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.
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.