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The Legal Blog, brought to you by NVAR's Professional Standards department, helps you stay on top of the latest rules and regulations in the industry.

Advertising For-Sale-By-Owner Properties

By:
  • Daniel B. Harris Esq.
Jan 29, 2021

Many brokers are asking: “Can my firm advertise resales, vacant land and new construction properties that are for-sale-by-owner (“FSBO”) on our website without listing it in the MLS?” It may surprise you to know that there is nothing illegal or unethical about this practice, provided it is done correctly. This article addresses questions related to this practice to help guide you and your business. 

Q. What does Virginia law say about advertising property?

Virginia law prohibits licensees from advertising “specific, identifiable property” without first obtaining the written consent of the seller, landlord, optionor or licensor (18VAC135-20-190). A similar prohibition can be found in Article 12, Standards of Practice 4 of the National Association of Realtors® Code of Ethics (“COE”). Whether the property is “identifiable” will depend on the facts of each case, but a general rule of thumb is if the address is included or ascertainable from the advertisement, it’s identifiable.

Q.  Doesn’t Virginia law require an agency agreement to advertise property?

Not necessarily. To understand the answer to this question, it’s important to know a few fundamental Virginia agency law principles and definitions. 

First, a written “Brokerage Agreement” is required whenever the licensee establishes a “Brokerage Relationship” with a client (§ 54.1-2137). A “Brokerage Relationship” is defined as a contractual relationship between a client and a real estate licensee who has been engaged by the client for the purpose of “procuring a seller, buyer, option, tenant, or landlord ready, able, and willing to sell, buy, option, exchange or rent real estate on behalf of a client” (§ 54.1-2130).

In short, if a customer hires you “to procure a seller, buyer, option, tenant, or landlord ready, able, and willing to sell, buy, option, exchange or rent real estate” on the customer’s behalf, that customer becomes a “client” with whom you are required to have some type of written “Brokerage Agreement.” Under § 54.1-2140, the payment or promise of payment or compensation to a real estate broker does not by itself create a “Brokerage Relationship.”

In the context of advertising FSBO properties, if the only understanding between the parties is that Brokers will allow the owner to market the FSBO property on Broker’s website, there is no “Brokerage Relationship” since Broker is not being engaged for the purposes of § 54.1-2130. Since there is no “Brokerage Relationship,” the FSBO is a “customer” and not a “client.” This distinction is important because most statutory/regulatory agency rules extend to “clients” and not “customers.”

It is also important to remember that Realtors® may still have ethical obligations to “customers” under Articles 1 - 9 and 11 of the COE.

Q.  If there’s no Brokerage Relationship, do I still need a written agreement before allowing the FSBO customer to advertise their property on the firm’s website?

Yes.

As stated above, Virginia law requires the licensee to have written permission before advertising identifiable property. Additionally, if you intend to offer this service to customers, it is extremely important that your agreement specify the scope/limitations of the relationship. For example, the agreement should clearly explain to the customer that your firm is not representing the customer as a real estate standard agent, limited services agent or independent contractor. It is also important that the agreement address general terms of use for the marketing platform. For example, your agreement should prohibit FSBO content that contains false/misleading statements or content that would otherwise violate Fair Housing laws or Article 10 of the COE. Such agreement could come in the form of a written non-brokerage agreement with the customer or contained in the terms of service for accessing and using the Broker’s website. Remember, Article 9, Standard of Practice 9-2 requires Realtors® assisting a “client” or “customer” to “make reasonable efforts to explain the nature and disclose the specific terms of the contractual relationship being established prior to it being agreed to by a contracting party.”

Q. What can I charge for this type of service?

Generally, we do not opine on what private businesses can or should charge for their services.  However, we recommend that if you intend to allow marketing of FSBO properties on your site, the cost for doing so should not be tied to or dependent upon the property’s sale price or the consummation/closing of a transaction. These types of arrangements are “commissions” and negotiating a commission payment is licensed real estate activity. You cannot accept such payments outside of a “Brokerage Agreement.” The best practice would be to charge a flat fee for use of the platform that does not vary based on the purchase price. Any fee charged for this service could be disclosed and agreed to by the Brokerage and the customer in the written agreement or terms of service discussed above.

Q. Do I need to list FSBO properties in Bright MLS?

No. Section 1 of the Bright MLS Rules and Regulations states that:

Listings of real or personal property, which are listed subject to a real estate broker’s license, and … taken by Participants on listing contracts acceptable to Bright MLS shall be electronically input or delivered to Bright MLS ....

“Listing” means property subject to an exclusive right to represent agency agreement recognized under law. As discussed above, a “Brokerage Relationship” is not created simply by accepting compensation for utilization of the firm’s marketing platform, provided Broker is not engaged for the purposes enumerated in § 54.1-2130. Therefore, there is no “Listing” to submit to Bright MLS.  

However, brokers should be aware of certain Bright MLS rules applicable in this context. Section 16.3(h) of Bright MLS Rules and Regulations states that “IDX Participants and Subscribers are permitted to display listings obtained from sources other than Bright MLS IDX provided such properties are not displayed on any page or window of their website that displays the listings of other Participants obtained from Bright MLS’s IDX Database. Such Non-MLS listings and Other Brokers Non-IDX Provided Listings may be displayed on a separate page or window of the IDX Participant’s website.”

For the purposes of this analysis, it is important to make a distinction between a “Listing,” which is an advertisement from a Broker pursuant to a “Brokerage Agreement” (such as an Exclusive Right to Sell or Exclusive Agency Listing Agreement) on behalf of a client, and an advertisement for a customer, which is not a “Listing” under the Bright MLS Rules. “Listings” are subject to the Off-MLS and Office Exclusive Policies and must be in the MLS within one business day of public marketing. Advertisements for customers are not “Listings” and therefore are not subject to those Policies. However, if any property advertised on your website is from a source other than Bright MLS IDX Database, it must be on a separate page or window from Bright MLS “Listings.”

As always, contact the Legal Hotline if you any additional questions.

Group(s):
  • Listings
  • MLS (Multiple Listing System)
  • Real Estate Laws
Categories:
  • Client Presentation
  • Multiple Listing Service
  • Realtor® Professionalism