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AMLASpain · 05-25-2008, 10:23 AM

In response to an article MLS property sharing systems in Spain

A recent article in eyeonspain.com prompted me to write this article as reading the aforemetioned piece highlighted many of the mis-conception that have grown up in Europe regarding Multiple Listing and the inherent benefits to both clients and agents.

The first mis conception is what MLS actually is. Multiple Listing is a form of Agency contract. The most common agency contracts that you may have come across in the UK are sole agency and open agency, where the vendor, (seller) enters into a contract with an agent to sell their property under various terms and conditions. In the same way, a Multiple Listing Agency contract gives the listing agent the right to market the property through other co-operating agents as well as to the public in general.

A listing contract is a form of employment contract between the owner and the listing agent. The terms and conditions of the contract relate solely between the two parties. This includes the commission that the vendor, (seller) is willing to pay the agent for producing a buyer for the property.

“Some MLS systems effectively add over 9% to the desired selling price of a property in Spain. That’s just outrageous. If I want 200,000 Euros for my property then on an MLS system it could effectively be listed at 218,000. 18,000 Euros in commission seems an awful lot of money!”

In the above quotation from the eyeonspain article, any organisation that imposes a commission outside the terms of the listing agency contract is acting as an agent and not as an MLS. The MLS service provider may charge a fee to the agent for use of its database and allowing them to list their properties on it, but does not charge any additional cost to any member of the public using the service. Any website or service provider that does this is acting in the capacity of an agent and should not be considered an MLS.

In relation to the two systems quoted, I can state as fact that ‘Infocasa’ does not impose additional fees to potential buyers and as far as I am aware the IN Network is now operating as a single agency.

One of the other points mentioned in the article was that having two agents involved in a single transaction was at the detriment to the buyer. This I would suggest is one of the main benefits to an individual looking to purchase a property in Spain.

Having travelled to Spain to purchase a property under a decidely different legal system I find it a distinct advantage to have an agent acting seperately for the interests of the buyer, rather than relying on the information from an agent who has a contractual obligation to the seller and a financial interest in completing the transaction.

The main source of problems in property transactions in Europe arise due to the direct conflict of interest that a ‘one agent’ transaction occurs. Who’s interests does the agent act for in such a transaction? In a mature MLS property market such as the USA, single agent transactions, whilst rare, do still occur. When they do however, they are governed by much stricter rules to avoid the conflict of interest. In Spain, I would suggest, that having an agent act for your interests, seperate to the agent contractually obligated to the seller helps avoid conflicts and provides avenues of direct responsibility.

Ideally, a prospective purchaser should sign a Buyer Agent Agreement outlining the agents responsibility to the purchaser and the terms under which the purchaser agrees to pay his fee. This fee is usually negated by the sharing of the listing agents commission, but can be seperate.

The agent acting for the buyer then has the responsibilty of finding the most suitable property for the client and negotiating the best possible price for his client seperate from any responsibily or contractual obligation to the seller. Surely this is a much better scenario than being left to the control of a single conflicted agent.

It is not surprising that the article tries to criticize this system. In the UK, property transaction have always been governed under the one agent system with responsibility being thrown onto the buyer, not only in terms of the ‘Caveat Emptor’ rules or ‘Buyer Beware’, leaving sole responsibility on the buyer for determining any defects in the property. But also in terms of determining whether they are purchasing the property at the best possible price.

Another major benfit of a Multiple Listing Service is the ability to make direct comparisons of price against the available property on the market. This helps highlight any single property that may be overpriced as well as providing a choice of altenative comparable properties for a purchaser to choose from.

In conclusion I would say that the problems lay not within the way Multiple Listing Agency works, but in the understanding of what Multiple Listing is and how to decipher what is and what is not a proper Multiple Listing Service. It is also a matter for a prospective purchaser to decide under what conditions he or she wishes to enter into a property transaction and what level of responsibility they want to take themselves, or defer under contract, to an agent.

I believe that the underlying problems to be found in the system however, lie more in the non-regulatory nature of the market than anything else. With European harmonisation of contract law now in force, maybe a European wide directive imposing standard binding agency contracts would go some way to addressing the issues.

