A new business model which provides FSBO-minded sellers access to local MLSs has the industry both defending traditional service models and embracing the competition.

Just this week, the Texas Real Estate Commission (TREC) passed new rules, which must undergo a 30-day public comment period before being adopted at the next meeting scheduled for April 25th. Among the rules' provisions are outlines of minimum negotiation services that brokers must provide to principals and an admonition to brokers that they may not 'instruct or authorize another broker who represents another party in the transaction to negotiate directly with the principal.'

Among other reasons, it's the MLS-entry-only broker leaving the garbage bag of uncompensated work and potential liability on the step of the buyer's agent that inspired the rule and near unanimous support at the TREC meeting.

'The support is based on the simple premise that a failure to meet minimum standards is a violation of state law and a failure of fiduciary responsibility,' explains Bill Miller, spokesperson for the Texas Association of Realtors. 'The supporters of the rule strongly believe that Realtors, when executing their duties, must meet the letter of the law and perform their fiduciary responsibility. In short, it is widely and strongly supported because it underscores the serious responsibility Realtors feel about professional standards and conduct.'

While dissension has been minimal, namely from one MLS-entry-only broker, it has received a disproportionate share of publicity from sympathetic media. Aaron Farmer, principal of Texas Discount Realty, a firm that offers MLS Entry-only and other levels of service, has vowed to Realty Times to keep the Federal Trade Commission interested in the proceedings.

Responds Miller, 'Mr. Farmer does not speak for the FTC. To our knowledge, they have no interest. With respect to the rule's implementation, we do not foresee obstacles to the rule's adoption. The rule is based on Texas law and is affirmed by the Attorney General. It would not have passed muster in the state legislature and scrutiny by the Attorney General otherwise.'

The National Association of Realtors has also been inundated with questions about how to handle MLS-entry-only listings where they exist. The organization's stand is that it is a state regulatory issue. MLS-entry-only brokers are welcomed to operate their businesses as long as they meet minimum service standards as required by state licensing laws. Texas' new rules, are in fact affirmations of existing licensing rules, say spokespersons.

'The Q&A identifies the problems and concerns of members working with buyers,' says Laurie Janik, general counsel to the NAR, 'and offers our best advice on how to cooperate in the sale of these listings.'

The questions were received at NAR's November 2004 Risk Management and License Law Forum as follows:

1. Does a buyer's representative have to show properties listed by MLS-entry-only brokers?

   So long as the buyer's representative makes the decision unilaterally and acts consistently with any duties he, or she has to her buyer-client, she does not have to show the buyer properties that are listed by any specific broker. Please note, though, that Article 1 of the Code of Ethics requires REALTORS® to protect and promote the interests of their clients.

2. When an MLS-entry-only broker offers minimal compensation on a listing, can a buyer's representative lawfully warn the seller that other agents may not show his property?

   No. Doing so could imply that a group boycott, unlawful under the anti-trust laws, exists.

3. Limited service business models that publish listings of residential property on an MLS, often leave the buyer's agent assisting the seller in order to attain the end result of a sale. That assistance can be implied or interpreted by the seller as an agency relationship, which thus can create undisclosed dual agency. What is the remedy for this?

   The remedy is full and timely disclosure that creates appropriate expectations on the part of all parties.

4. How should a buyer's representative counsel his buyer about properties listed by MLS-entry-only brokers?

   The buyer's representative should counsel his buyer/client in the same way he would about any property, keeping in mind the best interests of his buyer/client. In addition, the buyer's representative should counsel the buyer about compensation issues if there is a representation agreement that obligates the buyer to pay her representative's commission if the seller's agent or the seller doesn't.

5. What disclosures should the buyer's representative make to a seller represented by MLS-entry-only brokers?

   A buyer's representative should tell the seller that she only represents the buyer and cannot advise the seller about the value of their property, about negotiation strategies, or about anything else that might be contrary to the interests of the representative's buyer/client. The buyer's representative should also suggest the seller contact the listing agent if the seller needs additional guidance.

6. What should an MLS-entry-only broker tell her seller/client about what the seller should or should not ask of the buyer's representative?

   The MLS-entry-only broker should make sure that the seller understands what services the MLS-entry-only broker will and won't provide, and that the buyer's representative will not represent the seller.

7. How can a buyer's representative avoid becoming a dual agent when the seller, who is represented by an MLS-entry-only broker, asks him questions or for other help?

   The buyer's representative should carefully and quickly disclose her agency relationship with her buyer/client, refuse to provide any service offered by the seller's listing broker, and refer the seller to his listing broker.

8. How can one reconcile telling the seller to seek legal advice, or other professional advice without creating dual agency?

   Simply suggesting that a party seek professional advice does not, by itself, establish an agency relationship with a consumer.

9. Can a buyer's representative solicit a seller exclusively represented by an MLS-entry-only broker for his listing?

   Not unless the seller initiates discussion of this possibility. Please see Standard of Practice 16-6.

10. Could business cards be considered a solicitation of a listing when a buyer's representative leaves one at a home he has shown to a buyer?

