BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Dealing With Listing Agents Who
Are “Limited Service Brokers”
QUESTION: Although this is not a new problem, it seems that there has been an increase in the number of “rent-a-brokers”, real estate agents who put listings onto the MLS for Sellers in consideration of a flat fee. The MLS then states in the Confidential Remarks section that this is: “MLS INPUT ONLY. CALL/WORK/OFFERS TO SELLER DIRECTLY.” If these real estate agents are not going to be involved in the transaction, what steps should the Selling Agent to avoid ethical and legal issues?
ANSWER: Sadly, too many Sellers believe selling real estate is easy and they believe that they do not need all of the invaluable services that competent real estate professionals can provide. These Sellers are often “penny-wise and pound foolish” and are only willing to pay a flat fee to an agent to place their home onto the MLS and/or other web-based marketing sites. This type of Listing Agent is generally referred to as a “Limited Service Broker” because the agent provides very few services to Sellers and their contract with the Seller usually specifies that they are not obligated to perform any of the standard agency activities such as showing the property to prospective buyers, negotiating the Purchase Agreement, handling the escrow and handling the inspection/disclosure functions.
Comments in the MLS, other on-line marketing or print marketing material that indicate the Selling Agent is to work directly with the Seller, eliminates any ethical issues for the Selling Agent contacting the Seller directly.
Although it is not illegal for real estate licensees to enter into written agreements with Sellers to solely provide access to the MLS, these Limited Service Brokers create significant challenges for real estate professionals representing Buyers especially if they unwittingly become an undisclosed dual agent by working for the Seller as a means of getting the Buyer’s deal to close.
To protect Selling Agents, the best practice is to follow the procedures outlined below:
1. BUYER BROKER COMPENSATION: Whether or not the Limited Service Broker has offered to compensate the Selling Agent through the MLS, prior to presenting the Offer, the Selling Agent should consider obtaining a fully-signed single- party commission agreement with the Seller that specifies that the Seller will pay the Selling Agent at the close of escrow but the Selling Agent will not be representing the Seller’s interests. See for example CAR form Single Party Compensation Agreement (Form SP on zipForms) Limited Service Brokers who have Selling Agents work directly with the Seller are often difficult to track down when it is time to pay the Selling Agent commission, even though there has been an offer of compensation to cooperating brokers in MLS.
2. AGENCY CONFIRMATION: The Agency Confirmation section of the Purchase Agreement should specify that the named Selling Agent is exclusively the Agent for the Buyer. If the Limited Service Broker is not going to represent the Seller in the transaction, then the blank line for the “Listing Agent” should be left blank (or state “No Listing Agent” and none of the boxes should be checked directly under the blank line for the Listing Agent.
3. AVOID UNDISCLOSED DUAL AGENCY: Once the Selling Agent is properly confirmed as exclusively working for the Buyer, the Selling Agent must only work on behalf of the Buyer. The Agency Confirmation provision does not eliminate the Selling Agent’s potential liability for a claim of undisclosed dual agency. The Selling Agent must strictly adhere to the agreed-upon role of being the Buyer’s “exclusive” fiduciary and the Selling Agent cannot take on any of the duties normally performed by the Listing Agent. The best practice is to include appropriate contract language into the Offer by means of an Addendum to clearly define the scope of what functions the Selling Agent will not perform. Once the Seller and Buyer agree to the scope of the Selling Agent’s duties, it becomes easier for the Selling Agent to remember to turn down any requests from the Seller to work on their behalf. A sample Addendum * is attached to this Weekly Tip which includes the necessary verbiage. *
4. SELLER DISCLOSURES: It should be kept in mind that it is the duty of the Selling Agent to obtain a fully completed TDS for the Buyer. Therefore, there is nothing wrong with the Selling Agent providing the disclosure documents to the Seller “on behalf of the Buyer,” but it is critical that the disclosure forms must be completely blank without any identification of the Selling Agent’s name or contact information in the auto-populated identification ribbon at the bottom of the documents. The easy way to remove that identification information is to print up the disclosure forms and physically “white out” the ribbon. The disclosure forms can then be scanned and sent to the Seller.
Transmitting these disclosure documents to the Seller is best done by email (or, if in person, with a letter) that states all of the following:
a. On behalf of the Buyer, I am sending you the attached disclosure documents [identify which ones you are sending] for you to fully complete and sign as quickly as possible.
b. Once you have completed the disclosure forms, please send all of them back to me.
c. Since I am only representing the Buyer, I cannot provide you with any assistance in the completion of these forms. If you have any questions about the disclosures, please contact your own real estate professional or a qualified California real estate attorney.
Finally, as is true for all agents representing Buyers regardless of who represents the Sellers, be sure to read the disclosures carefully when the Seller returns them to make sure that the documents are complete. If the disclosures are incomplete (e.g., there are no answers to some of the questions and/or no explanations for any of the “Yes” answers), send the documents back to the Seller for completion.
Once the documents are fully completed, send the Seller’s disclosures to the Buyer (preferably via email) and you need to state: I HAVE NOT AND WILL NOT VERIFY OR INVESTIGATE ANY INFORMATION SUPPLIED BY OTHERS (the recommended statement that should be included in the email signature block and/or any other document used to transmit disclosures, reports and/or any other information to your clients and other brokers).
(*) See following Page 3 for the Addendum
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2017 06/16/17
SELLER USING LIMITED SERVICE BROKER
ADDENDUM
It is understood by all Parties that Seller has retained __[Insert Name of Limited Service Broker] as a Limited Service Broker and that [Insert Name of Your Brokerage] is exclusively serving as the Selling Agent for the Buyer. As the exclusive agent for the Buyer, [Insert Name of Your Brokerage] cannot and will not perform any of the functions that would normally be performed by the agent for the Seller. It is the responsibility of the Seller to comply with all of the terms of the Purchase Agreement and to perform all of the functions that would normally be performed by Seller’s real estate agent notwithstanding any agreement that Seller may have with ___[Insert Name of Limited Service Broker]. Seller is strongly advised to retain the services of another real estate broker and/or review this matter with their own qualified California real estate attorney before proceeding.