Homefinder · 05-25-2008, 04:38 PM

I was wondering when a discussion like this would start and was thinking about starting it myself, except that I could never find the time to research it properly.
This discussion is likely to be a real earth mover so the first thing I intend to do is contact eyesonspain.com and invite them to join the SREF and participate, if they are not already members.

Quote:

The first mis conception is what MLS actually is. Multiple Listing is a form of Agency contract. The most common agency contracts that you may have come across in the UK are sole agency and open agency, where the vendor, (seller) enters into a contract with an agent to sell their property under various terms and conditions. In the same way, a Multiple Listing Agency contract gives the listing agent the right to market the property through other co-operating agents as well as to the public in general.

I think that AMLASpain is confusing the issue here and citing MLS as a form of agency contract is misleading and the following better explains the function of MLS -

Quote:

The MLS service provider may charge a fee to the agent for use of its database and allowing them to list their properties on it, but does not charge any additional cost to any member of the public using the service. Any website or service provider that does this is acting in the capacity of an agent and should not be considered an MLS.

Surley MLS is better described as a listing (advertising) service for multiple estate agents, which provides potential buyers the opportunity of viewing a large number of properties in the same area, from different agents and enquiries are sent directly to the agent listing the property.

The issue does become complicated after this because -

Sellers are inclined to engage more than one estate agent to market their property so that more than one agent could list it on the same MLS site.
One agent, by agreement with another, may list the other's properties, once again causing a duplicated listing on an MLS site.

Apart from these complications, as I see it, it is as simple as that.

A Wikipedia Article explains -

"The MLS model in use today dates back to the 1960s when almost all brokers involved in transactions represented the seller"

"The MLS was intended to be a simple system that benefited everyone, including both the buyers and sellers."

"Today there are more than 800 MLS systems across the country and consolidation is inevitable. The drive towards the freedom of information has caused MLS to evolve into a consumer marketplace and a quasi public utility. That in turn has opened new competitors such as Google Base, Real Estate Valuations, Homes for Sale, Free Real Estate Information | Zillow Real Estate, and Craigslist. Point2 NLS, Trulia, and Oodle are other examples of newer alternatives to the MLS service. Facebook is also pursuing an interest in their own listing service with Cribfinder."

"In certain European countries, most notably in Spain, MLS companies have started up in most of the popular vacation home destinations, including Costa del Sol, the Costa Brava, etc."

"Although there are currently no regulations in Europe in relation to MLS, it may be a matter of time before its use may be viewed as a restrictive practice designed to benefit real estate agents, rather than consumers."

Read the full Wikipedia Article.

Quote:

“Some MLS systems effectively add over 9% to the desired selling price of a property in Spain. That’s just outrageous. If I want 200,000 Euros for my property then on an MLS system it could effectively be listed at 218,000. 18,000 Euros in commission seems an awful lot of money!”

Eyeonsapin.com have obviously got that one wrong as they cannot be talking about a boda fide MLS site.

Homefinder

AMLASpain · 05-25-2008, 11:02 PM

" 1. Sellers are inclined to engage more than one estate agent to market their property so that more than one agent could list it on the same MLS site.
2. One agent, by agreement with another, may list the other's properties, once again causing a duplicated listing on an MLS site."

To take this point first,
In a market with a ' true' MLS service such as the US, and I use the word true for two reasons.

1. In such a regulated market, the MLS is run by the regulatory authority, the NAR ( National Association of Realtors). To become a member of the MLS, you must be a licenced real estate Agent and must not only have a written agency agreement with the vendor but also an agreement to list the property on the MLS. This second agreement is an 'exclusive right to list' agreement between the agent and vendor giving the agent the right to list on the MLS. This excludes duplication of properties on the database.
2. It is a necessity to become a member of the MLS if you are an agent. Membership effectively allows access to to over 95% of the property for sale in the marketplace and as a listing agent you are able to offer the property for sale through 100% of the agents working in the market.

This provides as close to a 'perfect market' as you are likely to get, bringing all buyers and sellers together in one place. In this state the perfect market benefits both buyers and sellers equally, increasing the speed and efficiency of transactions as well as providing checks and balances with regards pricing.

