Sellers Should Pay No More Than 1% for a Pocket Listing
As seen on Inman News (click here)
CAARE does not support Zillow’s entry into the pocket listing “marketplace.” We believe that by helping brokers advertise these pre-MLS listings, Zillow is perpetuating a harmful practice that thrives on breaching trust, deceiving clients and intentionally putting them in a situation of duress and then profiting from it. This pseudo-illegal conduct does not reconcile with Zillow’s mission of transparency.
First, it needs to be understood that pocket listings take many forms. For our discussion, the biggest culprits are pocket listings that direct buyers to the listing broker and fail to offer compensation to cooperating brokers.
In almost all cases, pocket listings are harmful to consumers. They certainly do not serve their stated purpose of gauging the demand or pricing of a property before it hits the market – that is a ruse used to manipulate clients. If that were the case, putting it on Zillow would constitute “test marketing.” Putting it on Zillow is full-blown marketing with one huge exception: Pocket listings exclude the brokerage community by refusing to share commissions. That’s bad for consumers and Realtors.
In a hot market, pocket listings will almost always generate offers. That is not “test marketing” to gauge demand or pricing. Worse, when that offer comes in, the seller is placed in the undesirable situation of either accepting an offer generated by a semi-closed marketplace or rejecting that offer and putting the house on the MLS. The result is to place the seller in a decision clouded by duress. No fiduciary should ever put their clients in such a situation. And no fiduciary (broker or agent) who is financially biased with a double fee should ever “advise” their clients in this situation as such advice would certainly be construed to be self-serving.
Pocket listings exist to generate a double fee. That’s it. Every argument in favor of pocket listings is little more than self-serving rationalizations that do not survive logical analysis. Mega brokers are addicted to collecting double fees and they are willing to mislead their own agents and clients about pocket listings to do it. If your broker promotes pocket listings, then you should consider moving. A broker who uses its supervisory capacity granted by state licensing privilege to engage in such abusive conduct may be violating licensing laws. For every sales tactic used to misguide clients about pocket listings, there are real and honest solutions that involve serious marketing strategies to actually sell the house. We believe that advisors who suggest these arrangements to their clients fall into the category known as, “predatory fiduciaries.”
For example, if clients are concerned about too much foot traffic and being displaced too often for showings, the appropriate response is not to exclude agents from other firms. Rather, schedule showings for certain days and only allow the most highly qualified buyers to view the property (from all brokerages). If your client wants to gauge the demand and pricing of a property, then hold broker open houses and solicit that feedback from your fellow market experts. Don’t just make it available for sale to in-house agents. That is self-serving and downright greedy.
Consider the buyer who is under contract with a buyer broker. There is no way for that buyer to buy that pocket listing without causing the net commissions to sky rocket or without breaking his contract with his buyer broker. If the buyer is unrepresented, where are the disclosures that inform the buyer that by clicking on the pocket broker they are likely forfeiting their right to secure their own representation? The more pocket listings are advertised, the more they hurt consumers.
Pre-MLS listings bring us back to the days before there were any MLSs (truly pre-MLS). Back then consumers would visit each brokerage firm to see what properties were for sale. Those brokers advertised the properties, showed the properties and collected less than 3% in total commissions. The MLS’s offering of compensation to cooperating brokers was a way for Realtors to collect two fees and share information. If pocket listings truly are just a way to “test market” a house, then the fee should be commensurate with the reduction in service. Our negotiating advice to sellers who agree to a pocket listing is to pay no more than 1% if an offer is generated during the pre-listing period. That way the broker is financially incentivized to sell the house on the open market – a goal that is more aligned with their clients’.
Consumer Advocates in American Real Estate “CAARE” is the only non-profit charity 501(c)3 dedicated to consumerism in the real estate brokerage industry.