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Dealing with FSBOs and MLS Only or Limited Service Listings
Modern real estate practice can bring agents working for buyers into direct contact with sellers who are not represented or are not represented for the purpose of negotiating and closing a transaction. Typically, such cases arise when an agent is working with a buyer who is interested in a property that is being offered for sale by the owner (FSBO). To represent their buyer client, the agent must deal directly with the unrepresented owner.
A similar situation can arise in cases where the property of interest to the buyer is listed in the MLS but the listing broker and the seller have agreed to limit the services the listing broker will provide. Some listings may involve what are called “MLS Only” listings where the only service provided by the listing broker is placing the property in the MLS. In other situations, called “Limited Service Listings,” the listing broker may provide marketing, forms and other preliminary services to the seller.
When the services being provided to the seller by the listing broker do not include arranging for showing, negotiating the contract or assisting the seller in contract performance, the buyer’s agent can be in basically the same position as when dealing with a FSBO. That is, in order to represent their buyer client, the buyer’s agent must deal directly with the unrepresented owner. MLS Only and Limited Service Listings, therefore, raise many of the same problems as for-sale-by-owner transactions.
Recently, there has been much discussion in the industry about the impact of MLS Only and Limited Service Listings. Many buyer agents feel they are being asked to do the “work” of the listing broker. That is not true any more than it was true that the listing agent’s subagents in other companies were doing the buyer’s agent’s work in the old single agency days of real estate. A buyer’s agent dealing with an unrepresented seller on their buyer’s behalf is no different than a listing agent dealing with an unrepresented buyer on the seller’s behalf.
Problems that arise in FSBO and Limited Service Listings situations have nothing to do with who is doing the most work. The issues raised have nothing to do with what duties a listing broker “should” provide. Attempts in other states to take that road by having the state demand that brokers provide certain minimum services have met with lawsuits, confusion and uncertainty. How to deal with unrepresented sellers is a business issue, not a regulation issue. How to handle the business issues involved is the next topic in this subject.
return to top Potential Problems
There are two potential problems to be aware of when dealing with a FSBO and MLS Only or Limited Service Listings. The first potential problem is handling the commission. The second, and potentially more difficult, problem is handling the increased risk of an unintended agency relationship created by dealing directly with an unrepresented party.
An MLS Only or Limited Service Listing, like any MLS listing, may or may not include a unilateral offer of compensation from the listing broker. If an offer of compensation from the listing broker is made in the MLS, the cooperating buyer broker can treat the commission issue pretty much as they would any other MLS listing. If, however, no offer of compensation is made by the listing broker, and cooperating brokers are instructed to negotiate a commission with the seller, the buyer's agent must treat the situation as they would a FSBO.
The commission issue when dealing with a FSBO, or listings that do not include compensation, has been a source of considerable confusion. Historically, agents have handled the commission issue when dealing with an unrepresented seller by having the seller sign a Aone-party listing. This approach creates a dual agency situation in which the agent represents both the buyer they brought to the sale and the seller. As in any dual agency situation, the risk associated with the transaction is increased.
Most states, and Oregon is no exception, allow a real estate licensee to act as the buyer's agent only even when the commission is paid by the seller. (See e.g., ORS 696.810(1)) It is, therefore, possible for a buyer's agent, when dealing with a FSBO or in a situation where a listing broker is not paying compensation and authorizes negotiations with the seller, to have a commission agreement with the seller that does not include representation. In this way, a single agency situation can be maintained and the risks associated with the transaction reduced.
The legal ability to represent only the buyer while receiving a commission from the seller does not reduce the risk of an unintended agency claim. Such claims, commonly made by buyers against subagents in the days when all licensees represented the seller, are Aimplied agency claims. Under the common law, an agency relationship can be implied from the conduct of the parties. In an unintended agency situation, a principal in the transaction claims an agent's actions lead the principal to reasonably believe the agent was acting as their agent. If the belief was indeed reasonable, the court may find an agency relationship actually existed.
