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!

New Report Reveals the True Cost of Selling Your Home to an ‘iBuyer’

Perhaps you’ve heard about the new concept in home selling called iBuyers. Open Door, Zillow Offers and OfferPad are offering this way of selling your home. Basically, these firms use their own cash to buy your home and then re-sell it for a profit.

If you’re a seller who needs to sell quickly and you’re not worried about getting top dollar (or paying less in fees), the iBuyer model is an option that may not otherwise be available to you. You avoid the uncertainty of not knowing how long your home will sit on the market — or whether it will sell at all.

A company called Collateral Analytics has published a study of 4,000 iBuyer transactions in Phoenix which outlines the costs to sellers and the earnings vs. risks for these iBuyer companies. The report’s title is “iBuyers: A new choice for home sellers, but at what cost?”  It was released two weeks ago. To read the full report, click on this link.

   The last paragraph in the report is a good summary of their findings: “These preliminary empirical results suggest that sellers are paying not just the difference in fees of 2% to 5% more than with traditional agencies, and a generous repair allowance, but another 3% to 5% or more to compensate the iBuyer for liquidity risks and carrying costs. In all, the typical cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor. For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile, but what percentage of the market will want this service remains to be seen.”

In May I got a call from a couple which was under contract with OpenDoor for $548,500, but with a 7% “service charge” and $38,563 for “repairs found in assessment.” This way of doing business annoyed them enough that they terminated with OpenDoor and listed with me at $498,000, selling for $507,000, which netted them more.

Above is one of 3 charts in  the report. The analysis is from Phoenix, where OpenDoor began buying homes in 2016, because they didn’t come to Denver until 2018.

I’ve written in the past about companies which will buy your home “as is” for cash without putting it on the MLS. Then they flip the property to a new buyer for a profit — profit that you gave up  by doing business with them. The same is also true with iBuyers.

Bottom line: Unless money is no object for you, you’ll do better listing your home with a full-service traditional brokerage like Golden Real Estate. Call any of us at the phone numbers below!

Have You Used an iBuyer Firm? Tell Us About Your Experience

Perhaps you have heard about this new trend in real estate. Best known for this are Zillow Offers and OpenDoor. 

I’ll be writing about this topic in the near future, and I’d like to hear from readers who have any experience with this new real estate business model.

I already have an example. One of my current sellers (now under contract)  entered into a listing agreement with OpenDoor but had second thoughts about it, got out of the agreement and called me to list their home.

I’d like to have more input before I write about this topic.