Listing at Center of Dispute Over Brokers’ Commissions

Are real estate brokers really worth the now-customary 6% cut they get from the sale of a home?

Many sellers increasingly find themselves asking this question, especially when a broker walks away with more cash from a sale than the seller.

The few brokers who have been offering to place properties with the Multiple Listing Service for just a few hundred dollars haven’t exactly been cheered by their colleagues, however. In some cases, their listings have been rejected for placement on the MLS. Some of these bargain brokers have even faced nasty phone calls from other irate brokers who believe that it’s dangerous to undercut the usual 6% fee.

At the center of this dispute is access to the MLS--a comprehensive, printed and computerized listing of houses, condominiums and small investment properties for sale. The MLS includes asking prices, details about the property and who to contact for more information. For most real estate agents the MLS is the Bible when it comes to properties for sale. The Valley MLS is operated by the San Fernando Valley Board of Realtors.

Last month, one of the board’s weekly newsletters featured a front-page article about cut-rate listing brokers and what the board was doing to reject their attempts to place properties on the MLS. Brokers who merely offer to get a property onto the MLS for a few hundred dollars, said the board’s legal counsel, probably don’t really have an agency relationship and so the board isn’t obligated to accept their listings.

The board and its attorney were both quick to add that they take no interest in how low a fee brokers and sellers negotiate between themselves. The only concern of the board is whether there’s a valid agency relationship and a bona fide listing.

The net effect of all this, though, is that many sellers who do want to be part of the valuable MLS system must enter into more complex and expensive contracts with real estate brokers.

“Commissions are overpriced--it’s outrageous, it’s robbery,” snapped Norman Litter, owner of Real Estate Clearing House in West Los Angeles. He offers to list some residential properties on various MLS systems for as little as $95, and he thinks the Valley board is “full of baloney.” Some of the so-called cut-rate brokers like Litter have found a way to get many of their listings accepted on the Valley MLS by using an “open listing” form provided by the California Assn. of Realtors.

This contract provides for a commission on the sale to any broker who brings the seller a good buyer. The so-called listing broker charges a minimal fee and then often stays out of the picture. Jean Ruda, owner of Listec Properties in Sherman Oaks, offers a relatively bare-bones but affordable listing service. For about $195 to $550, she’ll place a property on an MLS and be available, along with the seller, to take any incoming calls. Generally, Ruda doesn’t do much to market the property beyond the listing, but she’s offering a deep discount.

“Not all sellers have the equity in their homes in today’s marketplace,” Ruda observed. “Real estate brokers have an obligation to home sellers to do what’s in their best interest.” Ruda further rejects the idea that she’s not living up to her legal obligations as a broker. “I just want to follow the rules. I’m not a scofflaw,” she said. “I’m there to fill a niche.”

Ruda believes that she’s actually doing other brokers a favor. Property owners who would otherwise not involve a broker are being encouraged by her to become part of the MLS and offer 2%, 3% and even as much as 4% commissions to brokers who actually reel in a buyer. “I strongly encourage them to work with brokers and offer commissions,” she said. “People who don’t cooperate at all with brokers are limiting their marketplace.”

“People are extremely concerned about the services they’re getting in exchange for a 6% fee,” conceded Lon Adams, president-elect of the San Fernando Valley Board of Realtors and a broker at R. R. Gable Inc. in Woodland Hills.

Only brokers can place a property onto the MLS, but the cost is small. Brokers pay about $150 a year to be part of the MLS, plus fees for computer usage or printed property updates. It costs a broker only $18 to enter a property onto the MLS, and just $13 if a broker enters the listing by computer.

“Times change. I think there will continue to be changes in the way business is done in the future,” Adams said. In some cases, lower commissions to the agent who listed the property may be part of that change. Only about 25% of his sellers bring up the topic of lower fees, Adams said. He seldom agrees to accept lower commissions, he said, but he does agree to delineate all his services in writing and to offer sellers the chance to withdraw their listing if promises aren’t kept.

“The MLS requires an agency relationship between a broker and a seller and a definite offer of compensation to cooperating brokers,” said Jim Link, executive vice president of the San Fernando Valley Board of Realtors. “It’s not a classified advertising vehicle.”

Link reported that about 20 listings over the past six months, usually in the form of non-exclusive, non-binding counseling agreements, have been rejected by the board. “What the parties negotiate is of no concern to the board,” Link said, but there needs to be a minimum amount of work by a broker to create an agency relationship.

“It’s difficult to say just how much broker participation is needed--probably not a whole lot, but at least some,” said David L. Shane, partner in Walleck, Shane, Stanard & Blender in Warner Center and legal counsel for the Valley Board of Realtors. Merely paying about $300 for a listing isn’t enough, he said. “These are just clear examples of no agency relationship being created under the law.”

Besides, “selling real estate should be left to the professionals,” Shane said. “If anybody could join the MLS, it wouldn’t exist for very long.”

All this shouldn’t be interpreted to suggest that the Valley board or any other boards are trying to maintain a monopoly, Shane said. “We want to be very careful. We’re fearful of antitrust claims. We don’t want to be anti-competitive. Brokers have a right to price their services however they want.”