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LEGAL Q & A

IN-HOUSE/PRIVATE LISTINGS
by
Christopher O. Ashe

November 24, 2004

As I travel around the state teaching and consulting I hear a lot of anecdotal information about the fact the “in-house/private” listings are on the rise and a lot of complaining that they are illegal and unethical. I thought that because of the concern, it might be a good time to take a good look at this way of doing business.

What do we mean by an “In-house/Private listing?” This kind of listing occurs when a seller directs their listing agent not to place the listing on the MLS and, in some cases, not to share it with other agents. (Our MLS officially refers to them as an “Office Exclusive”; other MLS systems may use a different term.) The listing is to be kept “in-house” and not shared with many or any other brokers. Other agents only find out about the listing when they see an advertisement for it or a yard sign in front of the house. When they call the listing office they are told that it is private or in-house listing. In some instances the listing agency will agree to co-broke the listing and some times they will not, instead offering a referral fee or even offering no cooperation or compensation.

Why would a seller choose to have this sort of listing?  There could be several different reasons a seller would prefer this type of listing. One reason would be privacy. A seller could be concerned by the thought of lots of people they don’t know wandering through their home. This might be especially true where there a lots of valuable items out in the open where someone might pick them up.  In the case of a celebrity client they wouldn’t want curiosity seekers wandering through their home and would hope that having just one agent involved would solve the problem.  Another reason for using a private listing would be to save money. The listing agent tells the seller that if they are the only agent involved they will charge a lower fee and thus save the seller money at closing.  Another reason is that the seller believes that their agent is the only one that can locate the right kind of buyers for their property; for instance the property in question is a working horse farm and the agent is a specialist in horse farm properties.

Is this type of listing illegal?    No, not if it is done correctly. Section 20-328-2-a(h) of Connecticut License law says “In the sale or lease of property which is exclusively listed with a real estate broker pursuant to an exclusive right to sell or lease listing or an exclusive agency to sell or lease listing, the broker shall cooperate with other real estate brokers upon mutually agreed upon terms when it is in the best interests of the party or parties for whom the broker is acting.”  In other words the license law says that we MUST share our listings with other brokers unless we can demonstrate that not sharing would be in the client’s best interest. As mentioned in the previous paragraph there can be some very good reasons that a seller would choose to use this type of listing thinking it was in their best interest. Having said all of that, there are a couple of very important points that the listing agent should be aware of. The first is that this decision is the seller’s to make; it is not up to the listing agent to decide not to share the listing. There is a perception that the primary reason these listing get used so much is the greed of the listing agent who wants to keep control and commission all for him or herself. They act as if they are doing the seller a big favor and protecting their interests when all they want is to keep the whole pie for themselves. If that were the case it would be a violation of Connecticut real estate regulations, the Code of Ethics and the common law regarding agency.  Our MLS rules and regulations permit this type of listing only when the seller has agreed to it in writing and that brings us to the second important point. The seller must give informed consent. What does that mean? It means that the seller needs to clearly understand that there is a significant downside to choosing this type of listing. A basic tenet of sales is that that the more potential customers you expose a product to, the greater the chances of a quick, well-priced sale and as we all know this applies to real estate sales too.  There is a big difference between having one agency as the sole source of potential buyers and exposing the property through the combined efforts of hundreds of firms. Simply having the seller sign a letter saying “I ask ABC Realty not to place my property on the MLS” would not in and of itself constitute proof of informed consent. An informed consent would say something like, “I direct my broker, ABC Realty not to place my property on the MLS or share it with other real estate firms.  I am aware that by substantially limiting my properties exposure to the market place by not utilizing the services of the multiple listing service and other brokerage firms, I am creating a situation that may result in considerably longer market time and a much lower sale price for my property.”  (Please note that I am not an attorney and this is not meant to constitute legal advice. If you are using this type of listing you should consult with your own legal council to determine the format of written informed consent you want to use.)  It is very important that the seller understand that using a restrictive listing of this type will most certainly mean that the property will take longer to sell and, because it will be exposed to far fewer potential purchasers, it will most likely sell for less than it would under more highly competitive circumstances. If the seller still feels that they want to utilize an in-house/private listing there is nothing illegal or unethical about the process.  An agent who is taking these kinds of listings without fully explaining the potential down side and obtaining written informed consent from the seller is walking a very risky path.