Limited Service Real Estate Offices (Flat Fee MLS and FSBO Websites) Provoking Backlash

There is beginning to be some organized resistance to real estate offices that offer "unbundled" or less than what has come to be accepted as "full services" to their customers.

These limited service offices come in a variety of configurations (which we will explore in detail next month), but, as mentioned in the past, some of them have been sued by local real estate boards for practicing without a real estate license. These lawsuits typically target websites that collect a fee for advertising homes that are for sale by owner (FSBOs), and have not been particularly successful. Courts in several locations have ruled that these sites are merely using updated technology to do what newspapers have done for decades, also without having a license.

Another less than full service variation, flat fee MLS listings, occurs when a real estate office signs a listing agreement solely for the purpose of putting, for a flat fee, what is essentially a FSBO into the local multiple listing services (MLS) database. Anti-trust rules have, for many years, precluded MLS from refusing valid listings from member brokers and from withholding membership from otherwise qualified (i.e. licensed and willing to pay MLS fees) agents.

More traditional agents have become increasing aggravated by this practice which, first of all, takes away the competitive advantage MLS membership has long conferred. It also forces full service agents into the position of dealing with a non-professional on the other end of the transaction. This can have serious repercussions for the selling agent if the homeowner is not making full or accurate disclosures about the property or violates fair housing standards. There is a good deal of comfort in having another professional, also with a license at stake, on the listing side of a deal.

An MLS listing guarantees cooperation with agents working with buyers, but does not guarantee compensation. An agent showing these FSBO listings has to be prepared for the possibility he will have to collect his commission from his buyer; always an awkward situation.

Now, however, it is getting interesting. On one hand, Congress is making noises about the National Association of Realtors and various local boards that operate MLSs opening up the playing field. On the other hand, at least three states have stepped into the fray with laws or proposed regulations that would put an end to the "MLS only" type of listings.

Illinois passed a law last year that sets minimum service standards that agents must meet. The minimum, I am told, is presenting the offer. Legislation has now been introduced in Iowa that would require agencies to accept and present offers and counteroffers to clients, participate in negotiations, answer client questions and give access to properties they have listed. The Texas Real Estate Commission is also proposing new rules to require some minimum level of service.

And in Massachusetts, the largest MLS in the state has come up with an interesting solution of its own. MLS members are no longer allowed to the phone number of their sellers on listing sheets. While this complicates the lives of agents in a state where it has long been the practice to set up appointments directly with the homeowner, it certainly does require a minimal level of service from flat-fee listing agents, even if it is just answering the phone.