Pocket listings are bad for consumers
The MLS functions because of bilateral cooperation and compensation. You have to ‘pay to play,’ and you pay with providing your listings
This article was originally published on October 30, 2019 as part of my regular column on Inman News under, “Pocket listings are bad for consumers–period” Links may send you to articles behind Inman’s paywall.
For the budding copyright attorney, relax. My agreement with Inman allows me to republish.
Just over five years ago, Zillow launched its Coming Soon program. And the collective mind of the internet was lost.
Trust me, I was standing there on the front line, taking repeated shots from some who were convinced this signaled the beginning of the apocalypse.
Here we are, five years later, and “coming soons” are almost standard in the real estate marketing playbook. Some MLSs have even created a listing status specifically for coming soons, with requisite rules and policies attached.
For if there are no rules or policies, we all know quite well that there will be a million opinions and a million ways of doing things. Sadly, we’re also well aware that some out there will stretch and break ethical boundaries.
That’s not a slam on real estate agents, it’s a fact of humanity.
There are a million-plus Realtors out there. The vast majority are ethical, good people. Some, however, are not, and the call of money will drive them to push ethical bounds.
Arguably that coming soon feature fueled the pocket listings war.
Before we go on, let’s make this clear. Coming soon listings are not pocket listings. They’re often equated, but they are very different.
Coming soon is (typically) on the MLS, there is (usually) a for-sale sign in the ground with a “coming soon!” rider, and it’s basically an announcement to all that the home is coming soon to the open market. Its whole point is to tell the world it’s coming soon.
A pocket listing is a listing that is not shared with the MLS. There is no cooperation or compensation between brokers. The fact that it is for sale is held tight, in the broker’s pocket so to speak. Only a limited number of people are aware the listing exists.
“Pre-marketing” is another term frequently used in these discussions. I don’t even know what pre-marketing is. A sign with a rider is marketing. Telling someone, “I’ve got this listing … ” is marketing. “Pre-market” I get, that’s stuff done before listing in the MLS and is clearly pertinent. “Pre-marketing” doesn’t make sense. That “-ing” suffix matters.
This article is about pocket listings, not coming soons. The advent of a more formal coming soon status plays into the discussion of pocket listings because the lack of policy in some markets feeds it. And, “Why every MLS needs a coming soon policy” is a great topic for another article. This is about pocket listings, “off-market” if you like that better — often abused, loathed, loved, misunderstood.
Inventory-starved markets were driving buyers and their agents insane. All across the country, listings were in multiple-offer situations, with buyers waiving inspection contingencies, offering over list — sometimes well over list. It was brutal out there.
Seemingly overnight, private groups surfaced on Facebook and other platforms where listing agents could pitch upcoming listings before they even hit the market. Anxious buyer agents comb these groups, hoping for a heads-up that will finally land their client on the winning side of an offer.
But why? If the market was so robust, with listings going in days for over asking price, why the need for private listing networks?
Who do pocket listings benefit?
“My client has privacy concerns,” is a frequent response to the burning question of who do pocket listings benefit. Other than privacy, what valid reason is there for a seller to sell their home outside of the MLS or “off MLS” to use the real estate vernacular?
The benefit of pocket listings to a brokerage is obvious. There is no splitting of the commission with another brokerage. “In-house” sales are financially beneficial to the brokerage, as evidenced by the common practice of incentivizing agents through higher splits to have more in-house transactions.
In states where dual agency is legal, agents can benefit financially from pocket listings by increasing their frequency of double-sided transactions. Off-MLS homes will never attract the buyer pool — and buyer’s agents — that homes listed on the MLS see. Hence the odds of double-ended transactions increase. You’re simply competing with less agents for the buy side.
I fully realize that not everyone is motivated by the double dip. Personally, I abhor the idea of dual agency and practiced it only on very rare and special situations. But again, given the sheer number of people practicing real estate, there will be plenty of agents who have no issue with it and try to maximize those transactions.
Re-reading those last four paragraphs, it sure seems that most of the advantages pocket listings provide are for agents and brokers. All the seller gets is some privacy.
Watch conversations about coming soon and off-MLS listings, and you’ll see a staggering number of agents with a very strange twist on this privacy concern.
They are adamant that the seller is in control, that they have the last say in when, how and where their homes are marketed. In something that is very different than what I saw when I sold homes and later owned a brokerage, these agents report a remarkable number of clients who don’t want their home listed on the MLS, but they expect their agent to aggressively market their home in other channels.