2. The second point you make infers that contractual obligations between a vendor and his agent can be transferred to another agent (third party) without the agreement of the vendor.
Legally this is very stony ground and is why, in these circumstances a Multiple Listing Agency Agreement should be in force between the listing agent and the vendor.

The need for a multiple listing agency agreement between vendor and agent incorporating the exclusive 'right to list' on the MLS are what seperates an MLS from the afore-mentioned advertising sites and portals.

The term MLS has for the most part been mis-used where it appears in Europe. In the US the term MLS is a trademark so as to distinguish it from portals and advertising sites, and whilst advertising sites are to be found they are not as prevelant as they are in Europe. Brokers have the ability to draw listings for their websites directly from the MLS allowing them to show all the listings in the market leaving advertising sites as a second line form more used in the FSBO market than by agents.

"Although there are currently no regulations in Europe in relation to MLS, it may be a matter of time before its use may be viewed as a restrictive practice designed to benefit real estate agents, rather than consumers."

As I said in my original piece, an MLS does two main things.
1. It creates a perfect market
2. It seperates conflict of interest

Neither of these I can see is too the detriment of the buyer or seller.
I do believe that some regulation of the market and agents would be beneficial to all concerned.
Education with a basic understanding of contract law, agency law and procedures combined with a registration system of identification so as to establish a line of responsibility would go a long way to increasing confidence in an industry low on the ladder of public trust.

The comment in Wiki seems to have been written from a Europeans perspective rather than from a study of the evolvement of the system in its 'true' form....just goes to show you shouldn't believe everything you read in Wikipedia!

Homefinder · 05-25-2008, 11:55 PM

Well - I did say that I had not had time to research the issue properly!
I take the point that MLS has been around in the USA for quite some time and is strongly regulated. However, that does not mean that it will be eventually be regulated the same way in Europe.
I would agree that there are benefits for buyers in that searching is made easy because many properties can be found in the same place.
And perhaps Wikipedia is looking at it from a European point of view but then we are in Europe and MLS is still developing here.

Overall we are not that far apart in our overall opinions but that, in my view, is not the important issue.

EyesonSpain has suggested that MLS systems increase the cost of selling (i.e. the commission charged) and this is the most important point as it would seem to be completely untrue.
I visited the EyesonSpain Forums and Articles with a view to raising the subject there.
Although I could read the article, I could not find it once I had logged in, consequently I have been unable to comment. I did notice that AMLASpain has posted (what seemed to be) a duplicate of the comments pasted here.

Perhaps someone should get EyesonSpain over here to join the discussion.

Homefinder

eyeonspain · 05-25-2008, 11:56 PM

Hi guys, thought I'd join the party.

My whole understanding of how an MLS systems worked here on the Costa del Sol was when I spent a couple of months in a friend's office (who's an estate agent) whilst I build their sites.

I appreciate that some MLS systems can be beneficial to buyers and sellers, but to be honest, most of the agents I knew had properties listed which they knew nothing about, because they belonged to someone else.

How can you sell someone a property which you've never seen? These agents were using the IN system at the time.

In terms of the commission levels, the IN guidelines at the time (and this is going back 18 months) stated that for an MLS property you had to apply a 7.5% commission rate to the FINAL SELLING PRICE.

So my example above is correct. If I went to my agent and said I wanted to sell my property for 200K. If it were a normal system they would have added 7.5% to this, which would make my final selling price 215K. But that's not how it was calculated.

I'm not against MLS systems I'm just not convinced that they are always the best solution.

Justin

Homefinder · 05-26-2008, 12:23 AM

Hi Justin

Welcome to the party. You are a little late but I am glad you made it.

Quote:

I'm not against MLS systems I'm just not convinced that they are always the best solution.

I think, that if a buyer knows where he/she want to buy then the best option is to find an estate agent in that area.
Most of them don't really have a clue so a MLS site is best for them.
Homefinder

AMLASpain · 05-26-2008, 01:31 AM

"How can you sell someone a property which you've never seen? These agents were using the IN system at the time."

In my experience as an agent and as a buyer, I always knew which property was 'right' for me the minute I walked through the front door...as an agent I saw my job as showing the client the right door to walk through rather than selling a property.

in terms of a member of an MLS showing another members property, I think the point is the distinction between who represents who.
A member in say, Malaga has someone walk through their door who has been recommended to the agent by a friend.
The client wants to move inland to Axarquia and asks if the agent can help.

