Pocket Listing – when a broker severely limits the marketing of a client’s property to collect a double commission.
In a truly misleading and anti-competitive move, the National Association of Realtors (“NAR”) has announced a new rule that directly attacks brokers who discount their fees. Instead of calling it, “A Conspiracy to Eliminate Discount Brokers,” NAR is calling this new Rule, “The Clear Cooperation Policy.” Realtors who violate this Rule can be charged with an “ethics” violation or worse. Apparently they believe that the U.S. Department of Justice will be fooled by their play on words. In order to distract attention from the real purpose of this new Rule, NAR falsely claims that the Rule is designed to stop the much complained about practice of “pocket listings.” However, CAARE has written numerous articles about pocket listings (click here) and this Rule does not prohibit pocket listings. Not even close. And yes real pocket listings are bad. NAR’s new rule “against” pocket listings actually encourages pocket listings. Confusing right? And we haven’t even told you what pocket listings are yet…
Brokers pocket a double commission with pocket listings. Sellers pocket less money.
If you have ever had a Realtor pitch you with promises of reduced foot-traffic, test-marketing your home, pre-MLS listings, office exclusive listings, “Coming Soon” listings, or the promise of a long list of buyers who want to buy your home, then you’ve been pitched for pocket listings. Pocket listings are almost ALWAYS bad for sellers because they severely limit the marketing of your home (on purpose). If you limit the demand for the home, you can expect to see your home take longer to sell and sell for less. The usual result and goal of a pocket listing (a severely limited marketed listing) is that during the off-MLS period, sellers will receive a mediocre offer for their property from an in-house agent and that the sellers will feel coerced into the safe, “bird in the hand” decision. Sellers are intentionally placed in an extremely distressed decision making position so that the broker can “pocket” a double commission. A DOUBLE COMMISSION. That’s a lot of money.
The exception is the rule and why consumer groups hate pocket listings
NAR’s new rule “prohibiting” pocket listings has an exception for all those hated pocket listing practices listed above. The exception truly is the rule. NAR’s new policy is a ruse designed to fool and placate consumers, legislators, regulators and even some consumer groups. Pro-consumer brokers who compete on price and offer fabulous benefits to consumers have just had one of their most valuable consumer tools surgically extracted by their competitors. Consumers who seek out the advice and counsel of discount brokers who over innovative ways for DIY consumers to sell their houses without Realtors are now more likely than ever to be forced into paying a commission.
Perhaps one of the biggest reasons consumer groups abhor pocket listings is because they are accomplished through deceipt and betrayal. Realtors in most states are construed to be trustees of their clients’ affairs (“fiduciaries”). Offering a fiduciary level of service means that Realtors are baiting consumers with the highest form of service possible under the law. It means that Realtor clients have the right to expect that their agents will represent their best interests above all others, especially their own. Betraying that duty of loyalty for self-serving purposes is often construed to be a criminal activity (theft by swindle). Yet, that is what pocket listings are all about.
A Clear Conspiracy Policy to increase seller commissions
A group of the largest over-priced brokerage competitors in the country met for months to come up with this rule designed to stop brokers from offering cost saving help to DIY home sellers. DIY sellers often want to market their homes without paying the extraordinarily high commissions that MLS members charge. The last thing many DIY sellers want is to market their homes on the MLS because the purpose of MLS “advertising” is to attract brokers by offering them high and standardized commissions. If a DIY seller’s advertisements are aimed at Realtors, they are likely to attract offers demanding high commissions. That’s exactly what many DIY sellers are trying to avoid. NAR has effectively removed that consumer choice.
NAR’s Rule directly harms consumers ($200 vs $12,000 in fees)
With NAR’s new rule, DIY sellers can no longer secure the assistance of brokers to help them sell their properties off the MLS. If a broker helps a seller advertise their property on Zillow and not the MLS, that broker can be fined and have their MLS access denied (that would put most brokers out of business). Yet, the last place many DIY sellers want to market their home is on the MLS because the main purpose of the MLS is to offer compensation to brokers. 3% in fees can easily translate into equity-stripping figures so high that it often completely eliminates any home selling profits for sellers.
Most DIY sellers are trying to avoid paying commissions. NARs’ new rule makes sure that if they use a broker, that they’re more likely going to end up paying other brokers the high fees that they are trying to avoid. The purpose of the new Rule is to make sure that brokers who help DIY sellers can no longer offer those services that really help consumers save money. That will likely result in DIY sellers going at it alone. And unfortunately, DIY sellers often need the help of brokers to make sure that they are using the proper forms and complying with local laws. And up until now, those sellers often received the help of these discount brokers for $99 – 199. Now, NAR’s new will rule will likely result in sellers paying the standardized buyer broker commission of 2.5-3% (up to $12,000 on a 400k home).
Convoluted and complex are hallmark traits of anti-competitive schemes
The best anti-competitive schemes are often the most complex. And true to form, NAR is presenting convoluted and misleading talking points to attain their untoward goal of making sure everyone overpays for Realtors. They start off by reassuring the public that NAR is, “Pro-Consumer” and “Pro-Competitive.” Then they tell the public that they are eliminating the nefarious practice of pocket listings. Sayin it doesn’t it make it so.
Whenever a group of competitors meets and comes up with a policy that results in the elimination of a less expensive form of competition, you can bet it’s going to attract some attention. However, so far NAR has been successful in fooling a lot of people. Even the Consumer Federation of America came out and mistakenly “applauded” NAR for their new policy against pocket listings (click here). CAARE hopes to change all that with an information campaign designed to attract the attention of consumer lawyers and the DOJ.
CALL TO ACTION
We need your help. We are an underfunded non-profit charity and are unique in that we are the ONLY organization taking on issues like this in residential real estate. Here’s how you can help:
- Click on the donate button at the top of the page.
- Send this article to your Attorney General’s Office and suggest that they reach out to us.
- Complain on the FTC and DOJ complaint hotline website pages.
- Send this article to your local news organizations.
Our advice for consumers:
- Stay away from big brokers – ALWAYS.
- Selling a house is easy. Hire a discount broker and an attorney and you will save thousands and get better service and unfettered advice.
- If a Realtor proposes that you consider a “Coming Soon” or “Office Exclusive” listing, run away – FAST.
- Make sure your listing contract states that no buyer brokerage fee will be paid to anyone if there is no buyer broker. That windfall should go to the sellers, not the brokers.
- Consider owner-hosted open houses instead of Realtor open houses. Realtor open houses help Realtors find buyers to buy other properties. And make sure you listing contract states that you save the buyer broker commission if you find the buyer.