As the housing market chafes under a lack of inventory, some real estate agents and brokers may be tempted to advertise a property without a written and signed listing agreement in place to avoid having to enter the listing into their local multiple listing service. The National Association of Realtors has some advice: Don’t do it.
During a series of industry updates called “The MLS Hour” at NAR’s midyear Realtors Legislative Meetings last week, NAR senior counsel and director of legal affairs Charlie Lee recounted a true story from a fellow association attorney colleague, Gabe Walsh of the Iowa Association of Realtors.
The story goes like this: The owner of a commercial property wanted to sell the property off the MLS so that he wouldn’t alarm his customers. He made a deal with a listing brokerage he’d worked with before where he agreed to pay the broker a commission if he procured an acceptable offer.
But the agreement was not recorded through a written listing agreement. So, the broker found an interested buyer and performed services, but unbeknownst to the broker, while he was answering the buyer’s questions, the buyer was also communicating directly with the seller. The buyer ended up purchasing the property. The broker believed he was the procuring cause and was due his commission, but the seller disagreed and refused to pay the broker anything.
“The broker then filed a lawsuit, sued the seller for breach of contract [and] ended up losing in court because the court said the parties didn’t have a listing agreement,” Lee said.
“It also didn’t help the broker when it was stipulated amongst the parties that the seller was not any way restricted from marketing his own property.”
Likening this to the common children’s trick of crossing one’s fingers behind one’s back when making a promise, Lee said that was essentially the type of risk some agents and brokers are assuming to avoid MLS policies and rules.
A listing agreement establishes the relationship between a broker and a seller and the terms of that relationship, according to Lee.
This means a listing agreement:
- authorizes the broker to be the seller’s representative selling his or her property
- enables the broker to use property photos, videos, drawings and descriptions to market the property to the public, to put it into the MLS and on the internet, and/or wherever else is suitable
- obligates the seller to abide by conditions and terms that protect the broker, such as exclusivity
- provides a clear basis to pursue legal action if either party breaches the agreement
- ensures that the seller pays the listing broker the negotiated commission for all the work that they did in helping sell the property
“Considering these benefits, it begs the question why a broker or agent would forego or delay the protections provided through a written listing agreement,” Lee said.
“It’s troubling that some brokers have resorted to these tactics at their own peril, just because they want to avoid particular MLS policies and rules. A broker may think that he doesn’t need a listing agreement, until he realizes he did.”
Asked which MLS policies and rules agents or brokers may be trying to avoid, NAR declined to comment. “Charlie was making a general point,” NAR spokesperson Mantill Williams told Inman via email. “We cannot speculate on which rules they might be trying to avoid.”
Because a main function of MLSs is cooperation and compensation between brokers, Inman asked if the rules brokers are trying to avoid had to do with a desire to double-end commissions or to avoid NAR’s contentious Clear Cooperation Policy, but NAR declined to comment.
Regardless of the specific rules at issue, brokers and agents who embrace this tactic are assuming major risks, according to Lee. For instance, they could be breaching their state real estate licensing law.
“Some states require brokers to have a written agreement before they provide real estate services such as posting signs or doing advertising,” Lee said. “Therefore, a broker or agent risks engaging in unauthorized real estate services when operating without a written listing agreement, even if it’s for just a short period of time.”
Lee also pointed out that unless a listing agreement is signed, it shouldn’t be considered an effective agreement. In addition, without a written agreement the broker could have very limited or no legal authority to act as the seller’s representative.
“This means that each and every action and representation that they make would be subject to the seller’s approval; they would have to check with the seller,” Lee said.
Lack of a written listing agreement also leaves the broker open to personal liability for actions by the seller.
“Usually the listing agreement obligates the seller to disclose things such as material defects, and it also requires them to comply with applicable law such as anti-discrimination or fair housing,” Lee said.
“So if either of these fails to occur, and there’s no written listing agreement, the broker could find themselves personally liable for any false representation or illegal conduct committed by the seller.”
Moreover, without a written agreement, the broker may never know if the seller is engaging other brokers or if they are the seller’s exclusive representative.
“The listing agreement defines the relationship and it allows the broker to perform his or her services accordingly,” Lee said.
The listing agreement also commits the seller to pay the full commission as negotiated, according to Lee.
“This means that neither party can modify the commission amount without everyone’s agreement, and it lays out the terms and conditions for how the payment will be made when it’s due and if anything can cause forfeiture,” he said.
Lastly, avoiding or delaying a written listing agreement raises questions about how and why this tactic is serving the client’s best interest, according to Lee.
“If the objective is to protect the client’s privacy, well, this can be accomplished through various marketing strategies, but none of those preclude a written listing agreement,” he said.
“A listing agreement protects the seller because it establishes a fiduciary relationship and requires the seller’s best interests to always be served. It also provides evidence that if the seller chooses to opt out of the MLS, that they’re doing so with the understanding that they’re opting out of all the benefits, which includes the fundamental economic principle that broad exposure provides the best chance for the best price.
“To delay or avoid a written listing agreement invites scrutiny of whose interests are being served. To avoid these risks and many others, signing the listing agreement should be done as early as possible in the engagement. This protects the broker and agent, protects the client and ensures that they are in full agreement with how their property will be sold.”
Given how many misconceptions there are about the value of services brokers and agents provide during a time when some believe an app or an algorithm can replace the expertise and skills of brokers and agents, it’s important to seize the opportunity to tell the story of their value, according to Lee.
“The written listing contract and a buyer’s representative agreement are two effective ways to ensure that consumers have this critical information,” he said.
“If something like a toaster comes with a warranty agreement and documents about how great it is, then undoubtedly brokers and agents or professional experts that navigate complex matters should definitely be doing the same thing.”