Licensees must be aware of the potential for an unintended agency relationship when dealing directly with unrepresented parties. When dealing with unrepresented sellers, the buyer's agent often performs services, such as providing forms, suggesting solutions to problems, finding information and so on, that could be construed as evidence of an agency relationship. Therefore it is critical that the seller (and the agent for that matter) understand that any actions undertaken by the agent are done for the sole benefit of the buyer even if the seller might also benefit as a result. How to avoid unintended agency claims and collect commissions from someone you don’t represent is the next topic in this subject.
return to top Solutions
Compensation problems are resolved by contract. Although not widely understood, to be entitled to a commission it is not enough to have a real estate license, be an agent of one of the parties, or even to be the procuring cause of the sale. Commissions are due only if there is an enforceable agreement to pay a commission. Listing agreements serve that purpose on the listing side. Ordinarily, the listing broker’s unilateral offer of compensation in the MLS serves the same purpose on the selling side.
In FSBO, and some MLS Only or Limited Service situations (those where no compensation is offered and the listing broker has instructed cooperating brokers to negotiate the commission with the seller), there is no pre-existing agreement to pay a commission. The problem can only be solved by getting the seller to agree to pay a commission before proceeding with the transaction. One-party listings were developed as a way to get the seller to agree to pay a commission.
Because license law allows the seller to pay a commission to an agent representing only the buyer, there is no reason to get a "listing" just to create a commission contract. A simple compensation contract can accomplish the same thing without creating a dual agency situation. Care must be taken, however, when forming such a compensation contract to avoid any chance of an unintended agency claim.
The best way to avoid an unintended agency claim when asking a seller for a compensation contract is to include a Ano agency relationship clause right in the contract. Such a clause spells out plainly the lack of an agency relationship between the agent and the seller. It will also warn the seller that actions taken by the agent that may appear to benefit the seller are being done exclusively for the benefit of the buyer. It is also a good idea to warn the seller that anything they say to the agent will be disclosed to the buyer.
Many companies have developed their own compensation contracts. In many states, the state association publishes such forms. Here in Oregon, there is no published compensation contract. The Oregon Association of REALTORS® has, however, developed a sample compensation contract with a no agency clause. Click HERE for a copy of the sample contract.
It can be tempting for agents to try to solve the compensation issue in their buyer's offer. This is an exceedingly bad idea. Agents are not a party to the sale agreement. This causes agents to state their desired commission in terms of a contingency to their client's offer to purchase. That, in turn, creates a conflict of interest because the seller may reject the buyer's offer based on the commission issue and not the merits of the offer itself. Unless this potential outcome is fully disclosed to the buyer, and they agree to take the risk, making your own commission a contingency of an offer can violate agency duties and real estate license law. It is for this reason that negotiating a compensation agreement, with a clause to deal with unintended agency, is the best way to deal with unrepresented sellers.
Even if the listing broker is willing to pay a coop commission, the problem of unintended agency still exists if the agent must deal directly with a party they do not represent. For instance, in a Limited Service Listing where the listing broker offers a coop commission there is still a chance the seller will come to regard the buyer's agent as their own agent. The only difference is there is no compensation contract with the seller in which to insert a single agency relationship clause.
If there is no compensation agreement between agent and seller, the best way to get single agency relationship language in front of the seller is through an addendum to the buyer's offer. In this case there is no risk of harming the buyer's interest because nothing is being asked of the seller. The seller is simply being advised about the actual agency relationships that exist in the transaction. That is, that the agent will represent only one party in the transaction. Think of a single party addendum as a beefed-up final agency acknowledgment.
As with compensation agreements, many companies have developed their own “no agency relationship” addendums. Such addendums are not yet in wide use in Oregon or other states. The Oregon Association of REALTORS® has, however, developed a sample single party addendum clause. Click HERE for a sample of the addendum.
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