This topic is trending!
Not necessarily out there in the media, but I’ve had three people email me in the past two weeks about “exclusive listings,” all of them asking the same thing: whom does this work best for?
One of my best friends has also been monitoring the exclusive listings on his street, and ironically, the results of that exclusive listing are entirely different from the results of the other exclusive listings I’ve discussed with other readers.
Let’s discuss what an exclusive listing is, and then look at both case studies…
First, a refresher.
What is an exclusive listing?
Well first, I suppose you need to go back to before MLS existed to understand what an exclusive listing is, since it actually came before the run-of-the-mill listings we know now.
Before MLS, and before the Internet, a brokerage signed a listing and either kept that listing “in house,” and tried to sell the property via open houses, client database, or any other means which saw them provide the buyer, or the brokerage was willing to “cooperate” with other brokerages.
This “cooperation,” which is how about 99.9% of listings work now, enabled a brokerage to move a property faster, while perhaps only being able to get one “end” of the deal.
Once organized real estate caught up with the Internet, the “Multiple Listing Service” was created, and any listings where brokerages were cooperating were allowed to be published.
What that means, of course, is that today, “exclusive listings” are NOT allowed on MLS.
In fact, the very first item on the “OREA Listing Agreement” is the type of listing: MLS or exclusive:
The first question that pops into my mind is: “Why would a seller ever list their house for sale and not have it on MLS?”
Maybe that was your first question as well.
Or maybe you’re thinking, “There has to be a better way than to do what ‘everybody else’ is doing.”
Let me walk you through two case studies of exclusive listings, as recent as last week, that show the pros and cons of exclusive listings.
1) The Case Against Exclusive Listings
Any property in Toronto will sell in this market, right?
In this red-hot market, every house gets six or twelve offers, sells for 30% over the list price, and everybody is happy, right?
Well consider that with an exclusive listing, there’s only ONE agent who can show the property, and ONE agent who can bring an offer: the listing agent.
There is no “offer date.”
There are no multiple offers.
And in some cases, an offer won’t materialize, because a buyer can’t see the house, because the agent won’t show it…
A property came out onto the market in the west end a few weeks back, and a blog reader emailed me about it, since it wasn’t on MLS. There was just a sign on the lawn, but no trace of a listing anywhere online.
The listing, of course, was exclusive (also had four pictures, all terrible), and the agent was from….wait for it….Hamilton.
Yeah. Perfect. That’s who you want representing the sale of your largest asset.
I emailed the listing agent twice, but I never got a response.
I finally called him, feigning as a would-be buyer, and he said, “Sunday. I’m only showing on Sunday.”
So here you have a Hamilton agent, only showing the property one day per week, and remind me – how, again, is this in the seller’s best interest?
There are 50,000 licensed agents in the GTA who could have buyers for this house, but only ONE agent, from Hamilton, is allowed to show the house, and bring an offer.
It makes no sense at all.
With an MLS listing, the property goes on the Internet, and every buyer, and every agent, can see it.
With an exclusive listing, the “FOR SALE” sign goes on the lawn, and only passer-byers see it.
With an MLS listing, any agent, representing any buyer, can bring an offer.
With an exclusive listing, only the listing agent, representing his or her buyer under contract, can bring an offer.
Exposure and competition have combined to bring in huge prices in real estate in this market.
Why would any rational seller do without both?
2) The Case For Exclusive Listings
A friend of mine, who like so many other people today, follows the real estate market religiously, asked me about an exclusive listing on his street a while back when it first came out.
This was an incredible property. The neighbourhood, the street, the house – all A+.
It seemed like the kind of house that would start a bidding war, and the kind of house that would sell for way over asking, set records, and drop jaws.
And yet, the house wasn’t put on the open market, but rather a sign went on the lawn, and it was listed “exclusively.”
I told my friend, “It won’t sell. They never do.”
But not only did it sell, it sold for an astronomical price.
We only have “neighbourhood gossip” as confirmation of the sale price, but taking that at face value, the property sold for about 20% more than what we felt it was “worth,” which is about 10% more than the open market likely would have ever conceivably provided.
So how did this happen?
How is it possible that a $1.4M – 1.5M house, which on the open market, would have been listed for $1,299,000 and sold for, say, $1,520,000, ended up selling for $1.8M?
I think it comes down to the listing agent’s “value.”
And in this case, it seems his “value,” as a well-known, local-agent, who farms that area, is a list of people waiting to get into the the neighbourhood, who have no problem overpaying for a property. But whether they know they’re overpaying or not, remains to be seen.
People want what other people want, and they want what they can’t have. It’s human nature.
So if you’re a buyer, and you want a house in a certain area, and you’re offered the “exclusive opportunity” to get on a list, and be called before a house is available to anybody else, maybe when you’re told to pay $25 for a $20-bill, you don’t notice that you’re being taken for a ride?
I know, I know, “a property is worth what somebody is willing to pay for it.”
But in this particular case, I’m talking about a drastic over-payment; something that made absolutely no sense.
You’d almost have to argue that the buyer was duped, misled, or to be blunt, totally screwed over.
