Problems with Exclusive Listings

There's been a great deal of jawboning in the real estate community recently over "divorcing the commissions", changing the current practice of the seller paying the commission of the buyer's agent. Well, I've said my piece on that, why I don't like it but it's in the seller's best interest to pay the buyer's agent commission, because they can expect to end up with more money in their pockets because of it.

That got me to thinking about issues of how to improve seller satisfaction. As I said in Exclusive Right to Sell Versus Exclusive Agency, it is in the client's best interest to sign an exclusive right to sell, because the agent will have no mental reservations about whether they will get paid if the property sells.

Nonetheless, exclusive agreements always leave a lot of room for agents to misbehave. Quite illegally of course, but if such behavior is undiscovered, it will not be dealt with, and the law places quite a few impediments on monitoring your listing agent. When I'm acting as a buyer's agent, my client knows whether they want to put an offer in, they know whether or not they've signed it, and they know that because I'm working on a non-exclusive agreement, if I won't do my job, there's no reason someone else can't.

This doesn't apply when there's an exclusive agreement in effect. It's illegal in California (at least) to solicit listings from people who already have a listing agreement in effect, but that doesn't stop some agents. Last time I had a listing come off MLS, I forgot to change their phone number to mine. My client told me they received in excess of 100 calls that day, from agents who wanted the listing. None of them asked if there was still a listing in effect, which there was. None of them bothered checking the "do not call" list, which the phone number was on, evidently thinking that the fact it came off MLS meant my clients somehow didn't care about about the "do not call list." This is why agents usually don't want to put client phone numbers on MLS, and why even if they do, they'll change it before it comes off.

But a lot of agents go well past that stage. They decide that if the listing commission is good, that plus the buyer's commission is better. If they don't want to pass an offer to the client, there is no way to make them. I can point to agents where I suspect that incoming offers go straight from the fax machine to the wastebasket, it they even get printed. This has gotten so bad that my local MLS service has finally given buyers agents the right to present offers to the sellers in person. Not to be present for discussions, but to present the offer. I can't make them accept the offer, but this way the listing agent can't pretend it doesn't exist. Furthermore, enough buyer's agents tell the listing client where the market really is, and the listing agents are going to have trouble pretending the property isn't overpriced. Agents who "buy" listings by pretending they can get more than the market will support are going to be in a world of hurt. The first offer is usually the highest offer you'll get, and letting the first offer go will usually result in less money

Sometimes, listing agents bypass such tactics in favor of making showings difficult. They simply make showings difficult for other agents and their clients. The clients and I have time now. An hour is usually no big deal. But requirements for four hours notice or to "make appointment" are more often intended as barriers to other agents clients, and anyone who calls them directly gets preferential treatment, after they've signed an exclusive buyer's agency agreement, of course. Some agents go so far as to claim they're trying to sell the property, while in reality using the listing as a way to chum for buyer prospects who don't know that's a rotten way to shop for a buyer's agent. When the property sells, these agents lose their wedge for meeting more buyers, so they don't want it to actually sell.

Net result, they're not exactly shutting out the clients of other agents, but by putting up barriers to showings, they make it much less likely that anyone not represented by them will put in an offer. But you, as the owner, want to get the best possible price from your buyer, for the quickest sale - not limit yourself to the one who gets your agent paid twice for the same transaction, or to being the bait for buyers. A listing agreement is not a license to abuse that owner.

The person with the power to challenge this is the owner. They do have a right to monitor their own listing. Owners should periodically wander into your listing office, and demand a full copy of the listing, as seen by other agents. An agent who doesn't play these games has nothing to fear. An agent who does, deserves to get fired. And if you get showings but no offers, there's something wrong. It may be that the property is overpriced too high, it may be that your agent is rejecting them out of hand, or it may be that they don't really want to sell your property. Another tactic to fight all of this is to limit the listing agent to one side of the transaction. I don't have any problem agreeing to only the listing side commission when I'm marketing a listing - if the buyer is silly enough to want to be unrepresented by a buyer's agent, that's not my client's problem. Actually, that's a good thing for my listing client in most cases. Nonetheless, it doesn't mean it's in my client's best interest to shoo away prospective buyers represented by other agents. It's not.

But perhaps the deadliest scheme to a client's well being is the agent who wants to buy their client's property themselves, or recruits a straw buyer to buy it for them. Never ever sell to your listing agent, and be very careful that any buyer represented by them is not a straw buyer. Most often, they'll wait until you get desperate before trying this trick, and a nasty one it is, too. Get the listing, Shoo off other buyers, wait until the client is desperate, then make a lowball offer yourself. Unscrupulous agents can make more with this trick than any commission, and they don't have to share the return that comes from flipping the property with anyone else. If there's a buyer's agent involved, it makes this scam a lot tougher to pull off because there needs to be collusion between the two in order for it to work. I should mention that there are agents and brokerages who brag that they'll buy the house if no one else will. To someone who understands what's really going on, this is like a mile high flashing neon sign that says "Stay away from the shark!" I suppose it's possible for it not to be a scam, but I wouldn't be a nickel on it at a thousand to one payoff.

One thing I'd like to see, for those places that haven't granted buyer's agents the right to present offers themselves: The ability for offering agents to drop the owners a standard postcard, through the local MLS provider if that's what it takes. Enter the address of the property, pay fifty or seventy five cents, and the association sends a postcard out to the owner of record that says "Someone made an offer to purchase your property. If you already know about this, this postcard should be of no interest to you. If you don't, chances are that your agent failed to pass along an offer that was made. If you contact the association, we will provide the contact information of the person or agent who made the offer."

There's a lot of listings out there right now that say, "shown with accepted offer only." This is ridiculous, and nobody's going to make a decent offer for such a property. Me, I just laugh and move on, unless I see evidence that the owners may be desperate enough to accept a half price offer. Listing agents who don't explain this to the client are not working in the client's best interest. There could be another standard postcard that tells owners their showing instructions are too strict, although it would have to have something attractive enough about it to make it worth my bother. Agents who faithfully adhere to their duty have nothing to fear, and such things would actually enhance their credibility. Agents who don't would be in a world of hurt, and there could also be consequences for agents who claimed they made an offer, but didn't. This is the age of transparency and accountability, and such a development favors both.

Buyers and buyer's agents can complain all we want to zero effect. The listing agent doesn't have a responsibility to us, so we have no grounds for action, legal or otherwise. But when owners are informed that there is a failing of the listing agent's responsibilities to them, and the owners want to complain, that's a different matter entirely.

Good agents should want to change for more transparency, if we're going to prosper as a profession in the Age of Information. The first group that gets the idea of competing with MLS with the addition of verifying agent performance is going to reap the vast majority of the market very quickly. We have to be verifiably demonstrating to the client on the value we provide, or there is no reason not to go with any cheaper alternative that presents itself. It's not like the clients enjoy giving us money that would otherwise end up in their pockets. If we want to do well, not only as individuals but as a profession, we have to be able to demonstrate that those dollars clients pay us translate into more dollars in their pocket. If we cannot do this, they are correct to choose the cheaper alternatives.

In the meantime, what can you do as an individual to combat these tendencies? Make the listing agent's compensation a fixed percentage, with only a small amount of additional compensation if they accept dual agency or the buyer is unrepresented. They're supposed to be trying to sell the property to all comers, not raising the bar against potential buyers who won't cause them to be paid double. Monitor your agent, so you're confident they're not putting up barriers to sale. Most importantly, learn as much about your market s you have time for. If you know your market, it's a lot easier to spot the agent who's working on their own behalf, and ignoring your best interests.

Caveat Emptor