offer to the seller. However if one of the other agents comes in at the last second with a better offer from another buyer, and the seller accepts this offer, then all the work the first agent did would have been in vain. As a result, agents in an open listing authority have fewer incentives to work hard for the seller when compared to an agent in an exclusive listing authority. This means less time and effort is spent on selling the property, leading to a lower chance of the seller achieving the highest sale price possible.
In addition to the incentive dilemma, an open listing authority can also leave the seller exposed to being taken advantage of by savvy buyers. These buyers will contact one agent selling the property and negotiate the best deal for themselves with this one agent (lowest purchase price and favourable conditions). Once they’re satisfied they have the best deal from one agent, they’ll contact the next agent and repeat the process.
In the end, the buyer will submit their offer with the agent they got the best deal with and walk away if the seller doesn’t accept. If the seller does accept, they are almost certainly accepting a price less than the maximum that buyer would have offered for their home.
In an exclusive listing buyers only have one avenue to go down, and if they really want that property they will have to deal with only one agent that the seller has handpicked to represent them. If they employ a strong agent, the sellers will retain greater control over the quality of offers they receive from buyers and safeguard the true value of their home.
Closing Thoughts
While it may seem logical and beneficial to employ multiple agents to sell a property via an open listing authority, there are pitfalls to this arrangement which may not be immediately clear.
If any seller wants to have the greatest chance of selling their home quickly and for top dollar, they should employ one agent who is guaranteed to work hard and will protect the integrity of the seller’s price expectations.
Thanks for reading this issue of my blog, come back next time for more property insights and perspectives!
Joseph Riga Real Estate 