C.A.R. MLS/Computer and Business Technology Committee Mandatory Reporting of REO Status
This Issues Briefing Paper is for Study only and has not been approved by the MLS/Computer and Business Technology Committee, Executive Committee, or the Board of Directors.
It has previously been against NAR policy for an MLS to mandate disclosure of REO status on the Service. Permitting voluntary disclosure has been as far as an MLS could go in seeking this information and still be in compliance with NAR policy. However, at NAR’s annual meeting in November 2011, NAR changed its policy to allow MLSs to mandate such disclosures.
Previously, NAR policy has enabled an MLS the discretion to require that short sales be disclosed on the MLS but has not taken that same action regarding REO status. The rationale for allowing it in the context of short sales is because of the unique role a 3rd party (the lender) plays in the short sale transaction potentially impacting, among many things, the offer of compensation that is offered to a buyer's agent. This compensation issue is not mirrored with REOs because the bank is no longer a 3rd party impacting commission or other deal terms but instead the seller contracting directly with a listing agent and thus able to determine the commission to be offered to the buyer’s agent, as well as other deal terms, as a direct party to the transaction. NAR staff has consistently advised that such a mandated disclosure would not be allowed because the identity of the seller does not relate to the property or to the terms of cooperation and compensation offered by listing participants to other participants.
Notwithstanding the above-referenced concerns, in responding to the needs of the market, many MLSs, especially those with large inventories of REO listings, have been seeking a NAR policy change allowing them to mandate disclosure of REO status. MLSs report this is information that agents and potential buyers are clamoring for and that REOs are different enough from traditional transactions that they warrant their own disclosure in the service.
At the November 2011 annual meeting, those pushing for the ability to mandate REO disclosure carried the day, and NAR has changed its policy. NAR adopted New Policy Statement 7.97, Need to Disclose if Property is a Foreclosure, is Bank-owned, or is Real Estate Owned (“REO”), as follows:
As a matter of local discretion, Multiple Listing Services may require participants to disclose if a listed property is a foreclosure, bank-owned, or real estate owned (“REO”).
Since mandating REO disclosure is now officially allowed, the Committee will want to consider whether to revise the C.A.R. Model MLS Rules accordingly. In debating this issue, the committee will want to weigh and consider several factors, some of which have already been chronicled above. Additional factors are set forth below:
Cons: Arguing against mandating REO disclosure, since many associate REOs with going for less than listed price, there are concerns that requiring a property to be characterized as an REO could be perceived as giving a potential advantage to buyers at the potential expense of sellers. Requiring such disclosure singles out one group of sellers for disparate treatment, but if left voluntary, listing agents can always volunteer the information. There is also the consideration that sellers of REO properties may be reluctant to have their property in the MLS knowing it can be searched not only by price, property type or location, but also by whether the seller is an individual or an institution.
Pros: That being said, REOs are different from other properties as are some of the procedures, disclosures and dynamics associated with them. Failing to flag this difference up front in the MLS could actually be a disservice to those who may unwittingly encounter them. Some buyers look for them exclusively and others may want to avoid them altogether. Often REOs involve multiple offers and/or overbidding, and potential buyers as well as the agents representing them will want to go into that setting with their eyes open. Finally, while mandating REO disclosure has only recently become an approved rule MLSs can adopt, many MLSs already have been doing so in effect by making REO disclosure a mandatory MLS field by the technical functioning of the process for submitting a listing to the service. Should this practice be widespread, it would only be good practice to sanction it with an official rule change.
PROPOSED MLS RULE REVISION:
Should the Committee be inclined to adopt an REO disclosure mandate in the C.A.R. Model MLS Rules, a proposed rule is provided below:
7.27 REO Disclosure. Participants and Subscribers submitting foreclosure, bank-owned, or real estate owned (“REO”) listings to the service shall disclose said status on the service. [Placement into Tier One (the least severe level of violations) of the Model Citation Policy is recommended for this rule as that is where other failure to complete or update listing information offenses are located].
That, upon final approval by NAR, C.A.R. Model MLS Rules be revised as set forth above and placed into Tier One of the C.A.R. Model Citation Policy.