Tag: Coming Soon Listings

National Association of Realtors (NAR) Bans Pocket Listings

During its annual convention earlier this month, the National Association of Realtors (NAR) voted to ban the practice of pocket listings. Pocket listings are listings which are withheld from the MLS, thereby denying other Realtors (and agents who are not Realtors) from showing and selling the listings. The rule goes into effect on January 1, 2020, but NAR is giving MLSs until May 1st to fully implement it.

Regular readers of this column know that I have long decried the practice of selling listings without putting them on the MLS. Doing so increases the chances of the listing agent “double-ending” the sale, resulting in twice the commission, but it also runs the risk of netting less money for the seller, thereby violating the ethical and legal requirement that listing agents work in the best interest of their sellers instead of themselves.

Perhaps you saw me quoted on page 10A of last Thursday’s Denver Post as welcoming this new rule. As I stated to reporter Aldo Svaldi, the only way to guarantee the highest price for our sellers is to expose their listings to the full market of potential buyers, which is only done by putting the home on the MLS. When the listing agent convinces a seller to accept an offer before their home is put on the MLS, there is no way of knowing how much money the seller will “leave on the table.”

The purpose of an MLS is to provide “cooperation and compensation.” Members of an MLS must allow (cooperate with) any other member of the MLS to sell their listing and makes it known how they’ll be compensated — in our market, typically 2.8% of the sale price.

The new policy, called “clear cooperation,” is spelled out in the following motion passed by a 91% to 9% vote of the NAR board of directors:

“Within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants. Public marketing includes, but is not limited to, flyers displayed in windows, yard signs, digital marketing on public-facing websites, brokerage website displays, digital communications marketing (email blasts), multi-brokerage listing sharing networks, and applications available to the general public.”

I can provide an example from my own practice. In November 2018 I listed a home for $1.1 million. Even before I put it on the MLS, a close friend of the seller said he would pay full price. The seller wanted to accept it, but my advice was to consider the friend’s offer the “opening bid” and to proceed with exposing the home to other buyers by putting it on the MLS.

Five days after putting the home on the MLS, bidding had driven up the price significantly and it sold (to the same friend) for $75,000 above full price. The seller was delighted, and so was the buyer, who only asked that his friend match the highest bid.

I could easily have made a quick commission and saved myself the chore and expense of marketing the home and managing competing offers, but I would have been violating my duty to the seller and, it turns out, cost my seller a lot of money.  I particularly like that, when all was said and done, the seller netted the full listing price, even after deducting commissions and the other costs of selling!

It will be interesting to see how this rule against pocket listings is implemented by MLSs and how effective it will be. One work-around we can expect is that listings will go on the MLS with the notation that “showings begin on such-and-such a (later) date.”

One of our broker associates, Chuck Brown, attended the NAR convention, including a panel of the titans of real estate — from Realogy, RE/MAX International, Zillow, Opendoor, Berkshire Hathaway Home Services, and others — and they, unlike the board of directors, were mostly against the new policy on pocket listings.  Zillow and Opendoor, in particular, say they’ll continue to list properties as “coming soon.”

Clearly the new rule will restrict but probably not eliminate the practice.  REcolorado’s Rules & Regulations Committee, on which I have served for over a decade, will discuss it on Dec. 10th. Expect a follow-up on this subject!

Off-Market Transactions Hurt Sellers By Shutting Out Buyers Who Might Pay More

The sale of homes without listing them on the MLS frustrates would-be buyers who are waiting for just such a home. Those frustrated buyers might have paid more than the actual buyer, in which case it’s fair to say that both buyers and sellers have been harmed.

This is an update of a column with the same headline published exactly a year ago. On March 22, 2018, I wrote that in January and February of that year 4.4% of the sold listings were only entered on the MLS after closing. It’s even worse this January and February, when the percentage of Denver sales showing zero days on market rose to 6.3%. Another 2% sold in one day, which is still not enough time to expose a listing to all potential buyers.

I have determined that with proper exposure, 4 days is the “sweet spot” for listing a home and getting the highest possible price for it. That is office policy at Golden Real Estate, violated only when the seller insists on selling sooner for one reason or another, such as to a friend.

Analyzing the 101 Denver sales in January and February, the median sale was for full price, which makes sense. However, half the 86 Denver homes which sold after 4 days on the market garnered from 1% to as much as 10% above their listing price. That can amount to a lot of money “left on the table” by sellers who chose (or were convinced by their agent) to sell without exposing the home to more buyers via the MLS..  

It’s reasonable to ask how listing agents may have profited (at their seller’s expense) from keeping listings off the MLS. An analysis of the Denver listings that were entered as sold with zero days on market this January and February reveals that 20.8% of them were double-ended, meaning that the listing agent kept the entire commission instead of sharing it with a buyer’s agent. Not one of the homes that sold after 4 days on the MLS was double-ended. It seems obvious to me that many listing agents are convincing their clients to sell without putting their home on the MLS so they can increase the chance of doubling their commission. Putting their self-interest ahead of their clients’ is a serious violation of both ethics and law.

This is not to say that zero days on the market is never in the best interests of the seller. For example, the seller and buyer might know one another, or otherwise found each other, and simply asked an agent to handle the transaction without seeking other buyers.  Or perhaps it was a for-sale-by-owner property where an agent brought the buyer and entered the sale on the MLS after closing as a courtesy to other agents and to appraisers. Or a seller might ask to keep the home off the MLS because he/she does not like the idea of opening their home to lots of strangers.

One would hope, however (and sellers should expect), that when a broker double-ends a transaction, he or she would at least give the seller a break on the commission, rather than keeping the portion (typically 2.8%) that would have been paid to a buyer’s agent. This practice is referred to as a “variable commission” and is office policy at Golden Real Estate. Unfortunately, however, only two of the 21 listings that was double-ended and sold without being put on the MLS offered their sellers this discount. The other 19 enjoyed the windfall of keeping the full commission to themselves, without sharing that windfall with their sellers.

Some agents put listings on Zillow as “coming soon” while holding them off the MLS as a technique for attracting a buyer before other agents know about the listing. The Real Estate Commission addressed this practice in a 2014 position statement, stating that “if the property is being marketed as ‘coming soon’ in an effort for the listing broker to acquire a buyer and ‘double end’ the transaction, this would be a violation of the license law because the broker is not exercising reasonable skill and care.”  Further, the commission stated, “a broker who places the importance of his commission above his duties, responsibilities or obligations to the consumer who has engaged him is practicing business in a manner that endangers the interest of the public.” 

Sadly, that is still happening.