Court ruling may set precedent for 'open' real estate listings

The largest board of Realtors in the US -- the San Fernando Valley board in the Los Angeles area of California -- called an emergency meeting of its board of directors.

After a heated discussion, led by board president Stanley Weinsheink, the board declared in part:

"The board will follow the recommendation of the California Association of Realtors to accept and publish open listings in the board's residential multiple listing service (MLS) and to suspend MLS rules that currently preclude such publication. Further, that the MLS committee and staff shall expeditiously prepare enabling procedures so that such detail may be placed before the board of directors at its next regular meeting."

Similar meetings by Realtor board leaders have been hurriedly convened throughout the state, all sparked by a decision by the state appellate court involving the San Diego Board of Realtors.

It is a decision that could set an important precedent throughout the country.

The decision relates to the type of listing (a broker's written authorization to sell a property) that must be accepted by an MLS. Now, for the first time, a court has declared that an MLS cannot restrict its services to "exclusive listings."

In other words, an MLS must now accept open listings.

This type of listing is simply an agreement (contract) between a property seller (owner) and licensed broker authorizing the broker to sell the property and promising to pay him a fee if and when he produces a buyer who is able and willing to buy the property on specified terms and price.

With this listing agreement, the broker will only receive a fee (commission or flat fee) if he produces a buyer. If another broker comes up with a buyer, or the owner sells the property himself, the first broker receives nothing.

An owner could give open listings to a number of brokers; that is, if he can find brokers who will accept them. A fee goes only to the selling broker. If the owner produces the buyer himself, no broker receives a fee.

This is substantially different from the most common type of listing agreement -- the "exclusive right to sell" listing. Under this contract, the seller is obligated to pay the listing broker a fee regardless of who finds the buyer during the term of the listing agreement.

There can only be one "exclusive" listing broker at any one time. If another broker sells the property -- through MLS, for example -- he serves as a subagent under the listing broker and shares the one fee paid by the property seller.

The new wrinkle in this scenario of listing contracts in California is that "open listings" must now be accepted by an MLS. Before, only "exclusive" listings were processed and distributed to member brokers by most MLSs.

Soon after the court decision, a major newspaper in California erroneously reported that the public now may submit their own nonlisted properties directly to their local MLS and, further, that MLSs must accept those property submissions.

This incorrect report caused an avalanche of inquiries of the offices of local boards of Realtors and the California Association of Realtors.

Brokers as well as consumers were confused.

The true stroy is that the court has decreed that MLSs should accept signed "open listings" from their member brokers. All MLSs in California have been advised to comply with that ruling.

It might seem at this point that contracting with a broker by way of an "open listing" is the best way to go. But consider this:

Many brokers, particularly the well-established, seasoned firms, will not accept open listings. They never have, and probably will now now change that policy.

"We haven't taken open listings in the past and we won't accept them now," says Art Leitch, a San Diego Realtor and past president of the National Association of Realtors. His reponse was echoed by other Realtor leaders.

The reason they do not accept open listings is basically simple. To effectively sell a house or other piece of real estate, a broker has to spend his time and money. His efforts include promoting a sale through the cooperation of other brokers.

Unless the listing broker is assured of some remuneration when the property is sold (regardless of who makes the sale), it doesn't make business sense to him to make this investment in money and time.

Most brokers who have a successful track record do not resort to taking open listings because they have plenty of "exclusives" to keep them busy.

Some of the problems related to open listings were touched on in the official notice to all boards of Realtors in California by Art Godi, president of the California Association of Realtors. AFter recommending full compliance with the court decision, it stated.

"With respect to open listings, it will not be possible to state in the MLS materials the amount to be paid a cooperating broker because there is no "cooperating broker" in an open listing. An open listing is merely a notice that the property is on the market.

"There are a variety of problems in connection with open listings about which we expect to give you further advice in the near future. A special committee is being formed."

The California Association of Realtors already has appealed the appellate court decision to the California Supreme Court.

A final note of clarification:

A multiple listing service is a cooperative facility that pools listed properties, making them available to be sold by all member brokers. Most MLSs are owned and operated by a local board of Realtors although some are independent operations.

If allowed to stand, the appellate court decision in California could ultimately have a major impact on property sales throughout the US.

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