For as long as anyone can remember the only form of listing allowed in local MLS systems has been the "exclusive right to sell" agreement.

With an exclusive-right-to-sell listing a broker knows that if the property is sold within the listing term he will receive a commission -- even if the property is sold to a buyer found by the owner.

There are, however, other forms of listings. For instance:

An "open" or "general" listing means a broker has a right to sell a property, but not exclusively. An owner can grant open listings to 30 brokers and still offer the property for sale by himself. When the property is sold open listings end automatically.

An "exclusive agency agreement" means that only one broker can list the property, however the owner still reserves the right to sell directly and without paying a fee.

The FTC has now settled with five MLS systems that did not allow brokers to post listings with anything other than exclusive-right-to-sell listing contracts. From this point forward exclusive agency agreements can be used with MLS systems based in Loveland, CO; Concord, NH; Williamsburg, VA; Appleton, Oshkosh, and Fond du Lac, Wisconsin; and Monmouth and Ocean Counties in New Jersey. Two Michigan MLS systems that did not agree to the FTC proposals face administrative complaints, matters that will be contested in the court system.

The instant media reaction to the FTC announcement is that consumers who use discount brokers will now have greater access to MLS systems. The reason is that discount and flat-fee brokers often use exclusive agency agreements rather than exclusive-right-to-sell contracts. By requiring MLS systems to carry exclusive agency listings, listings through discount and flat fee brokers are expected to gain greater exposure.

While discount brokers have been the focus of the FTC action, the actual impact is different.

First, the new settlements do not say that only discount brokers can enter exclusive-agency listings into local MLS systems, all member brokers can post such listings. This means that one of the attractions of working with a discount and flat-fee brokers -- the ability to both list a home and yet retain the right to sell it yourself -- will now become commonplace. In effect, discount firms and flat-fee brokers will be losing a perceived marketplace distinction, something that helps them compete more effectively with traditional brokers.

Second, exclusive-right-to-sell agreements are often mislabeled. For instance, Broker Smith may have an exclusive-right-to-sell agreement to market the Jones property. However, owner Jones has reserved the right to sell the property without a commission to Thompson, Flowers and Thuman. If this is the case -- and it happens commonly -- then the exclusive-right-to-sell listing is simply not exclusive. The owner can sell directly to named individuals and not pay a fee. In effect, a nonexclusive exclusive.

Third, the great oddity of the FTC initiative is that it will result in fewer sales by self-sellers.

Self-selling sounds great. We all like to save money. Self-selling in some sense has become easier with forms and information posted online. Online pricing data helps consumers better value their properties for sale.

But in practice self-selling is increasingly less feasible. A proper and reasonable urge to defend buyers has resulted in a huge array of consumer protections. Caveat emptor -- buyer beware -- is dead. The onus to get transactions right falls increasingly on home sellers. The unintended by-product of real estate consumerism is that sale agreements now resemble international treaties in terms of size, scope and complexity. Moreover, many if not most buyers today have some form of buyer representation.

The result is that owners cannot just download a generic sale agreement and complete a real estate sale. You need the right form for a particular jurisdiction. You need disclosure forms. You need to understand what the forms mean. You need to comply with local rules. You need to know that your buyer is financially qualified. You need to hold a deposit in an escrow (trust) account. You likely need to deal with a buyer broker.

For most homeowners, self-selling is both attractive and implausible. Because self-selling has become so unlikely, traditional brokers will eventually offer exclusive agency agreements knowing that the odds of a seller completing a transaction without the broker are minimal.

What many discount and flat-fee brokers really do is provide direction in the increasingly-complex world of home selling. There's a need and value for such services. As to how services are priced or what package of services are offered, brokers are entirely free to price anyway they please and to offer any package of services that they think will bring marketplace success.

In effect, the old either/or options of self-sell or sell through a broker have now been joined by what appears to be a third choice, the broker-assisted sale. In fact, a broker-assisted sale is merely a brokered transaction -- if that were untrue then brokers would not be getting a fee.

There's little doubt that exclusive-agency listing agreements will become more common in the next few years -- and there's also little doubt that at the end of the day brokers will still be in the center of the transaction. Why? Because the same consumer concerns that ended "buyer-beware" marketplace standards virtually mandate the need for listing brokers.

Whether the FTC effort will produce a significant shift to discount brokerage either in specific local markets or nationwide is unknown. It will be interesting in a few years to look at the data and see if self-selling volume increases and if discount and flat-fee brokers gain market share.

For more articles by Peter G. Miller, please press here.

Published: October 24, 2006

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