So if a listing agent is willing to screw his or her buyer-client, in order to get a seller 20% more than fair market value, which gets that listing agent a signed listing to begin with then, absolutely – YES, there is a value to exclusive listings.
Those are two different cases, with two very different incomes.
Each one is bizarre in its own way, and each one represents the extreme.
But overall, I still don’t think the exclusive listing benefits anybody except the listing agent.
Yes, I’ll take a lot of heat for this from my industry colleagues.
There are agents out there, right now, as you read this, explaining to their clients why an exclusive listing is in their best interest.
But in most cases, it’s not. It’s just a way for the listing agent to get paid twice on a deal.
If you want to bring commission into this, we can.
Perhaps the listing agent says, “Give me a week with the exclusive listing, and if I sell it myself, I’ll do this for 3.75% instead of 5%.”
But I would still suggest to that seller that he or she takes the property to the open market.
You just don’t know what the open market will bring. I’m out there every night, making offers, and whether there’s two offers or twenty-two offers, every night, there are sales that defy all logic.
If you’re a seller, you want a chance at that buyer who brings an offer that defies all logic.
We’re seeing a lot more signs that say “COMING SOON TO MLS.”
This is an exclusive listing, but the sign just doesn’t have that awful black-and-orange, neon “EXCLUSIVE” sticker that is sold at the TREB store.
When a property advertises “COMING SOON TO MLS,” they’re saying that the property is available now, if you call the name on the sign, and deal with the listing agent directly. You can assume the listing agent has 7-10 days to pull an offer, otherwise the property is, in fact, coming to MLS.
I have never asked a seller to sign an exclusive listing because I honestly don’t think it’s in their best interest, and I think that exposing the listing to 50,000 real estate agents, and their collective clients, is a better idea than a sign on the lawn telling people to call me.
I have listings for freehold properties coming out this spring. But I won’t ask for an exclusive.
And even if I had a buyer-client that was “perfect” for a seller-client’s house, to convince that seller that we don’t expose the property to the open market would be difficult. We’d have to get an absurd price, and then would I be doing my buyer-client a disservice?
Realtors – disagree if you want. You can comment below, and I’m the only one here that has to put my name to my thoughts and opinions.
But if you’re a seller and you’re being told that an exclusive listing will save you the “hassle” of listing, or the people trekking through your house, or the time, energy, effort involved with the process, then you need to reevaluate just how important an asset your home is, and how much is at stake.
Kyle
at 10:01 am
What happens if a buyer is already working with an Agent, but finds an exclusively listed house that he wants to offer on? Assuming he hasn’t signed a BRA with his Agent, does his Agent get screwed over? And if there is a BRA, does the buyer then have to pay his Agent a commission? I’ve heard of both situations happening, but wondered what the “norm” is.
Charlotte Toth
at 4:37 pm
Kyle:
First the Agent should have a signed Buyer Representation Agreement with his client or he WILL get ‘screwed over’ as you put it. Second: the BRA indicates the commission that the Buyer will pay his Agent. So, yes, if the Listing Agent has an exclusive and you’ve asked if she’d pay you a fee and she declined then you would look to your Buyer client to pay your fee. So you and your Buyer client need to have this explicit conversation when signing the BRA.
Kyle
at 10:46 am
Playing Devil’s Advocate – I’m assuming the commission paid by the seller would be less than the typical 5%, so there’s some financial incentive there. I could also see how in some neighbourhoods a lack of MLS exposure might not be that big of a deal. I know in my hood, every weekend between 2 and 4 there’s literally a parade of people going from Open House to Open House, nightly there are cars cruising the side streets looking for signs a house could be coming to market and everyday there are flyers in my mailbox advertising for new listings. I suspect someone who is actively looking in a certain neighbourhood will learn about an exclusive listings, despite it not being on MLS.
Joel
at 12:04 pm
When we were looking our agent showed us a couple of houses that he had coming up on MLS within the next month. They were currently redoing floors in one and a kitchen in the other. We offered on one, but didn’t agree on a price. The sellers ended up get 15K more than what they would have taken from us.
In these scenarios I can see why both agents and buyers/seller look at an exclusive listing. As there is less pressure and less stress. (Although I am not certain that these are exclusive listing, but rather pre-listings?)
Georgyboy
at 1:27 pm
The only thing that blows my mimd here is that people still pay 5% commission to sell regular run of the mill properties? There are very good agents out there that take 0.5%-1% to sell, especially if they are purchasing another home for the sellers.
As far as exclussive listings…I think they only make sense for ultra high end or very specialized properties.
Kyle
at 2:28 pm
“There are very good agents out there that take 0.5%-1% to sell”
I challenge you to please name one…
Wut
at 10:40 pm
Lots will if they’re getting a purchase as well. I even had a buyers agent kick back some of their commission to me to buy my house because they knew the buyer couldn’t make it all the way to my ask price. They did that because they knew once their client bought they would list their house for sale right after and make more $$.
With house prices the way they are and dom so low agents getting 2.5% is ridiculous anyways.