This makes no sense. Privacy is paramount, hence no mention of a sale in the MLS. Yet the expectation is to market the home everywhere but the MLS? On Zillow, realtor.com, Trulia, Facebook, Instagram, through email blasts, broker opens and open houses. And even with a big sign planted in the yard screaming “for sale.”
All that is okay, demanded even, yet there’s also a demand to leave the home out of the MLS.
I don’t get it.
In many areas, there is no public access to the MLS. Yet anyone with a pulse and an internet connection can see listings on Zillow, ads on Facebook and in their emails.
Any hope for the sellers privacy went away the moment the home was mentioned on the internet. Leaving the home out of the MLS doesn’t remotely protect the seller’s privacy if the home is otherwise being publicly marketed.
In other words, if the home is being marketed publicly — anywhere — that off-MLS privacy argument is bullshit.
If you have a seller concerned about privacy, then they need to talk to an attorney about ways to legally hide their identity (via some sort of trust or assignment), and you need to sell their home through truly private channels (through your personal professional private network and obviously nowhere on the internet where nothing is private or ever forgotten.)
Not only is there no real advantage to a seller having their listing held off the MLS, the fact is that the seller could very well be damaged by an off-MLS listing.
It’s not rocket science; in an open market the more exposure to potential buyers and buyer’s agents a listing receives, the more likely it is to sell and command the highest price the market will support.
This is basic economics and sales 101 — 99.9 percent of the time, your seller wants the largest buyer and agent audience they can attract.
That means putting the home in the MLS.
And if you want it held off the MLS, you best get something signed by your seller that says they were fully informed of the consequences of withholding from the MLS. If you’re a broker, best lawyer up now because pocket listings are ripe for lawsuits.
The latest in the pocket listing war
Last week, Bright MLS, the 95,000 member multistate MLS on the east coast, announced a new policy, replete with $5,000 fines, around pocket listings.
(Full disclosure: Bright MLS is a former consulting client of Jay.Life, the author’s company.)
The backlash was swift and as should have been expected. Multi-paragraph comments, angry faces scattered about Facebook. Even The Washington Post chimed in (Bright is the D.C. area MLS).
Immediately, I was transported back five years.
Not five years ago to Zillow announcing Coming Soon, but five years ago when I found out the Northwest MLS (NWMLS) that serves the Seattle area had a rule that forbids off-MLS marketing of any kind. Forbids it.
Here is part of the NWMLS rule, the penalty for violating oddly matches the $5,000 of Bright MLS:
No Promotion/Advertising When Listing Not Published: Members shall not promote or advertise any property in any manner whatsoever, including, but not limited to yard or other signs, flyers, websites, e-mails, texts, mailers, magazines, newspapers, open houses, previews, showings, and tours, unless a listing for that property has been delivered to NWMLS, or input by the member.
Unknown to me, this rule was implemented a year before Zillow rolled out its Coming Soon feature. I will freely admit that my gut reaction to this rule was, “Who is the MLS to tell an agent what they can do with their listing?”
That’s a reaction many seem to be having to the Bright MLS rule change, as well as the proposed MLS Policy Statement 8.0 recently announced by NAR — which is virtually identical to the Bright MLS rule — and is expected to be discussed and voted on at the upcoming annual NAR conference in San Francisco.
I get it. Really I do, had the same initial feeling myself. It’s my business and my clients. Not the MLS’s business.
Then I thought more. More about pocket listings, coming soons and the MLS. Having served on NAR’s Multiple Listing Issues and Policy committee, being appointed to IDX workgroups and having worked at Zillow, I had a pretty good background on what MLSs are, how they run and the issues they face.
The purpose of the MLS
Primarily the MLS is about cooperation. Right behind that is compensation. Real estate sales is a pretty unique industry in that it requires competitors to cooperate with each other for all to succeed.
Add in the fact that a listing brokerage agrees to compensate the buyer’s brokerage, and you have a need for something to facilitate all this. Enter the MLS. The MLS system developed so that real estate brokers could share their listings with each other, with compensation contractually obligated. It’s the backbone of U.S. real estate.
So what happens if MLS users fail to cooperate? The system falters and can eventually collapse. That might sound like a bold and overreaching statement, but the fact is the MLS, and hence real estate sales and the market as we know it, fundamentally rely on mutual cooperation.
Here’s my listings, please bring a buyer. Now where are your listings, so I can help my buyers?
That’s how it works. What does not work is: I’m here to look for listings for my buyers. My listings? Oh, those are secret, private. You can’t see them. That’s my business, not yours.