    The answer depends on more facts than are stated here. The facts must be reviewed on a case-by-case basis. It should also be noted that some MLSs require participants and subscribers to leave business cards in the property following showings, so sellers and listing brokers will know who has been in the listed property.

11. How can a buyer's representative avoid problems regarding her compensation when the seller is represented by an MLS-entry-only broker?

    The buyer's representative should disclose on a timely basis, to both buyer and seller, what she will do and how she is to be compensated.

12. Why can't a buyer representative ask a seller who is represented by an MLS-entry-only broker for a fee for additional services the buyer's representative may provide in order to complete the transaction?

    The buyer's representative cannot provide any service that would interfere with the listing broker's exclusive relationship with the seller. If the buyer's representative does not know the scope of the agreement between the listing broker and the seller, he may inadvertently interfere with the listing broker's exclusive relationship. If the buyer's representative knows that particular services are not being provided by the listing broker, he may contract with the seller to provide those services for a fee, but doing so may create dual agency.

13. How can an MLS-entry-only broker inform a buyer's representative that a seller is willing to pay a commission, without incurring liability to pay the buyer's representative directly if the seller fails to do so?

    It is not possible for a listing broker to use the MLS to communicate offers from anyone other than himself. The listing broker is responsible for paying any commission he communicates via the MLS. Information about a seller's willingness to compensate buyer representatives must be communicated outside of the MLS.

14. What can an MLS-entry-only broker do to ensure that a seller pays the agreed-on commission to the buyer's representative?

    There are two options here: First, the purchase agreement could provide that the seller will pay the buyer representative's commission and that it will be disbursed at closing. Alternatively, there could be an agreement between the seller and the buyer's representative obligating the seller to pay the buyer representative's commission.

15. If a listing broker offers amounts of compensation that differ from one cooperating broker to another, how should that amount be disclosed on the MLS?

    If a listing broker wishes to offer compensation that varies from what is published in the MLS, he must do so by private communication outside of the MLS.

16. When a buyer's broker agrees, during her negotiations with a seller represented by an MLS-entry-only broker, to reduce her amount of compensation, can she seek the original amount of compensation from the listing broker after escrow closes?

    No change in the compensation to be paid by the listing broker to the cooperating broker can come about without the agreement of the listing broker.

17. Do MLS rules prohibit the following? Broker A, an MLS-entry-only broker, offers compensation that is minimal (for example, $100). Broker B, a cooperating broker, then notifies Broker A that the compensation Broker B's firm will offer to Broker A's firm, when its agents sell Broker B's listings, will mirror Broker A's offer (in other words, $100), despite anything to the contrary stated in the MLS.

    A broker may offer any amount of compensation, so long as the amount is unilaterally determined. Compensation offers published in MLS must be clear and unambiguous. Thus "reciprocal” or "I'll pay you what you pay me” are not acceptable. Listing brokers who want to vary their compensation offers from what is published in MLS must do so by separate written communication to other participants.

18. Does a buyer's representative have any duties to a seller who is represented by an MLS-entry-only broker?

    The buyer representative's duties are the same as they would be if the seller were represented by a full-service broker or were selling the property without an agent: to be honest.

19. Does anything change if the buyer's representative is acting as a transaction broker or in another non-agency capacity?

    No. Transaction and other non-agency relationships still impose duties to protect the interests of the party with whom the transactional agent is working.

20. What should a buyer's representative do when she needs to talk with an MLS-entry-only broker who is not cooperative?

    There is little a buyer's representative can do to force an MLS-entry-only broker to communicate. The MLS-entry-only broker's duties are governed by his contractual relationship with the seller.

21. Who is responsible for notifying a seller's MLS-entry-only broker that the seller has accepted an offer? That escrow has closed?

    The seller has the responsibility for such notification. The buyer's broker may choose to provide the MLS-entry-only broker with this information, but has no responsibility to do so.

22. If a buyer's agent is not able to quickly present an offer to the seller, who has liability for any negative consequences?

    It depends on why the delay occurred. If any party acted negligently, that party has potential liability.

23. Can a buyer's representative present an offer directly to a seller who is represented by an MLS-entry-only broker?

    Yes, if the listing broker has indicated that cooperating brokers are authorized to deal directly with the seller.

24. Should listing brokers have the same concerns about working with buyers who are not represented as buyer's representatives, how about working with sellers who are represented by MLS-entry-only brokers?

    Yes. Listing brokers should take care not to inadvertently create unintended relationships with buyers.

25. Can the MLS define a minimal level of services that an exclusive agent must provide?

    No. State laws and regulations control.

26. Can NAR establish a minimum level of services that licensees must provide to clients?

    No. Again, state laws and regulations control.

27. Has the new Illinois law, which requires brokers in an exclusive relationship to provide a minimum level of services, caused MLS-entry-only brokerages to be illegal? If so, is this an illegal restraint of trade?

    No. In Illinois, MLS-entry-only brokers may have to increase the services they provide to ensure their agreements rise to the level of exclusive listings.