The commission-based traditionals in real estate are so terrified of the new MLS-entry only limited service business models that they are trying to get state legislatures to battle back limited-service brokers by introducing minimum service levels.

Texas, Missouri, Ohio, Alabama and other states are all in various stages of legislation to rewrite licensing laws to make it happen.

For example, here is Illinois' newest update to their license laws of 2000:

Illinois ILCS 454/15-75 new (minimum services)

Sec. 15-75. Exclusive brokerage agreements. All exclusive brokerage agreements must specify that the sponsoring broker, through one or more sponsored licensees, must provide, at a minimum, the following services:

1. Accept delivery of and present to the client offers and counteroffers to buy, sell, or lease the client’s property or the property the client seeks to purchase or lease;

2. Assist the client in developing, communicating, negotiating, and presenting offers, counteroffers, and notices that relate to the offers and counteroffers until a lease or purchase agreement is signed and all contingencies are satisfied or waived; and

3. Answer the client’s questions relating to the offers, counteroffers, notices and contingencies.

Clearly, limited service or MLS-entry-only service has struck a nerve, and what is jangling the nerve is the exclusive brokerage agreement.

The definition of "exclusive brokerage agreement," according to Illinois statutes is "a written brokerage agreement that provides that the sponsoring broker has the sole right, through one or more sponsored licensees, to act as the exclusive designated agent or representative of the client and that meets the requirements of Section 15-75 of this Act."

In the case of the limited service broker, exclusive brokerage agreements enable a broker to put a seller under contract without providing traditional brokerage services such as presenting offers, assisting with negotiations, screening buyers, or offering compensation to other brokers.

Full-service brokers claim that exclusive right to represent agreements such as those employed by limited service brokers circumvent the intent of licensing laws by allowing the limited broker to skip over the time-consuming parts of the business - providing due diligence.

Buyers' brokers say that many times a seller will expect the buyer's broker to assist with negotiations, explain contractual terms, or assist the seller at closing, even though the buyer's broker isn't being paid to do so. In fact, such help to the seller may be in violation of any brokerage agreement the buyer's broker may have with the buyer.

Many agents grumble that limited service brokers merely enable for-sale-by-owner sellers access to the marketplace of the MLS without being willing to set aside funds to pay a buyer's broker to bring a buyer. In order to make their services appear more attractive, some limited service brokers offer low commission prices to consumers without disclosing the fact that the figure does not include paying a buyer's broker to sell the home. With many buyers reluctant to sign representation agreements, that puts buyers' agents in the position of showing limited service sellers' properties to buyers without a means of getting compensation via the MLS rules should the buyer want the home.

Limited service brokers, such as those whose objections successfully sent proposed agency legislation back to the drawing board in Texas, argue that traditional commission-based brokers don't have the right to limit new service models, and that the consumer should have what the consumer wants.

They also fret that consumers will pay more for limited service because they will have to pay for services they may not want or need in order for the practitioner to meet minimum service standards.

But aren't those minimum service standards already provided by state licensing law? As long as a broker is providing the necessary due diligence, isn't the seller properly informed of the risk/reward of limited service?

In other words, the industry may be courting disaster with these new laws, as they aren't so much telling brokers what they should do, but telling consumers what they must do to use the services of an MLS-member broker.

Surely, there's another way.

Published: January 20, 2005

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