As a licensed broker in Arizona, I had access to the Phoenix area MLS, even though I was not actively selling. I saw literally countless examples of homes being listed and sold in the same day.
Clearly there was “pre-marketing” going that had secured a buyer off the MLS. The “listing” was entered and immediately closed — which means the open market never knew the home was for sale.
Many of my agent and broker friends see the same. There are brokerage marketing and advertising campaigns at high levels (and expense) clearly touting off-MLS access as value proposition.
“But we got the home sold for what the seller wanted, and it was less hassle for them! That’s all that matters.”
Well, except you’ll never know if being available on the open market would have brought a higher price. And yes, the seller’s needs matter. So do the needs of the real estate industry. Your seller was not best served by withholding their listing from the MLS. They just weren’t. And if you publicly market their house, their privacy is gone, MLS or not.
The client doesn’t always know best. If you have a buyer client who says, “I don’t want to live in a black neighborhood,” are you going to chant, “all that matters is what the client wants” mantra?
Where does the MLS get off dictating rules to me?
It’s not their place to tell me what I can and can’t do.
Guess what? It is their MLS. When you choose to join, you agreed to abide by their rules. They’re a private organization, like it or not, they get to set the rules on how their system is used.
(Stop. Don’t even go down the, “I don’t have a choice” road. Yes, you do. You chose the career, and the MLS — and their rules — come with the career. You also choose your broker. There are non-association affiliated brokerages everywhere, you can choose them too.)
Fine, if you insist that going off-MLS will secure your clients’ privacy (it won’t if you do any other marketing, but whatever) then you need to convince your client to go with an exclusive listing. Where you and your brokerage, and only you and your brokerage, sell the home. You simply can’t argue that public marketing of off-MLS listings ensures client privacy. That’s nonsense.
I need pre-marketing to test the market, refine pricing, build anticipation and excitement. Okay, no problem. Put your listing in “coming soon” status and “pre-market” to your heart’s content.
Just don’t show the home to anyone.
What?!? I can’t show the home during its coming soon period?
No, because if you’re holding showings, the home isn’t “coming soon,” it’s “here now.”
In a market that forbids coming soon status? Well, assuming you’re going to play by the rules, it would seem you’re out of luck. Figure out how your MLS is governed and work to change the rule.
The bottom line
Pocket listing are rarely, if ever, a positive for the consumer or client.
MLSs can indeed set rules for its use.
The MLS functions because of bilateral cooperation and compensation. You have to “pay to play,” and you pay with providing your listings. Yeah, you can’t just take from the MLS without giving back, really.
Privacy is important. For that demanding client, an exclusive is what will come closest to protecting their privacy. Under no circumstances are Zillow, Facebook, Google or even JoesFineHomes.net anywhere close to exclusive, private marketing platforms.
Coming soons are fine, unless they’re really here-and-nows. Put them in the MLS if you want to show them.
Don’t like your MLSs policies? A shocking number of agents have no idea how MLS policy is formed. Find out. If you’re angry about something your MLS does, odds are good someone else is, too.
If you’re that mad, or you feel your business is being handcuffed by your MLS (or association, brokerage or whatever), then do something to affect change. It’ll be painful, and probably take too long, but it’s far more effective than sitting back and complaining.
Cooperation is the heart of U.S. real estate transactions, and the heart of cooperation is the MLS. These “pocket listing” policies help protect MLS cooperation and your livelihood.
If you’re an agent, you can either work with them, do without them or help change them.
If you’re a broker, see above, plus understand your potential liability.
If you’re an MLS, yes, it’s your MLS, and you can make the rules. But, and this is important: Remember your subscribers. Involve them, talk to them, help them and they will help you.
The times they are changing, folks. There is an awful lot of misunderstanding and misinformation out there. That, combined with the fact that people’s livelihoods are involved, means stress. And angst. Bitterness. All that negativity, it’s not good. Seek to understand, to learn, to lead.
For more on this, check out this white paper from MRED, the Chicago Area MLS: An inside look at off-MLS listing solutions and this FAQ from the National Association of Realtors.
Buy Jay a beer
And if you read this far, wow. Get a life! HAHA! Seriously, thanks for reading. Buy YOU a beer!
Editor’s note: This article has been added to both to reflect the difference between “coming soon” listings and pocket listings and to minimize confusing the two.
Jay Thompson is a real estate veteran and retiree in Seattle, as well as the one spinning the wheels at Now Pondering. Follow him on Facebook or Instagram. He holds an active Arizona broker’s license with eXp Realty. “Retired but not dead,” Jay speaks around the world on many things real estate.