Home>Features>Off MLS or “Pocket” Listing? You’re at Risk!

Off MLS or “Pocket” Listing? You’re at Risk!

There is a temptation in this current and strong real estate market to do the non-traditional or unorthodox as a way to perhaps move ahead or to be, presumably, more efficient. Shortcuts are not uncommon when the money is flowing and business is good. By example, there are REALTORS® in this market who have convinced themselves, as well as sellers, that withholding a property from the Multiple Listing Service (“MLS”) is in the best interest of the seller. Good times can result in poor or risky decision-making. A seller may ask you a month after the closing on a property, “Why did you ‘pocket’ my listing, and not put it on the MLS like my neighbor’s property who received a higher price for a similarly situated property?” Your response might be to call your liability carrier to report a new claim. Your insurance company might, however, take the position that intentionally leaving a property off of the MLS is not covered, i.e., no REALTOR® should be that careless.

You get the picture? This current love affair by some with “pocket listings,” meaning property listed with a REALTOR® who in turn does not place it on the MLS, can invite trouble. In fact, this issue of pocket listing may be the greatest legal risk facing REALTORS® today. Why?  Once you have taken a listing, you have created the highest level of trust in our legal system: the fiduciary relationship, a “special relationship of trust.” A relationship created to help sell a property on the market. Market access is best provided by the MLS, with listings exposed to other brokers, agents and their buyers, as well as listings routed to public websites for consumer access and review, versus unknown and minimal exposure from a pocket listing. No jury would find that you fulfilled your fiduciary duties by choosing to sell a property under a pocket listing that results in limited exposure and limited buyers. The shortcut, the quick sale, exposes you to liability and reduces the property’s exposure to the market.

One might even argue that the effect of a pocket listing is to deny certain people access to the purchase of property. If only certain buyers are allowed to bid on the property, then the REALTOR® runs the risk of being party to a discriminating act, even if unintentional. Thus, a listing orchestrated to be accessed by a select few could be in violation of federal fair housing laws that are in place to prevent discrimination in the sale of property. The federal government would also have interest in any private groups or collection of individuals that gain from pocket listings by setting commission percentages and listing terms to the exclusion of others. A REALTOR® working in such an environment might be subject to antitrust laws that are in place to promote competition.

Don’t be tempted to test or experiment with a pocket listing with the MLS as your fallback. A step in that direction will later provide the argument that you failed on a most fundamental part of selling a property: marketing it and letting the world know about it, as opposed to just a handful of agents, friends and neighbors.

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There may be that occasion when an owner has personal or other reasons for not listing a property on the MLS. Then, in such a situation, it would still be prudent to advise the owner of the benefits of a MLS listing, and if the owner’s position is still “no,” then you document that fact. Meaning, have the owner sign an authorization form which therein grants the broker the authority to exclude the property from the MLS, and explains to the owner the consequences of not using the MLS.

The market is highly favorable to sellers and their REALTORS® at this time. Perhaps in the fast lane, if you will. Yet, don’t take off the MLS “seatbelt” that allows you to safely tell your client or anyone that the property had full exposure to the market, that it sold at market price to a random buyer, and that it was not sold below market at a price determined by a lone buyer from a select group.

Grant Harpold serves as HAR Legal Counsel and is a shareholder with the law firm of Vincent Lopez Serefino Jenevein, P.C. in it’s Houston Office.

15 thoughts on “Off MLS or “Pocket” Listing? You’re at Risk!

  1. I don’t understand the defensiveness, this article was written to protect you the agent from being sued by a seller or buyer because they felt they were not fairly treated. True or not if it comes before a jury you loose. Just protect yourself that is all it is saying. Stop being so defensive.

  2. In my opinion, MLS is to Realtors what Monsanto seeds are to farmers. So the alleged story goes that Monsanto created seeds that make it easier for farmers to grow their crops faster and with less time and dollars invested. What farmer could turn that down? After a while some farmers found out some of the
    drawback. The farmers that tried to purchase different seeds through other co-ops found themselves faced with lawsuits and legislation changes through heavy lobbying efforts by Monsanto. Through PR, Monsanto launched a heavy campaign that insured a lot of farmers fall lock step in with Monsanto. Monsanto created a world in which farmers would turn on their neighboring farmer if they did not use Monsanto seeds

    Keep the story the same, but change the names.

    It appears that MLS created a system that makes it easier for Realtors to sell houses with less work, time and dollars invested on the Realtor’s part. What Realtor could turn this down? So after a while some Realtors realized
    listing a house on MLS may have drawbacks for certain sellers…The Realtors that began using alternative means to sell their client’s homes other than MLS now find themselves criticized by their peers and what appears to be a PR campaign by the industry (with little FACTUAL data) to try and stop this practice, and ensuring the only way for a seller to list their house through a Realtor is
    through MLS.