The MLS allows two things to happen.
1. The agent can help the client by accessing potential properties through the database. he can arrange with the listing agents a short list working through the clients needs and arrange appointments to view.
2. As an agent for the buyer seperated from the listing agent, the agent is able to negotiate on behalf of the buyer and in his best interest, seperate from any conflict of interest with having to act on behalf of and in the best interest of the vendor.

Local knowledge in terms of information is provided on request by the listing agent who is local.

I think the IN Network was a bit of an anomoly. They fixed commissions and charged the equivelent of a franchise fee to become a member as far as my knowledge of them goes..

My original post was an article I wrote following reading the post made on the eyeonspain site after reading it . i thought it would also be good to post it here and there....and distribute it...as it raised some great talking points regarding what is and what isn't an MLS and allowed me the opportunity to put forward the view that if more agents would get involved and use the MLS correctly, it would become the efficient market tool it is supposed to be benefitting both sides, the agents, buyers and sellers.

AMLASpain · 05-26-2008, 01:46 AM

"I think, that if a buyer knows where he/she want to buy then the best option is to find an estate agent in that area.
Most of them don't really have a clue so a MLS site is best for them.
Homefinder"

The option that best suits a buyer is to find an Agent willing to act on their behalf as a Buyers Agent. There are buyers agents available who work with listing agents in most areas.

This i think is one of the greatest benfits to buyers of Multiple Listing Agency. If the agent you hire ends up offering you a property on their own register this should be disclosed and the buyer will normally benefit from a reduction in the commission level.

In the US a listing agent will normally agree with the vendor that if they also bring the buyer and act in what is called a 'duel agency' capacity, that there will be a reduced agency commission.

This does raise another interesting point though which is the nature of the much used 'net' agency agreement whereby the agent agrees the net amount the vendor wishes to recieve before commission.

The fact that this type of agency agreement is actually illegal in the US due to the ease with which it can be abused says it all really.

A percentage of the gross proceeds leaves much less room for abuse and both sides can negotiate on a purchase price without worrying where the discount is coming from...the vendor or the agents commission.

Homefinder · 05-26-2008, 11:46 AM

It is all very well talking about what should be happening but unless there is regulation nothing really ever happens at all.
As AMLASpain pointed out, real estate in USA is heavily regulated and the "realators" and "brokers" have their obligations clearly defined.
In the UK it is a different story again. There is little regulation, estate agents fees are very low, buyers are fairly well "clued up" as far as values are concerned and make their own offers through the agent.
Real estate agents have not been regulated in Spain for 8 - 10 years. Right at the beginning we just had API's who had extensive formal training, acted for both sides were permitted to charge a maximum fee of 5%.
Since deregulation, in my opinion, the whole thing has deteriorated to the point that nobody knows what they are supposed to be doing and have to "invent" a set of rules that satisfies their morals and principles.
Right now there is no regulation. Everyone is in a state of limbo and has to decide what to do for the best, as AMLASpain is trying to do.
Eventually we will have new laws, at which point the whole industry will move forward again.
The real problem is that we are in Spain. When the authorities start sorting it out anything can happen e.g. Decreto 218!
Homefinder

eyeonspain · 05-26-2008, 12:57 PM

From my own experience, with the experience I have had with the MLS systems used on the Costa del Sol, they really only mainly benefit the agents and not the buyers.

By applying such high commissions they have effectively helped to kill the market here. And yes, it was quite common for some properties to have 9% commission added.

So if someone bought a property for 200K, then paid 9% commission to the agent that's a final price of 218K. Now, add around 13% on top of that for taxes, notary costs, mortgage fees and costs, etc, and in essence that 200K property is really costing 246K.

If that person then wanted to sell that property on then they would have to start at 246K just to break even. Add on commission, costs, etc and here we go again.

So, my main issue has always been with the levels of commission applied. It was abused for too long, too many people were taken for a ride and now everyone is paying the price.

It's a snowball effect and it's still rolling.

In the US my understanding is that commission levels are much lower so in that respect I think an MLS system can work for the benefit of the buyer, but the bad practices I have seen here have given MLS systems a very bad name.