The $500 Cancellation Fee

Walter Sanford had a great article this week about small ways to improve the profitability of your real estate business. One of the items that he pointed out is that for a listing cancellation, not to be mistaken with an expired listing, he charges $500 to cover his time and investment in marketing. This approach resonates with me because I take the same approach with tenants in my rental units where I charge a $65.00 service fee if the tenant requires me to come out and replace a light bulb or un-clog a toilet.

Back to the point, your time is valuable and although you need to give your clients the flexibility to get out of a listing contract if their expectations are not being met, you also need to be covered and compensated for the time and money that you invested in this client to help them sell their home. Many agents will spend a few hundred dollars on real estate flyers, real estate letters, marketing tools, listing letters, real estate advertisements and other marketing resources to help your client’s listing sell. If your client chooses not to use you after you have made this investment, but well before the listing agreement has expired, you should be compensated for your time and investment.

When putting together your listing agreement, agree on the duration as always, but negotiate the cost of cancellation with your client. Explain during the sales process that you will be investing X dollars into print advertising and that if they choose to cancel the agreement early they are only responsible for that initial investment in marketing materials and your time. Modify the explanation to describe your specific approach, but overall the message is that your services have a high value and that there are costs associated with selling the home that the client will have to absorb if they choose to back out early.