As someone who has always taken a big picture approach to this business, as someone who takes a real and vested interest in what's best for my clients, and as someone who focuses on long-term relationships instead of quick-buck transactions, this market sucks.
Sunday, April 13, 2014
THE PERILS OF GOING OFF-MLS
Coming Soon. For Sale by Owner. Make Me Move.
These are all potential “off-MLS” sales, meaning these are properties that never hit the Multiple Listing Service and, thus, are never seen by thousands of real estate brokers with active buyers looking to purchase a home.
When a market heats up, like this one has, you always see a rise in this type of activity. But because of technology, we have never had the quantity of offline sales, nor the quantity of buyers looking to go offline to purchase a home.
Frankly, I don’t care if you go offline, online, or over the line. I just want you to know what you’re getting into.
The MLS has been around for decades, first in printed form, then in online form, and now fully digitized, with updates pounding our phones with emails, texts and instant alerts in real time. It’s been the primary way homes have been sold for 60 years.
As a real estate professional with 20 years of experience, I can summarize what the MLS stands for in two words: fair trade.
It’s fair trade because it sets ground rules. It provides full exposure and equal access. And the agents who belong to the MLS agree to certain rules and regulations that promote ethics and integrity.
When you go “off-MLS”, these ground rules quickly disappear.
For example, agents who submit properties to the MLS agree to abide by mediation or arbitration (as opposed to a formal court proceeding) in case of a dispute. No MLS, no mediation or arbitration, which means if there is a problem there is no set protocol short of going to court (which is the most expensive option) when it comes to seeking resolution.
For the majority of licensed agents who are also Realtors, there is an enforceable code of ethics that requires full disclosure of material facts about the property, no undisclosed or “secret” compensation, and disclosure of any potential conflicts of interest. Go “off-MLS” and this code of ethics disappears. It suddenly becomes a "one and done" world, with significantly higher potential for fraud or non-disclosure of pertinent information.
And for agents, going “off-MLS” is huge because when you leave the MLS system, there is no guarantee of compensation. What is the commission if you bring a buyer to a Make Me Move seller? Zero, unless you can get the seller to toss something in (but the vast majority of Make Me Move sellers are going this route because they have no intention of paying a commission in the first place).
This means many agents flat out won’t engage with these types of sellers, because there is no guarantee of compensation. That means not only is the seller unrepresented by a licensed agent, the buyer often ends up without representation, either. That greatly increases the chances of a dispute, which greatly increases the chances of litigation. So much for saving money.
Finally, no issue in Denver real estate has become a bigger flashpoint during 2014 than the “Coming Soon” sign. You see these signs all over town, with agents or individual sellers marketing properties via a “Coming Soon” sign instead of through the MLS.
Why is this an issue?
Sometimes, the “Coming Soon” sign is a legitimate marketing tool. But in this market, it has become the epicenter of “off-MLS” sales.
How does it work? An agent will list a home for a 6% commission. However, as part of the listing agreement, the agent tells the seller that if he is allowed to “pre-market” the home for two weeks, and he is able to find a buyer, he will lower the total commission to 5% (representing both sides as a transaction broker, which means limited representation for both buyer and seller, which the buyer and seller may or may not even understand).
The agent posts the “Coming Soon” sign, buyers line up to see the property, and the agent collects a commission on both sides of the deal.
Is this illegal? No, if it is expressly agreed to by the seller in the listing agreement.
But is it best for all parties? We know it’s best for the agent, because he just increased his commission by 60% or more.
But for the seller, is it better to have one agent bringing buyers, or is it better to allow true market exposure by promoting the property to more than 14,000 dues-paying members of the Denver MLS? What gives you the better chance for a highest and best final offer?
For the buyer, is it better to be represented by someone whose interests are aligned with the seller (or by collecting an oversized commission), or by having your own competent and experienced representation? Again, I would argue that good representation is worth its weight in gold (see my Zillow Reviews), but because our industry has failed so badly in articulating its value proposition to consumers, buyers are often inclined to go it alone and hope that things work out.
When a market is overheated and full of emotion, as this one is, decision making skills often break down. There is an emotionalism to this market that is causing buyers to lunge at properties, and there is a profit opportunity for some listing agents that is too enticing to pass up, ethics be damned.
It’s gone Wild West out there, and professional ethics are dying a slow and bloody death.