Kyle
at 9:07 am
I’ve definitely heard of Agents coming down by a percent for various reasons, but coming down 1.5% – 2% (i.e. taking 0.5% to 1%) would mean that Agent will be out of pocket on that transaction after paying his Broker, and for the marketing.
Charlotte Toth
at 5:06 pm
Georgyboy: Any Realtor working for 0.5% to 1% is not going to be in the business long. Everybody thinks Realtors hang a sign and take in money. A listing is as many as 60 pages of administration work. The research to put together the listing is hours not minutes. Photography, drone video, a simple e-brochure and the time spent with your clients to discuss listing requirements, let alone paying for some or all of those requirements would put you in the red at 1-%.
Oh, you think you don’t need to do that? Well, you wouldn’t get the listing in the first place- there are 60,000 agents all looking for listings. AND the commission is paid to the real estate brokerage; the listing agent gets a portion of that fee, the co-operating brokerage gets a portion too (if there is one). Not including desk fees and overhead, you would OWE the brokerage money. How in the world do people get the idea that real estate commissions are too much? I’m often working for minimum wage with high maintenance sellers (elderly, or hoarders, or ones that are just not able to do much). Years ago commissions were as much as 11%. 5% means the listing agent is still on AVERAGE taking away less than $20,000 for what might be 3 or 4 months work on a &1m listing. That’s about $30.00 an hour which is okay money, but it’s not the obscene amount some people think. It’s about $60,000./year
Libertarian
at 2:59 pm
David, I’m glad that you are willing to call out agents who recommend to their buyer clients that paying $1.8 million for a house that is worth $1.5 million. Who has an extra $300,000 laying around? Perhaps it’s one of those people named in the Panama Papers! haha!
I realize that the $300,000 just gets added to the mortgage and with such low interest rates today, it’s peanuts, but c’mon….it’s crazy. You know how much a person could do with $300,000? Plus, it has an effect on every other house in the neighbourhood going forward. Perhaps David would call the $1.8 house an anomaly, but other agents wouldn’t care and would tell their buyer clients that $1.8 is the going rate. And voila, just like that, house prices are up 20 percent. I’m neither a real estate cheerleader or bear, but it’s stuff like this that has me thinking that this can’t continue ad infinitum.
David Fleming
at 4:18 pm
@ Libertarian
This example aside, there are some sale-to-list ratios that are just insane.
A house in the west end, listed at $999,000, just sold for $1.6M.
Right. Soooo…..just your standard 160% sale-to-list.
“Nothing to see here, folks!”
Julie
at 7:06 pm
I don’t put much weight on list to sale numbers. Too many agents are listing at stupidly low prices so they can say they got 150% of list price when the house sells for what it’s actually worth. That being said, basic 3bed/2bath SFHs in my midtown neighbourhood seem to have gone from about $1.1M to $1.3M this spring.
bugeyedbrit
at 8:49 pm
I come from the UK, our system is way simpler than here, estate agents (realtors) are employed by companies and work for these companies in certain areas, people who want to purchase property in those areas visit the high street office of the local estate agents (or more likely, look on their website). Buyers register with the agents and usually prove they are serious buyers, with a mortgage approval, and view any property the agent has on their books, if they find an agreeable one, they make an offer, there can to some horse trading, but usually a sale is arranged, and the sellers pay the agents commission on completion.
To me, in my naive way, it all seems a lot less complicated than 2 sets of realtors, houses are put on the market at market price, and usually sell near to that, not a quasi auction system of continual offer ‘improvement’.
Charlotte Toth
at 5:16 pm
bugeyedbrit
I realize these posts are old, but people are still reading them so …In the UK a people can list their property for sale with several different estate agencies. There is not a signed LISTING with one company. The property is generally offered at a ‘suggested price’ known as ‘offers over’ a certain amount of money. The Buyer can pop into the high street office of a realtor and through them submit an offer on the property (say it’s listed at offers over £1,000,000. And the potential buyer submits £1,200,000.).
The high-street agent may or may not know whether that offer is high enough over the suggested price, but let’s say the seller accepts it – great.
Just one thing: the seller can accept another higher offer a week later and the first buyer is out.
The British system is not better than the Canadian system.
Jeremy Li
at 2:00 pm
You can check out BrokerPocket, they have lots of exclusive listings if that’s of interest to anyone
Jack easton
at 2:59 pm
You are 100% right in your explained view. An agent from Mark Farris Realty wanted a 30 day exclusive listing and get this a 5% commission as well! This is in the neighbourhood of sleeze and ——–. Brokers like this give all agents a used car salesmen collar! I believe this method used by a sales representative a direct policy from the Mark Farris Bokerage are unethical. Saying you need to go Exclusive and pay full commission 5%. is dishonest. Yours Jack
Gary Nusca, CCIM, CIPS
at 10:25 am
My thoughts.
CREA proposed a rule
requiring all Exclusive Residential Listings must be on MLS. It is proposed that it would be up to the individual board according to the FAQ page, to apply a penalty or something to make one comply and in my opinion seeing what happened in the USA you could lose your membership.
https://www.iciworld.com/rule
Discussion For and Against
There is a Poll you can vote
Jagpreet Singh
at 11:58 am
Eye opener!