Why isn’t that house on the MLS?

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This article was previously published in the August 2013 issue of Texas REALTOR®.

Your buyers are driving through their desired neighborhood looking at properties you identified for them. When they spot a for sale sign in front of a beautiful home, they call and ask why you didn’t include that property in their list. You look through the MLS, but this home is nowhere to be found. So you call the listing broker. He informs you that the property was never in the MLS … and it’s already under contract.

There’s been a lot of buzz about pocket listings, but what exactly are they and how do they affect Texas REALTORS®? Pocket listings are properties for which a broker has a listing agreement but the home is not on the MLS. Generally, this happens because the seller instructs the listing broker not to put it on the MLS. As a result, other MLS participants don’t have knowledge of or access to the listing to show their clients.

Why would a seller want to keep the property off the MLS?

Some sellers may want time to get the home ready by making repairs and improvements and request that the listing broker delay putting it on the MLS. Other reasons include privacy concerns and limiting the amount or type of prospective buyers that enter the seller’s property. (Note that restricting access could give rise to fair-housing violations.) Some sellers may not see the need to market the property on the MLS, especially with the limited inventory and multiple-offer situations in our current market. However, this approach may be harmful to the seller. The limited exposure may lower the number of prospective buyers, which decreases competition for the property and, possibly, the sales price.

What are the arguments against pocket listings?

Some opponents of pocket listings think that the decision to keep the property of the MLS may stem from the listing broker rather than the seller. Why would a listing broker opt to keep a property of the MLS if it means he won’t be able to market it to other MLS participants?

A listing broker might belong to a private or exclusive listing network, which may only allow brokers within that network to access those properties. Another reason may be because the listing broker wants to work both sides of the transaction to keep the entire commission.

Nevertheless, the decision to put a property on the MLS should be the seller’s. Otherwise, a listing broker may be at risk of breaching fiduciary duties and violating the Code of Ethics and fair-housing laws. Antitrust issues may also arise with the private or exclusive networks of brokers.

With regard to a broker’s fiduciary duties, TREC rules require brokers to represent the interests of the client and not place the broker’s personal interests above the client’s.

Similarly, Article 1 of the Code of Ethics requires REALTORS® to pledge themselves to protect and promote the interests of their client. In addition, Article 3 requires REALTORS® to cooperate with other brokers except when cooperation is not in the client’s best interest. Standard of Practice 3-10 further provides that the duty to cooperate relates to the obligation to share information on listed property and to make property available to other brokers for showing to a prospective purchaser when it is in the best interests of sellers.

Hence, Texas REALTORS® should know their duties and obligations established under Texas law and the Code of Ethics when dealing with pocket listings to ensure that they are acting in the best interests of the seller.

What does NAR say about pocket listings?

NAR’s Handbook on Multiple Listing Policy doesn’t mention the term pocket listing. However, certain rules still apply, including the following model rules that NAR requires MLSs to adopt: Model Rule 1 provides that listings shall be delivered to the MLS within a certain time frame (determined locally) after signatures are obtained from the seller. That would seem to prohibit pocket listings. However, the rules provide an exemption. Model Rule 1.3, appropriately titled “Exempt Listings,” states that if the seller refuses to allow the listing to be disseminated by the MLS, the participant may take the listing and file it with the MLS, but the listing will not be disseminated to the participants.

Model Rule 1.3 requires a certification signed by the seller as evidence of the seller’s refusal. The certification should also include a statement indicating that the benefits of the MLS have been explained to the seller.

Model Rule 2.5 requires MLS participants to report status changes, including final closing of sales and sales prices, to the MLS within a certain time frame (determined locally) after they have occurred.

What about coming soon signs?

A coming soon rider on a sign is exactly what it sounds like. The property is not yet available but will be soon. Often, a seller may ask his listing broker to delay putting the property on the MLS to make repairs or to get the property ready to show. The seller may also know of interested buyers who he wants to market the property to prior to submitting it to the MLS. These are some of the valid reasons to postpone a home’s exposure on the MLS. Like pocket listings, the decision to postpone putting a property on the MLS should be the seller’s. Otherwise, a decision by the listing broker may raise red fags similar to the concerns stated previously.

When a coming soon sign is placed on a property after a listing broker and seller have entered into a listing agreement, the same MLS rules stated previously apply. However, your MLS may have adopted more specific rules on “coming soon” properties. Also keep in mind that TREC advertising rules and Article 12 of the Code of Ethics may pertain to coming soon signs. If the sign is deceptive or misleading to a consumer, or if it does not present a “true picture” as required by the Code, the sign could subject you to disciplinary action by TREC or an ethics hearing panel.





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