Wednesday
October 22, 2014

Is a Listing in the Pocket Worth Two in the MLS?

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Is a Listing in the Pocket Worth Two in the MLS?

Off-MLS listings are back with a vengeance. Tom Gillett offers some reasons why pocket listings represent short-term gain in exchange for long-term pain.

Very early in my real estate career, I met a lovely older woman named Juanita who worked in the same office as I did. She shared with me that she had a new listing that she was not submitting to the MLS. She said she did this so only she and a select few friends could sell it and make the commission. She referred to it as a “hip pocket listing.”

Even at this early point in my career, with no good or bad experience to taint my thinking, this just didn’t seem like the right thing to do. I bring this up now because it appears that the “back office” concept Juanita exposed me to many years ago is now back—and it’s coming through the front door like a tsunami.

I was recently asked to poll the members of a state committee I chair to see if this “coming soon” type of listing was isolated to the Atlanta market or if it was prevalent statewide. We came to the conclusion that it isn’t at all unique to our area. Several weeks later, I was speaking before a national group on the West Coast, and the topic of so-called “pocket listings” was one of the hottest discussion points.

There are as many different names for the practice—including secret listing, off-MLS, and shadow listing—as there are different definitions. Based on what is actually happening, the act may be legal or illegal, depending on state law. It may or may not be a violation of the Code of Ethics. It might run afoul of client relationship commitments and MLS policies; it might not.

With these many disparities in mind, here are some reasons that I hesitate to take Juanita’s path today.

Why lather them up if you can’t shave them?

If this “pocket listing” concept involves advertising a property that is not yet available to receive offers, you may end up with disappointed buyers coming after you. Buyers see what they believe is the perfect property and are ready to make an offer, but they can’t because the property is not “really” on the market. When you must tell a buyer that the property they just saw is not “really” available, the situation can ultimately turn “really” bad. What is excitement can turn to frustration when the buyers find that the home of their dreams is just that: in their dreams!

The short-term gain isn’t worth the long-term effect.

Clearly, the economic downturn continues to affect today’s real estate market in a negative way. We have experienced unprecedented devaluation in properties across the country. We’re also dealing with new scrutiny and regulation. Appraisers are being given stricter controls. As we begin the market recovery, it’s very difficult for an appraiser to justify higher prices without comparables that support those prices. The MLS is a primary source of data for most residential appraisers. If the information for a pocket listing is not in the MLS, it becomes increasingly difficult for appraisers to ensure that their data is credible. It’s one thing to make a sale off of a quick pocket listing. But if another transaction doesn’t close because the appraiser did not find the best data, it seems like short-term thinking to me.

I, for one, am too cute to go to real estate prison!

How well do you know your state law when it comes to advertising property for sale? If a piece of property is not yet technically listed, do you have whatever permission is required by your licensing law to solicit prospects for the property? And what do your local MLS rules and policies say on the issue? Every MLS I am familiar with requires listings to be submitted to the service within a very short period of time. I know of some licensees who have changed the date on a listing agreement to stay within the rules. I am not an attorney, but that sounds deceptive to me.

Rules aside, how can a REALTOR® reconcile this concept with the Code of Ethics? Article 3 states in part: “REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interest.” Standard of Practice 3-8 states: “REALTORS® shall not misrepresent the availability of access to show or inspect a listed property.” I have heard some defend the practice of pocket listings with an “In this instance, what I am doing is not technically a violation.” But what about the spirit of the code, law, or MLS rules? If we condone breaking the good intentions behind these covenants, what does that ultimately say about us?

What if we look at the bigger picture?

Our primary duty is to our client. How is failing to expose the property to all potential buyers in the best interest of the seller? It does make one wonder.

At the end of the day, it is not my intent to tell you how to conduct your business. I am not your broker, I am not your preacher, and I am not your father. I am, however, the one with the keyboard. I would like to think that every one of us as REALTORS® is inspired and motivated to do the absolute best we can with each day, each transaction, and each opportunity. Someday, someone else is going to have the keyboard. Don’t become their Juanita!

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