PRACTICAL CONCERNS ARISE WHEN AN OLD PRACTICE MEETS A NEW BUSINESS MODEL

Question: Some agents following time honored practice of soliciting listings from owners who are selling their homes on their own have run into the following problem. Agents often identify potential clients from the classified advertisements in the newspapers and the For Sale By Owner ("FSBO") signs on their properties. However some such sellers have already listed their properties with other brokers. The FSBO signs on the property and advertisements in the newspaper do not indicate that the sellers are already represented by another firm. After further research, the agents discover that these sellers have hired firms that offer Menu of Services or MLS Entry Only services. Is the absence of a firm's name from the for sale sign a violation of rules?

Answer: It all depends on whether the seller, or the firm, was responsible for advertising the property for sale. If a real estate licensee submitted the advertisement to the newspaper or provided the signs to the seller, then they may have violated the rules. If the seller handled these activities on their own without any assistance from the firm, then there is probably no violation of the rules. Let's take a step back and walk through the issues to understand what is going on.

A number of brokerage firms are offering a Menu of Services to potential clients. The basic concept is a departure in the practice of offering the client an all-inclusive package of services. Instead, this business model provides the client with the option of choosing which individual services they will receive from the firm. The client may choose to forgo any number of services that they wish to perform on their own without the help of a licensed agent. Under this model each individual service may be given a separate price point and the seller is only required to pay for the services they wish to receive. The most popular variation of this model is the MLS Entry Only listing agreement where a listing agent is only hired to place the listing in MRIS and offer compensation to other cooperating brokers. Under this program the seller does not authorize the listing company to provide other marketing or real estate services.

This model often frustrates real estate licensees who prospect for business by searching for FSBO signs or advertisements in order to identify prospects. Such licensees have argued that the listing broker's sign should be on the property and name should be in the advertisement. These agents often argue that they waste time and money prospecting after sellers who have already signed with another firm or agent. They argue that the state licensing rules and Code of Ethics require that agents put the name of their firm in all advertisements. While the argument is correct under different circumstances, it may be misapplied to these situations.

Under the Code of Ethics, a REALTOR® is required to ensure that the name of their firm is on all advertising that is done by the REALTOR®. This ethical requirement is substantially similar to the state licensing regulations that apply to all real estate licensees. However, sellers are not bound by these ethical requirements or state regulations.

Traditionally, sellers have consented to the listing broker placing the brokerage firm's sign on the property. This reflected the fact that the firm was expected to handle the initial buyer contact and screening process. However, those sellers who hire an agent under a Menu of Services or MLS Entry Only basis may intentionally chose to withhold permission from their agent to perform other advertising or marketing services. In this case the listing agent may not have permission to put a sign on the property or run an advertisement in the newspaper. This is often the case when a seller has declined to pay the additional fees that the listing broker may charge for such activities.

As a general rule, agents may only be held liable for their actions, not the actions of their clients. In these situations it is unfair to hold a real estate licensee responsible for the actions of the client in advertising the property on their own if the agent was not involved in placing the newspaper advertisement or sign.