    This aside, show me some fact based quantitative numbers and their sources that support your argument against pocket listings and how they are not in the best interest to the seller in some cases. Then provide statistical proof that a house
    sold through a pocket listing would have received more if it was sold through
    MLS and I’m all ears. Otherwise your argument is simply based on speculation and fluff.

    Using “absolutes” in your piece does little to make your argument convincing.

  3. Thank you all for your comments about this important issue.

    The HAR Board of Directors has taken the issue of “off MLS” transactions very seriously and has been monitoring the increase in their frequency closely. The result of our research was to produce the “Seller’s Authorization to Exclude from the MLS.” HAR is not against off-MLS transactions. We are against our members being sued by dissatisfied clients though. We are trying to educate the public and members that there are important things of which they should be made aware when deciding how to best sell a property.

    The California Association of REALTORS® undertook a major educational campaign about this issue last year and targeted both consumers and members. There is currently a case in arbitration in the San Francisco Bay Area where the client sued the broker after the sale had closed, saying they were not informed that the property would not be listed in the MLS. In another case, an elderly widow told her agent she didn’t want her property included in the MLS. After the sale, the seller’s children sued the agent, alleging that it had been underpriced by $300,000. Had the agent maintained proper paperwork and had an “Exclusion” form been signed, the agent would have been in a much better position.

    Long & Foster, the third largest brokerage in the country, has a multi-pronged major advertising campaign focusing purely on the risks of not including properties in the MLS. Locally, several of the large firms have done mailers or print ads about the importance of utilizing the MLS.

    Former NAR General Counsel Laurie Janik said in her farewell speech that she believed off-MLS transactions were the biggest threat facing the real estate industry. Here is also an article from this week written by an Atlanta broker on Inman News: http://www.inman.com/2014/04/09/pitfalls-of-pocket-listings-for-buyers-and-sellers-outweigh-potential-upsides/. This is one of the biggest topics in the real estate industry right now, and we just want to make sure our members are protected.

    The integrity of the MLS data is also important to our 24,000 subscribers who utilize this data for comparables to know how to accurately price a property. It isn’t about selling the data; it is about maintaining its value for members and consumers in good times and bad. Additionally, if lenders do not have a complete picture of a home’s real worth based on the market, then that is bad for everyone.

    The Association is here to support our 24,000 members; not to make your lives more difficult. Remember that we are all REALTORS® too.

    Thank you again, and please don’t hesitate to contact me at chaille@har.com if you ever have any comments or questions about this or any other issue.

    Chaille

    Chaille G. Ralph
    Senior Vice President
    HERITAGE TEXAS PROPERTIES
    1177 West Loop South, Suite 1200 | Houston, Texas 77027
    C: 713.906.3966 | D: 713.341.1629 | O: 713.965.0812 | F: 713.297.5649
    E: cralph@heritagetexas.com | W: http://www.heritagetexas.com
    HeritageTexasBlog | Housing Trends Newsletter

    TREC Lic. 0314478
    Houston Association of REALTORS®, 2014 Chair of the Board
    Texas Association of REALTORS®, Regional Vice-President
    National Association of REALTORS®, Director

  4. Great article. Thanks for giving fair warning to these agents that are burning their clients. I experienced a Listing Agent that closed the door to offers in the Bellaire Market. The house sold for list price. Guess who was the Selling Agent. Yeah…. that’s right! Our offer was 30K over list. I wouldn’t be surprised if there were other offers better than ours. Then, in about 3 weeks the house was back on the Market for 150K higher. New Seller.
    I would definitely get the doc to clarify the Seller’s choice of not putting the house on the MLS. Once a Seller figures out he lost a bunch of money…. he is going to forget everything except “why didn’t my Agent inform me” as he is dialing his attorney. The MLS IS the Market. If it is not on the MLS then it is NOT on the Market! Remember what the Article said…. “how is a jury going to see it?”.

  5. I agree this makes no sense. The listing agreement addresses this. The lawyer who brought this issue probably is not a Licensee and does not understand the practical side of selling real estate.

  6. This is silly. Brokers do not need HAR to be their agent’s nanny. If you want to suggest we use a form, great, thanks for looking out! But to require one be signed by agent, broker, seller, and submitted to HAR is unnecessary and, frankly, nosy. This is already addressed in our listing agreements and that should be sufficient; at least sufficient from HAR’s perspective.

      1. A couple of months late, but when HAR first rolled this out, they were requiring that brokers turn in these forms to HAR if a property was going to be withheld from MLS. Not sure if they backed away from that or not.

  7. How should it be handled when a seller is in the process of preparing their home for market; fix ups, staging and other prep work? Should the agent have a listing agreement signed? Or should the listing agreement be signed after the work is done and the home is actually ready to put into the MLS?

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