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May 28, 2004
Over the course of the past few years, many MLSs, as well as their brokers ("participants") and agents ("subscribers"), have had an increasing number of questions and concerns about limited service brokers/limited service listings and open listing in the MLS. This legal article addresses this subject and some of the related issues.
Q 1. What is a "limited service broker"?
A "Limited service brokers" are licensed brokers who offer their sellers little or no property marketing services other than submitting the property listing to the multiple listing service ("MLS"). For this service, the broker receives a fee from the seller, which may be paid at the time of listing or at the time of the closing. The listing commonly also provides that the seller will pay a fee to any cooperating broker involved in the sale of the property. Because they do not offer the full range of services that a full service broker would, they have been designated "limited service brokers." This characterization is not intended and should not be understood to demean or criticize this practice, but only to distinguish the practice from more traditional real estate services that might commonly be known as "full service" listings.
Q 2. Is the MLS required to accept limited service listings?
A Yes. To be in compliance with the National Association of REALTORS® ("NAR") MLS policy, MLSs are required to accept listings that under state law are legal exclusive right-to-sell or exclusive agency listings and that offer compensation to cooperating brokers. UnderCalifornialaw, MLSs are required to accept not only exclusive right-to-sell or exclusive agency listings, but are also required to accept open listings, which are discussed in Questions 5 and 6 below.
Q 3. So what exactly is required for a listing to be eligible for MLS submission?
A Under the C.A.R. Model MLS Rules (which combine the requirements of both NAR policy and California law), there must be (i) a written listing agreement in place between the listing broker and the seller (and the MLS is entitled to see it); (ii) some form of an agency relationship (even if limited in scope to MLS submission only) between the listing broker and the seller that will be in place for the duration of time the listing is on the MLS; and (iii) an offer of compensation to be paid to cooperating brokers in the form of a percentage of the gross selling price or a definite dollar amount (But see certain exceptions to (iii) as discussed in Questions 6 and 7 below).
Q 4. Can an MLS reject a listing that provides that the cooperating broker will be paid directly by the seller, rather than by the listing broker?
A No. Excluding from the MLS listings that meet the MLS requirements described above would present potential antitrust concerns. It would be inappropriate for an MLS to reject a listing simply because the listing agreement provides that the compensation to be paid to the cooperating broker will be paid directly by the seller, rather than by the listing broker. Nonetheless, however, the MLS is a broker-to-broker offer of compensation system. An offer to compensate cooperating brokers is made through the MLS by the listing broker, and the listing broker is ultimately obligated to pay (and to arbitrate a dispute over) such compensation.
Q 5. What is an "open listing"?
A An open listing is one that by definition is non-exclusive where the seller agrees to compensate the listing broker only in the event she procures a buyer on the terms authorized by the listing, or accepted by the owner, before the property is otherwise sold either through another agent or by the owner directly and before the listing expires by its terms or is revoked. As already stated above, MLSs inCalifornia must accept open listings.
Q 6. Since the MLS is a "broker-to-broker" offer of compensation system, why is an open listing in my MLS that is not offering any compensation to cooperating brokers?
A Under California law, an open listing is not required to specify any compensation to the cooperating broker, but may state that the compensation is to be negotiated between the cooperating broker and the owner.
Q 7. In addition to an “open listing," are there any other “exemptions" to the requirement that a listing in the MLS state an offer of compensation to be paid to cooperating brokers in the form of a percentage of the gross selling price or a definite dollar amount?
A Yes. Listings that fall within the categories of Estate Sale, Probate, Bankruptcy and Lender Approval Listings (i.e., short sales) have slightly different protocols for offering compensation. (See C.A.R. Model MLS Rule 7.15)
Q 8. How is an Open Listing different from a Limited Service Listing?
A An open listing goes to the scope of agency while a limited service listing speaks to the scope of services that will be provided. For instance, a broker could have a limited service listing that is an exclusive right of representation, so open listings and limited service do not always go together. But, often when in a cooperating role in an open listing or limited service transaction, a cooperating broker will be working directly with the seller.
Q 9. What are some of the things I can do to better manage risk when on the cooperating end of a limited service transaction or open listing?
A One of the biggest risks for a cooperating agent in this situation is the potential for becoming an inadvertent agent for the seller. You will want to make it clear to the seller that, even though you may perform some tasks ordinarily done by the listing agent, you are not his agent but are performing them for the exclusive benefit of your buyer. To assist you in this regard, through its Standard Forms, C.A.R. has created the "Seller Non-Agency Agreement" (SNA) [C.A.R. has also created a “Buyer Non-Agency Agreement” (BNA) which would apply in other scenarios].
Q 10. Working on the cooperating end of a limited service listing may require me to perform additional duties beyond what I would ordinarily perform when working with a "full service" listing. How will I know at the outset if a listing in the MLS will be less than full service?
A Because cooperating brokers who sell the listings of such limited service brokers may find it necessary to perform duties ordinarily performed by so-called "full service” brokers, an MLS, in its discretion, may adopt a "disclosure rule" where limited service listings are identified in the MLS. To that end, C.A.R. includes such a disclosure rule in its Model MLS Rules. These Model "Scope of Service" Rules (7.2.1 and 7.2.2) require a listing broker to disclose in the MLS if he or she will not perform some or all of the following tasks:
(a) provide cooperating brokers with any additional information regarding the property not already displayed in the MLS but instead gives cooperating brokers authority to contact the seller(s) directly for further information;
(b) accept and present to the seller(s) offers to purchase procured by cooperating brokers but instead gives cooperating brokers authority to present offers to purchase directly to the seller(s);
(c) advise the seller(s) as to the merits of offers to purchase;
(d) assist the seller(s) in developing communicating, or presenting counter-offers; or
(e) participate on the seller(s) behalf in negotiations leading to the sale of the listed property.
Q 11. Where can I find a copy of the California (C.A.R.) Model MLS Rules?
A The California Model MLS Rules are available under "Multiple Listing Service" in the Legal section of CAR Online.
Q 12. Will I see the "Limited Scope of Service" disclosure language in the rules of my local MLS?
A C.A.R.'s Model MLS Rules are just that – model rules. The actual MLS Rules adopted by the local REALTOR® association or MLS in each local area of the State vary. You will have to check with your local REALTOR® association or MLS to verify whether it has adopted this or similar language.
Q 13. How does an MLS reconcile allowing a listing on the MLS where a listing broker limits the scope of his service to merely placing the listing on the MLS and the listing broker’s legal obligations regarding performing certain required tasks like mandatory disclosures?
A The scope of service classifications set forth in the MLS rules do not alter any obligations otherwise imposed on real estate licensees under California law, including Department of Real Estate regulations, statutory law and common law. Regardless of whether a listing is "full" or "limited" service, the MLS’s acceptance or publication of listings eligible for MLS submission in no way constitutes a validation that said obligations have been met. (See C.A.R. Model MLS Rule 7.2.3 Scope of Service; Legal Obligations).Q 14. Where can readers get more information?
The information contained herein is believed accurate as of May 28, 2004. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.
Copyright© 2004 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members to reprint this material in hardcopy or PDF format only for personal use or with individual clients. This material may not be used or reproduced for commercial purposes. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R Legal Department. All rights reserved.