Tag: off-MLS listings

The MLS’s Campaign Against ‘Pocket Listings’ Is Serious, With $1,500 Penalties

Last November, the National Association of Realtors (NAR) board of directors voted into existence a “Clear Cooperation Policy” (see below). The rule required all MLSs in the country to implement the policy by May 1st of 2021. Although there were some technical delays, the rule is in full force now and our MLS, REcolorado, is enforcing it with substantial fines for violations. (I know because I’m on the Rules & Regulations Committee.) Many MLS members have already received fines starting at $1,500, with only one warning notice given.

The rule basically says that there can be no advertising of any kind for a listing without making the listing active on the MLS so that all members of the MLS have the opportunity to show and sell it.  If a “for sale” sign is put on a listing or there is a social media ad for it, or any other kind of public promotion of the listing, the agent must put it on the MLS within one business day. Currently that means that if the sign or advertising appears in the morning, it must be on the MLS by 6:30 pm the same day.  If it is promoted in the afternoon, it should be on the MLS the following morning.

A listing can be listed on the MLS as “Coming Soon,” but that means no showing by anyone including the listing agent. Once a showing takes place, it must be changed to “Active” immediately, making it available to other MLS members. Also, if it’s “Coming Soon” on the MLS, there must be a Coming Soon sign rider on the yard sign.

Most NAR rules only apply to NAR members (aka “Realtors”), but since NAR requires all MLSs to implement the rule, it does apply to the thousands of agents who do not belong to a Realtor brokerage. 

The policy was intended to reduce the number of “pocket listings.” A pocket listing is one which an agent withholds from the MLS (i.e., keeps in his pocket) in hopes of selling it himself or herself and thereby not sharing the commission with another agent.

With such stringent enforcement of the rule — other MLS violations carry penalties as small as $25 — you’d think there would be a widespread shift away from agents selling their listings before they are shared on the MLS. 

To see if that was the case, I did some analysis of my own, counting the number of closings entered on REcolorado showing zero days on the MLS. I fully expected to see a drop in the number of such closings.

The first day that a listing is on the MLS, it is shown as 0 days in the MLS. If it is changed to pending (or closed) the same day, one can assume that the listing was not active on the MLS long enough for other agents to set a showing and submit an offer.

Much to my surprise, the number of homes listed as closed with zero days on the MLS has only increased over the last 24 months, as shown by the chart below. In fact, the highest number of such closings has occurred since the rule went into effect.

So what gives? This harsh penalty does not appear to be having the desired effect, but maybe some more publicity about it will create more awareness and more compliance. Agents can be suspended from membership in the MLS after enough violations, basically putting them out of business.

After three violations within the same brokerage, the brokerage itself starts getting penalized, with the fine starting at $5,000, so that should certainly increase the in-house training about the rule. I have made sure that my own broker associates are aware of the rule.

Homeowners can, of course, make their own private deals with a buyer and then call upon an agent to handle the paperwork, which is fine, since there’s no advertising or promotion of the listing by the agent.

Also, there’s a “brokerage exclusion” which allows an agent in a large brokerage to tell other agents within that brokerage about the listing, but that cannot include posting it on social media where other buyers could learn about it. These two work-arounds could explain many of the homes contributing to the chart’s high numbers.

Why Is It Called ‘Clear Cooperation Policy’?

The real estate industry is unlike any other industry I know. Through our many Multi-List Services or MLSs, we members agree to “cooperation and compensation.” In other words, each member agrees to share his/her listings with every other member, allowing them to sell that listing to a buyer, and to be compensated by the listing agent by an amount displayed on the MLS.

I like to compare our industry to the new car business. Imagine if you went to a Chevy dealer and described the kind of car you wanted, and the salesman said, “I think the Ford Explorer would be perfect for you.” The salesman takes you to the Ford dealer, gets the keys, and then joins you on a test drive. If you like it, the salesman writes up the contract and presents it to a Ford salesman, who then gives the Chevy salesman half his commission (which the Chevy salesman then splits with his dealership).

That’s how it works in real estate. The commission earned by a buyer’s agent (who is the selling agent)  is called the co-op commission, short for cooperation.

The MLSs have rules requiring a member to put all their listings on the MLS, typically within 3 business days.  NAR’s “Clear Cooperation Policy” tightens that rule to say that any agent who promotes a listing to prospective buyers in any way (including with a sign in the yard or a social media post) must put the listing on the MLS within one business day.

The NAR policy — now an MLS rule — was instigated by members upset that other members were withholding their listings from the MLS until they were sold, further frustrating both the agents and their buyers looking for homes to buy at a time of especially low inventory.

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.