Pocket listings and new rules for Realtors!

Realtors have to list a property on the MLS within 24h of any marketing effort!

Pocket listings limit the marketability of a property and may fetch the seller a lower price. Sellers should think twice about allowing the practice and do due diligence to find out if that’s in the cards for their listing. Alternatively, look elsewhere to sell!

 

The National Association of Realtors’ new rules about private listings

 

Mandatory listing on MLS

Homes are not always listed on the open market as often and quickly as they should, especially in a low inventory situations like in these days.

Very interesting news from the NAR (National Association of Realtors). Realtors will no longer be allowed to market a property privately for an extended period of time.
Within just 24h (one business day to be precise) of the start of any marketing efforts, they have to list the properties under contract on the MLS. Flyers, email blasts, phone calls, any online or offline marketing effort triggers the countdown to the requirement to open market the property.

Private listings/Pocket listings

These listings are called private listings (or even exclusive listings) because properties are marketed only to a limited number of buyers, generally controlled by the listing agent. They are also known as “pocket listings” to describe how the listing is hidden from the general public (kept in their pocket), and listed publicly only if no private buyers are found.

Opening up to the market

It’s pretty big news because it aims at opening some properties to a broader pool of buyers (and their agents) much to the benefit of many in the market, professionals and homeowners selling. Private listings have been used and abused by some realtors, despite having committed to the NAR code of ethics.

Why do pocket listings

There are multiple reasons for this practice; the one that stands out is the attempt of listing agents at collecting a full commission, instead of having to split with another agent representing a buyer who found the listing on the MLS. Thanks to buyers’ lists that agents build in many ways, including by setting up open houses for that primary purpose, listing agents can find a buyer quickly, which is sometimes one of the sellers’ goals.

Listing agents are incentivized to these practices by handsome and easy monetary rewards.

More importantly, if they have the listing (representing the seller) AND find the buyer, they net the whole commission. The downside for agents is minimal, as the full commission easily exceeds the loss due to a likely lower price. However, that violates the fiduciary relationship between agent and their seller. It’s a poorly kept secret in the industry, but most sellers are completely unaware. It’s sellers who lose the most as for every dollar they lose in the sale due to the restricted number of buyers competing for the purchase of the property, the loss is split in 94% for the seller and only 6% for the agent, but there is no commission split with a buyers’ agent.

Example: Agents rather sell a property for $90 and get 6% by selling it to a buyer from their private list only and pocket $5.40 (6% of $90), than market on the MLS for $100 and sell to a buyer who is represented  and is owed half the commission, therefore pocketing only $3 (6%/2=3% of $100). If the price is $900,000/$1,000,000 which is not that uncommon in states like Massachusetts.

We will have to wait and see if and how this is enforced because it breaks a fairly common practice.
It would also affect some showings that genuinely require private marketing, as in the case of celebrities.
For those realtors who complain by saying that it’s their clients who require such type of listing, they should be reminded that they advise their clients and if they informed them that they could be underselling the

Sellers need to be made aware of all the best options available in a professional and ethical way and timing.

property, many would probably prefer an open listing.
Sellers now have more and better opportunities to sell faster and for more.
Buyers have more listings to choose from, especially if they have a buyers’ agent representing them.
Listing Agents miss out on the opportunity to get paid the whole commission without having to split.
Buyers’ agents have more opportunities for their clients.
So to summarize, this is bad news for listing agents, who emerge as the losers, but only those who regularly used this technique. Everyone else wins, but only if the rule is effectively enforced.

This sounds like one of many attempts at disciplining industry practices like others in the past, often largely ineffective as workarounds are always found when the monetary incentive is often so high in real estate.

Winners and Losers:

Listing agents LOSE, because they lose control over the marketing for that listing and potentially the full commission.

Buyers agents WIN because they have more opportunities on the market to find their clients a home to purchase and therefore to earn a share of the commission.

Listing sellers WIN because their property opens up to a much larger pool of potentially bidding buyers.

Other sellers LOSE because more properties are released on the open market to compete with theirs.

Buyers WIN with more homes available to choose from and possibly lower prices thanks to the more competitive environment.

Buyers on listing agents lists LOSE because they may have to compete with more buyers.

For more and a point of view more focused on Sellers, read here!

Proxima Investors are not Realtors nor Real Estate Agents and do not charge listing fees to their Sellers providing the best return for their important asset, their home.