Q: I am neither a buyer nor a seller. Rather, I am a curious neighbor who does not understand why the house next door has at least two real estate company "For Sale" signs planted in the front lawn. Is this legal, and does it make sense to go with more than one real estate company?
A: Your neighbors are using their own form of multiple listing service. Presumably, they have entered into an "open listing" agreement with a number of real estate brokerage firms. Under an open listing agreement, owners have the right to sell the property themselves, and also have the right to hire other brokers to assist in the sale of the property.
If the owners sell the property, no commission is owed to any real estate company. The first broker who finds a buyer that is ready, willing and able to buy is entitled to the full commission.
Most owners prefer this kind of listing agreement. They are free to seel their own property, and they have the services of more than one real estate firm. Often, when a real estate agent approaches the seller claiming to have a "live buyer," if the seller is inclined, an open listing can be given to that agent, to assure a real estate commission in the event of a sale.
Brokers, on the other hand, do not like the open listing at all. From the real estate agent's point of view, this form of arrangement is very likely to produce arguments over the commission where several brokers produce buyers at the same time.
Additionaly, the sale of the property either by the owner or by any of the other brokers immediately terminates the authority of all of the brokers -- even though they may not have had actual notice of the sale. Thus, the incentive for working hard on behalf of the seller often is diminished by an open listing.
If you are in the market for selling your house, and want to use the services of a real estate professional, ask your potential real estate agent about the open listing arrangement. Many agents will reject this form of listing completely, giving you their honest opinion that the open listing is not the best incentive for them to try to sell your house.
And, if you do enter into a open listing with a broker, make sure that you prohibit the use of multiple signs on your property. I cannot understand the thinking of sellers and real estate agents who will permit two, three and sometimes even more "For Sale" signs on a piece of property at a single time.
As this column has indicated on numerous occasions, there are two other possible agency arrancements with real estate companies.
The exclusive agency guarantees the broker that as long as the employment continues, no other broker will be hired. Under the exclusive agency agreement, if the owners sell the property themselves, the agency automatically comes to an end, and there is no liability for any real estate commission.
On the other hand, if another real estate company sells the property, the exclusive agent is still entitles to the commission.
The third form of agency is called the exclusive right to sell. This right goes further than the exclusive agency contract, and provides that regardless of who procured the buyer and made the sale, the agent with the exclusive right to sell is entitled to a commission.