NAR – The Association of Realtors – banned the use of pocket listings starting January 1. What are pocket listings, and why does this matter to you?
What is a pocket listing?
When a real estate agent agrees to list your house, they must market your property in order to get the best possible price for you. In fact, the California Department of Real Estate requires real estate agents to act in your best interest.
In very hot markets in California, however, buyers are abundant, while listings are rare and hard to come by. When a home sells, the seller typically pays the real estate commission to the listing agent, who then splits the commission with the selling agent – the agent who represents the buyer. In other words, the listing broker typically gives half of their commission – more or less – to another, unrelated broker.
Larger brokerages have learned that they can keep all of the commission simply by making sure that they represent the buyer, too. Since there are plenty of buyers but a dearth of listings, there’s an easy way to do this. Rather than list your home on the Multiple-Listing Service (MLS – more on this in a moment) they don’t offer the listing to other brokers. Instead, they let their own agents know about the new listing in the hopes that one of them has a buyer for it. If they do, the listing broker gets all of the commission.
What is the MLS?
The Multiple Listing Service is an aggregation of all currently listed properties for sale in a given market area. The services are owned and run by private for-profit companies, but all real estate agents who join the local Board of Realtors must join the service, and must become a Realtor – a member of the National Association of Realtors.
When a property is listed on the MLS, it is offered to all the other Realtors in the area who may have a buyer for that property. In the listing the listing broker offers to split the negotiated sales commission with a selling broker – a Realtor whose client successfully purchases your home.
Does the MLS benefit you?
As a home seller, the benefits are very clear and quite tangible. If your broker doesn’t list your home on the MLS they expose your home to only a handful of buyers. If they do list your home on the MLS they expose your home to every home buyer in the area who is working with a Realtor. The more buyers your home is exposed to, the more likely you are to get the highest offer possible.
Realtors are therefore required to list every property on the MLS when they take your listing. However, many have found creative ways around this. They will have you sign a listing agreement to start some day in the near future, and in the meantime offer your home to their own buyers, or perhaps market your home as a “Coming Soon” property while they look for buyers whom they represent.
Why would they do this? (Hint: It is NOT for your benefit!) As we said above, if they find a buyer themselves, they can keep the entire commission, and not share it with another broker.
New rule bans pocket listings, requires Realtors to list your home within one day
Recognizing that pocket listings do not represent a valuable service to consumers, the new rule was adopted by the NAR Board of Directors on a vote of 729 – 70. It was not even close. NAR cares about helping Realtors be successful, but not at the expense of consumers.
The new rule requires that a property be listed within one business day of being marketed to the public. The policy states: “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.”
The policy becomes effective January 1, 2020, but enforcement is delayed until May 1 to give the nation’s more than 800 individual MLS services time to adjust technology and educate Realtors.
Don’t get talked into a pocket listing
In the meantime, don’t let yourself get talked in to letting a real estate agent hold your property back from the MLS. A pocket listing does not benefit you. If they need time to get your home ready for the market, that’s fine. But tell them you expect your home to be listed as soon as possible, and you will not entertain offers until it has been listed on the MLS for a reasonable period of time.
Sources used for this article:
This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.
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