Realtors say consumers still need a go-between

Published: July 26, 1997

By Neal Gendler; Staff Writer   

Real estate industry leaders say that the growing practice of owner-listed homes appearing on the Regional Multiple Listing Service isn't a threat to their business, but they think the practice is bad for consumers and buyer's agents.

For Sale By Owner (FSBO) has been around as long as homes have been sold but has remained a minor part of the business. The heads of the two giant Twin Cites area realties say that the growth of FSBO access on MLS isn't likely to do in their companies.

They and others say that the problem is that consumers may not understand what they are - and more important, are not - buying if they sign a "nonagent" agreement and pay fees for MLS listing. Consumers encouraged to try FSBO with MLS exposure may not understand the home-selling process, and that could jeopardize transactions or burden buyers' agents, some in the industry say.

"You can eliminate the middleman, but you cannot eliminate the function," said George Karvel, distinguished chair in real estate at the University of St. Thomas. Whether or not the seller hires an agent, "somebody is performing those functions, because they have to be performed."

The argument over selling one's own home vs. hiring an agent is an old one, with strong advocates on both sides.

"I think every industry has a certain, albeit small, percentage of people who are do-it-yourselfers who think that they can accomplish the task on their own - whether that's remodelers, people who want to build their own home, repair their own car, sell their own home," said Ron Peltier, president of Edina Realty Home Services, parent of Edina Realty. "They've been around since Day One and they'll continue to be around. I think the majority of the market wants representation and full service because it's a complicated business."

The numbers are overwhelmingly on Peltier's side; Karvel has estimated that the proportion of owner-sold homes averages around 15 percent. But Greg Lawrence says that his For Sale By Owner Shoppe now has more than half a dozen competitors, so FSBO growth may be real and, with MLS access, increasing.

Without revisiting all the FSBO vs. agent arguments - unlikely to be settled - industry leaders say that the new practice of paying a monthly fee to enter owner-listed houses into the MLS raises several concerns.

Representation

People who sell their own houses know they're not being represented by a real estate agent. The buyers who go to look at those houses know that the seller has no agent, too. But industry leaders say that people paying to put their FSBOs into the MLS may not understand that they're still on their own unless they're paying for other specific services, and buyers could be confused, too.

Sellers contracting for RMLS listing only normally would sign a "nonagency listing agreement," one of the four types of agency relationships in real estate of which consumers must, by law, be made aware by Realtors.

The agency-relationship disclosure statement, given to buyers and sellers early in the process of dealing with a broker or agent, says that "as a nonagent, the broker or salesperson facilitates the transaction, but does not act on behalf of either party."

Win Naughton, a board member of the Minnesota Association of Realtors and a past president of the Minneapolis Area Association of Realtors, won't let her agents at RE/MAX Real Estate Guide in Edina sign nonagent agreements; she considers them unworkable.

"As a nonagent you're not really representing anyone - you're a neutral party passing along information," she said. "You would almost have to not comment or give your opinion on anything but the paperwork, and I don't know how you could do that," she said. "That's a very difficult situation for a Realtor to be in."

Peltier's agents at Edina can't do nonagency agreements, nor can those at the other Edina-based giant, Burnet Realty.

Opportunities for confusion

Industry leaders say problems can arise when owners act as their own agents and may not understand the sales process and how to accomplish it.

"You have a buyer's agent representing the buyer and their interests and you really don't have professional representation on the part of the seller," Peltier said. "There are a host of disclosure and regulatory hoops that the seller is required to go through, and there isn't a mechanism in place to make sure they're doing them."

Ralph Burnet, chairman of Burnet Financial Group, parent company of the realty, said that consumer protection laws have made the process "just too complicated" for most sellers to understand without professional advice.

"When I sold houses in the '60s, the listing agreement was half a page and the purchase agreement was one piece of paper," he said. "Today, it's massively confusing," with the purchase agreement and addenda sometimes running to 10 pages. "It's a complicated process . . . it necessitates getting good advice and somebody working in your best interests."

Indeed, Lawrence provides explanations of the process and further recommends that his FSBO customers use a real estate attorney.

"That's where I'm overcoming the real estate agent objection [that] it's too much work. . . . There's too much hand-holding," he said. Other brokers, who offer specific services for commissions lower than the customary 7 percent, will provide some of that "hand holding," but leave some tasks - such as showing the house - to the owner.

Buyers' agents stressed

Some consider that the unpaid hand-holding by buyers' agents is becoming excessive as FSBO sellers sign nonagency agreements without giving much thought to all the work they must do.

Naughton had an experience with an agent who joined her office and offered limited-service representation. She said he made his role clear when he took listings. But, she said, "I've never had so many complaints from other agents," who were being asked by the sellers to do things the listing agent normally would do in a full-service listing.

"I think it takes a real sophisticated seller" to cope with all the documents, Naughton said. That can lead to the buyer's agent doing chores for both sides lest the deal collapse. Naughton said finding a buyer is only part of the job.

"The consumer does not understand the myriad functions: staging the home, pricing the home, marketing, negotiating the purchase agreement, following through with the inspections, appraisals, further addenda [to the purchase agreement], financing, title update, closing," she said. "If somebody understands that, wonderful, but the easiest part is to put a home on the market." Some deals are a "slam-dunk," said she, but for many, the road to closing is full of potholes.

Finding a FSBO listing with a broker name on the RMLS "enhances the risk of a major problem arising, of some people on the other side of the transaction not getting what they thought they were getting," Peltier said.

By listing on the RMLS, the FSBO seller agrees to pay a buyer's agent a cooperating-agent commission - and the amount must be specified - but there may be some reluctance from buyer's agents to get into such deals.

"They're in for doing a lot of extra work because they can't normally expect the owner to understand the processes required from the purchase agreement on to closing," Naughton said. "So they will be doing the work of two agents. That's important to be addressed here because I think a lot of agents are unaware that it will be incumbent on them to do a lot of the processing for both sides. "

Burnet said that some of his agents "have been stuck in the middle, because the sellers are out there with no representation, and it's hard to avoid being on both sides of it. That's wrong."

Other problems might arise because many consumers don't know how to negotiate, especially in a deal as complicated as a home sale. For example, some sellers may not realize a purchase agreement can be refused, or how to handle a contingent offer, industry leaders said.

"The hardest part is that you're calling these people directly to set up showings," said Kathy Diffley, president of the St. Paul Area Association of Realtors. "Many times they don't get back to you . . . they don't have any fliers in the house, they don't have any disclosures. A lot of times they're there. No one has sat down and told them that most times it's better if they're not there when there's a showing; it's a little intimidating to have a seller there when there's a showing."

That's part of the problem of dealing with someone whose emotions are wrapped up in the deal.

"Many buyers' agents don't want to deal directly with the seller," Peltier said. Realtors often point out that their inclination is to seek compromises that will close deals, and that it's easier for two agents to find compromises than it is for the parties themselves, who may perceive requests as insults.

Peltier said he has used an agent when he bought and sold property because "the combination of the emotional involvement and the size of the investment and the anxiety involved sometimes clouds the objectivity."

Burnet also is a believer. He has his own house up for sale - listed by another Burnet agent.

"I'm not even doing it myself and I'm a broker," he said. "I'm clueless as to what the price is."