Important points
Online listings can create serious conflicts of interest as agents may put their personal interests ahead of the seller’s best outcome.
They are illegal in most states, but only a few states, including California, Texas, and Florida, allow them under strict regulations.
Violating online listing laws can result in severe penalties, including license revocation, lawsuits, and fraud charges.
Safer options such as standard commissions and sellersnet sheets offer clearer, fairer and more transparent compensation structures.
When selling a home, one of the most important decisions a property owner will make is the type of listing agreement they will enter into with their real estate agent. While most sellers are familiar with the standard commission model, there is another, more controversial option called net listing.
Although online listings are rare and even illegal in most states, they are occasionally featured as an alternative method of compensating real estate professionals. However, they involve significant legal, ethical, and financial risks, and understanding them is essential. So whether you’re looking for a home in San Diego, California, or a home in Chicago, Illinois, this Redfin real estate guide will break down what netlisting is, why it’s controversial, and whether it’s the right choice in today’s market.
What is netlisting?
Net listing is a type of listing agreement where the seller sets the final price and the real estate agent keeps any amount above that price as a commission. The broker’s commission is the difference between the minimum amount, known as the “net” amount, and the actual selling price.
So, essentially, the seller sets the final price and the real estate agent keeps any amount over that price as a commission. While this model is attractive for sellers who need to clear a certain amount from a sale, it creates the potential for a conflict of interest and is highly controversial.
How net listing works
The structure of an online brokerage contract is simple in theory, but complex in practice. Typical behavior is:
Seller sets reserve price: Homeowners decide the lowest amount they will accept for the property. Brokers aim for higher selling prices. Real estate agents market real estate and negotiate with buyers. Commission equals the difference: Any amount above the seller’s minimum price is the broker’s commission.
example:
Suppose a homeowner signs a net listing agreement with a broker.
Net price (minimum amount requested by seller): $500,000 Final sale price: $575,000 Brokerage fee: $75,000
While this may seem like a win-win, with the seller getting the desired price and the intermediary incentivized to negotiate a higher sale price, the potential for abuse of this model is significant.
What makes netlisting so controversial?
Despite its simple structure, net listings are controversial and often discouraged for reasons such as:
1. Conflict of interest
In online listings, the broker’s financial profit is directly related to how much he can secure above the seller’s reserve price. This creates a situation where brokers may put their own interests ahead of those of the seller. In some cases, brokers may even block offers near net price to encourage a higher sale, which can delay the sale or reduce competitive bidding.
2. Possibility of unfair trade practices
An inexperienced seller may not know the fair market value of the property. If the net price is set too low, the agent may sell the property too quickly without necessarily maximizing the seller’s profit and earn high commissions, sometimes in the tens or even hundreds of thousands of dollars.
3. Limited exposure
Due to their structure, net listings generally cannot be posted on the Multiple Listing Service (MLS). This means the property may have limited exposure to potential buyers, potentially leading to fewer offers and a lower overall sales price.
4. Unpredictable costs
Unlike gross listings (standard commission model) where the seller knows the percentage they will pay, net listings can result in a much higher commission than expected if the property sells for more than expected.
Consumer protection and legal status
One of the most important things to know about netlisting is that it is illegal in most states. Regulators consider them inherently risky and susceptible to abuse, so most jurisdictions ban or severely limit them.
States where online listing is legal (conditional)
In some states, online listings are legal but highly regulated, often requiring sellers to be experienced or represented by an attorney, to explicitly request online listings in writing, and to fully disclose the market value of the property and the agent’s potential compensation.
The table below shows some states where netlisting is allowed by law. In all other states, they are completely banned due to ethical concerns.
STATE STATUS CONDITIONS CALIFORNIA LIMITED LAW Seller must be knowledgeable and provide express consent. Limited Texas Legal Brokers must act in the best interest of the seller and disclose market prices. Florida Rare but possible Must follow strict disclosure and consent rules.
Legal consequences of violating online listing laws
Signing or executing a netlisting agreement in an illegal state can have serious legal consequences for both agents and sellers. These may include:
Loss of license: Real estate professionals caught using online listings illegally risk having their license revoked or facing disciplinary action from their state real estate commission. Civil Liability: Sellers can sue their broker if they believe they were misled, underpaid, or deceived through online listings. Voiding the contract: The court will completely void the netlisting agreement, leaving both parties with no legal recourse in the event of a dispute. Criminal charges: In extreme cases, such as fraud or misrepresentation, brokers can be subject to criminal penalties.
Because of these risks, most brokerages have internal policies that completely prohibit online listings, even in states where it is technically legal.
Comparison of online listing and public listing and other contracts
It’s worth understanding how net listings compare to other types of listing agreements. The most widely used listing agreement is an exclusive rights listing. In this case, the agent earns a fixed commission regardless of who sells the property. Other common options are:
Open Listing: Multiple agents can sell a property and only the agent who brings the buyer receives the commission. Exclusive agent listing: Sellers can avoid paying fees if they find a buyer themselves. Gross Listing (Standard Commission): The brokerage commission is a pre-agreed percentage of the sales price.
Compared to these, online listing stands out as the least predictable and legally most complex option.
Tips for navigating online listing agreements (if legal in your state)
If you live in one of the few states where netlisting is legal and you still want to consider this option, take these important steps to protect yourself.
Hire a lawyer: Always consult a real estate lawyer before signing any online listing agreement. Get a Market Appraisal: Get an independent appraisal or Comparative Market Analysis (CMA) to understand your home’s true market value. Set a realistic net price. Don’t set your floor price too low. This is where sellers lose the most money. Include commission caps: Negotiate a maximum percentage of commissions to limit agent earnings. Demand full disclosure: Demand transparency about the buyer’s offer, marketing strategy, and broker’s expected commissions.
Is online listing the right choice for you?
For most sellers, the risks of online listing agreements outweigh the potential benefits. However, in rare cases, it may be worth considering having strong legal representation, such as when the seller is experienced, understands the value of the property, and wants to guarantee a certain net return.
Before signing a contract, be sure to consult a real estate attorney to understand state laws, consider comparable sales to estimate the property’s fair market value, and ask about alternatives to ensure you are choosing the most transparent and fair compensation structure.
Alternatives to online listing
If you’re concerned about the risks of online listings, consider safer and more transparent alternatives. A standard commission agreement provides a clear, fixed percentage of the sales price and ensures that both seller and agent share the goal of achieving the highest market value without hidden incentives.
Another option is a seller’s net sheet, which provides a detailed estimate of expected revenue excluding expenses and fees. This tool provides transparency and trust throughout the sales process, helping you understand your returns up front, without creating potential conflicts of interest that are common with online listing agreements.
Frequently asked questions about online listings
In which states is online listing illegal?
Most US states prohibit online listings due to concerns about conflicts of interest. Exceptions include states such as California, Florida and Texas, which allow it under strict conditions. Check your state’s real estate commission website.
What is an example of a net listing agreement?
If the seller sets the net price at $500,000 and the property sells for $575,000, the agent’s commission will be $75,000.
Why is online listing illegal?
Broker fees are directly related to the difference between the sale price and the net price, increasing the potential for unethical behavior and conflicts of interest.
Is netlisting allowed in MLS?
In general, no. Properties under online listing agreements cannot be listed on the MLS, limiting the buyer’s exposure.
Can I save on fees by applying for online listing?
Not necessarily. In fact, you could end up paying more than you would with a standard fee structure.
