It’s amazing the stories I hear about the self-policing that occurs on the MLS (some of it seems more like snitching, in my opinion). One of the big no-no’s is listing any reference to an open house in a listing’s marketing remarks. The reason for this rule seems clear enough; with so many of the big guys subscribing to feeds of all the listings, the MLS doesn’t want to bite the hand that feeds it. The Windermeres and John L Scott’s don’t want prospective clients to go to open houses on their own, they want their agents to represent these prospects.
On the more creative side, an agent I know had her hand slapped after she tried to emulate an auction situation, using her MLS listing to attract buyers. She is also an investor, having bought the home in question on a lease-option. The previous owner did a beautiful rehab job, but ran out of money and needed out fast. She stepped in, leasing the place (the lease payment covering holding costs for the owner), with a year option to buy for what was owed by the seller. She also took a chance and put another $15K into the home to finish it out (a risk since she didn’t own the home). With her large equity position given the market value of the home, she decided to test the waters, and create a situation that would attract more offers.
First, she offered a buyer’s agent commission of 4%. Then, in her creativity, she made her first mistake. In the agent-only remarks, she explained that the 4% would be added to the highest bid price. This was also clearly stated in the auction rules posted at the property during the open houses, available to all potential buyers. Her thinking was to put walk-in buyers on the same footing as buyers with agents (there were two open houses over the course of a weekend, then bids were accepted – no time for lockbox enabled agent visits), thereby creating an apples-to-apples comparison when reviewing competing offers. In other words, the final bid price would be the net (of commission) price. If a buyer with an agent offered the highest bid at (for example) $100,000, then price would be grossed up to $104,000, with the investor/agent/seller paying out the $4000 commission to the agent at closing. If a walk-in buyer offered the highest bid, then no commission is necessary (since she is the owner of the house, there’s no need to pay herself a commission…she’s getting all the profits anyhow). I can understand why she got in trouble for this. The MLS is for agents, not joe consumer. Agents would naturally prefer that the buyer’s agent commission is included in the final cost of the property. With this gross-up method, savvy buyers (even dumb buyers) would realize that they would have saved $4000 had they gone directly to the open house without an agent.
The other creative step she took was to include the word ‘auction’ in the agent remarks. She listed the home at her acquisition cost, knowing that it’s true market value would grab the attention of agents. Her objective was not to deceive, thus the reference to an auction (all bids would be reviewed at the end of the second open house).
However, on both counts, other agents snitched her out. I think each of her creative marketing ideas went against the traditional thinking of the industry.
In trying to offer a grossed up commission (and super-sized at that!), she was bringing the bright light of transparency to the transaction. Though her intent was not to ‘out’ agents who don’t discuss compensation with their clients, this is clearly the first thing many agents thought about. The agents would publicly claim that ‘it isn’t fair’ to raise the price 4% after a final bid has been made. On the contrary, as long as the this is known from the beginning, there should be no problem. If buyer’s agents openly discussed compensation with their clients, then clients would have a better chance of understanding that grossing up the offer to capture commission is not a big deal.
As for trying to market an auction, I think agents didn’t understand what the investor/agent/seller was trying to accomplish, or they were thinking of a Sotheby’s style of auction, which would be uncomfortable for agents and buyers alike. In either case, it was just strange enough to be deemed out of place on the MLS.
I’m guessing that some agents reading this are thinking, “yeah, this seller/agent should burn in hell for what she tried”. However, being an investor myself, I applaud her creative approach to trying to maximize the price she can fetch for her property, and for trying to structure the commission so that agent represented buyers and walk-ins are treated equally.