BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Open or Non-Exclusive Listings
Q: What is the difference between an exclusive listing and an open listing? I am seeing open listings in the MLS. How do they work?
A: Actually, California law recognizes three distinct types of listings.
I. THREE TYPES OF LISTINGS: These are identified in Civil Code 1086(f) as follows:
(1) Exclusive Right to Sell: “A listing whereby the owner grants to an agent, for a specified period of time, the exclusive right to sell or to find or obtain a buyer for the property, and the agent is entitled to the agreed compensation if, during that period of time the property is sold, no matter who effected the sale, or the listing agent receives and presents to the owner any enforceable offer from a ready, able, and willing buyer on terms authorized by the listing or accepted by the owner. The exclusive right to sell listing may provide for compensation of the listing agent if the property is sold within a specified period after termination of the listing to anyone with whom the agent has had negotiations before that termination.”
(2) Exclusive Agency: “The same as an “exclusive right to sell listing,” except that the owner reserves the right to sell directly but not through any other agent and, in that event, without obligation to pay compensation to the agent.”
(3) Open Listing: “A listing which grants no exclusive rights or priorities to the listing agent, and a commission is payable to the agent only if the agent procures and presents to the owner an enforceable offer from a ready, able, and willing 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.”
II. MLS RULES: The CAR Model MLS Rules, which are adopted by most local MLS’s, state that the MLS will accept all three types of listings, as well as probate listings. It is the responsibility of the listing agent and broker to properly categorize the type of listing.
(Note: You must check your local MLS Rules to determine if they are the same as the Model MLS Rules, or whether your local MLS has modified those rules.)
III. OFFERS OF COMPENSATION:
A. MLS Rules: Model MLS Rule 7.12 states that, except for estate, probate and bankruptcy listings or “Open Listings” (see below), a Broker Participant must specify some compensation to be paid to a buyer's agent which must be stated as (1) a percentage of the gross selling price, (2) a definite dollar amount, or combination thereof.
B. California Law: Civil Code section 1087 states the following regarding “Open Listings”:
“If an open listing is placed in the multiple listing service, the total compensation that the owner is to pay shall go to the selling agent who procures an enforceable offer from a ready, able, and willing buyer on the terms accepted by the owner. An open listing need specify no compensation to the selling agent, but may state that the compensation is to be negotiated between the selling agent and the owner.” (Emphasis added)
PRACTICE TIPS:
1. The most common type of listing is the Exclusive Listing. The MLS listing must state a percent or dollar amount of compensation to co-op brokers. (For example, see CAR form RLA on zipForms)
2. Less common is the Exclusive Agency whereby the seller reserves the right to sell the property and owe no compensation to the listing broker. However the seller may not enter into any other listing agreements with other brokers. An offer of compensation is also required in MLS. (See CAR form “Residential Listing Agreement-Agency” form RLAA on zipForms)
3. An Open Listing, also known as a Non-Exclusive Listing, means that the listing broker only gets paid if an offer is presented through that broker. The seller can sell the property directly or even enter into other open listings with other brokers. The listing broker of an Open Listing may, but does NOT have to, offer compensation to co-op brokers through the MLS. (See CAR form “Residential Listing Agreement-Open” form RLAN on zipForms.)
4. If you see an Open Listing in the MLS, check the offer of compensation line to see if there is an offer of compensation being made through the MLS. If not, then, in order to get paid as a buyer’s agent, you need to either:
A. Secure the agreement of the listing broker to pay your brokerage PRIOR TO PRESENTING YOUR OFFER. (You can use the CAR “Cooperating Broker Compensation Agreement” form for this purpose. Form CBC on zipForms); or,
B. Enter into a Buyer Representation Agreement with your buyer who then will be obligated to pay the commission specified in that agreement.
See Weekly Practice Tip entitled “Buyer-Broker Agreements”
5. The risks of an Open Listing are:
A. Other brokers are not precluded from approaching the seller and, after securing a compensation agreement from seller, presenting offers directly to the seller. In that case, the original broker with the Open Listing is not entitled to any compensation; and,
B. While the Code of Ethics prohibits REALTORS® from contacting clients of another REALTOR® with whom the REALTOR® has an exclusive representation agreement, or from soliciting a listing exclusively listed with another REALTOR®, the Code has no such limitation on Open Listings.
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 2012 12/14/12