“Pocket Listings” – What You Should Know
The issue of pocket listings has been a topic of discussion in recent months and many have asked whether they are legal and ethical and why this is seemingly a complicated discussion. In short, they can be legal and ethical and there are many situations where pocket listings may be appropriate for your clients however, it is very important that you do not violate federal or state laws, the REALTOR® Code of Ethics, MLS rules and regulations and ensure that your clients understand all of the risks and benefits associated with a pocket listing.
What is a “Pocket Listing”?
A “pocket listing” (a.k.a “off-market listing”, “office exclusive listing” or “whisper listing”) as defined by Lesley Walker, NAR Associate Counsel, in her article Law & Policy: Professionalism and Pocket Listings is a “listing in which an agent has a listing agreement and the seller does not authorize the placement of the listing on the MLS.”
Why would my client want to withhold their listing from the MLS?
It is not uncommon that a client may not want their listing posted on the MLS or any other broad distribution of the listing information due to concerns regarding privacy, confidentiality, or a desire to restrict access to their property. Whether they are a high-profile individual, do not want the general public to know they are selling their property, or simply do not want their property on broad public display, some individuals wish to refrain from having the listing posted on the MLS.
What should I discuss with my client regarding pocket listings?
If your client has requested that you withhold the listing from the MLS, or you recommend that they withhold if from the MLS, it is recommended that you provide the seller with a written disclosure including the benefits and drawbacks of withholding a listing from the MLS and have the seller acknowledge the benefits that they are waiving by keeping the listing off of the MLS including but not limited to the greater exposure and cooperative marketing of their property to prospective buyers. Failure to place the information on the MLS may result in fewer potential buyers, a longer time period the property is on the market, and a diminished yield on the sale price.
How can I stay in compliance with the laws, rules, and the Code of Ethics (“COE”)?
- Article 1 COE: Article 1 of the REALTOR® Code of Ethics requires that REALTORS® “protect and promote the interests of their client.” REALTORS® should always keep their client’s interests above their own interests and act in the best interest of their client at all times.
- Minn. Stat. &82 also imposes fiduciary duties on real estate licensees acting as a seller’s broker including the fiduciary duty of loyalty. This requires the broker/salesperson to act only in the client’s best interest. A REALTOR® should only participate in a pocket listing when it is in their client’s best interest. A REALTOR® should never suggest a pocket listing for the purpose of securing both sides of the deal and the double commission or for any other perceived broker/agent benefit if it is not in the best interest of their client as such action may be deemed a breach of the broker’s and agent’s fiduciary duties and may result in ethical and legal actions against the REALTOR®.
- Article 3 COE: Lesley Walker has also noted that Article 3 carries the duty to “cooperate with other brokers except when cooperation is not in the client’s best interest” and this cooperation is, “rooted in the premise that broad exposure and cooperative marketing often produces the best results for sellers.”
- MLS Rules: Note also that your MLS has rules and regulations pertaining to withholding listing information from the MLS and forwarding sold information once your pocket listing has sold. Please check with your MLS for further information.
Can I share pocket listing information with a private group of brokers or salespersons?
Before sharing your pocket listing with a private group that includes competing real estate licensees, you should consult with your legal counsel to understand the risks and benefits of joining such private groups. Anti-discrimination and antitrust laws are applicable to such groups and the acts of some participants in the group may create liability for all participants.
- Antitrust Laws: For example, if two competing participates engaged in price-fixing agreements, per se antitrust violations, this may create liability for you as a participant in the group. See also Ralph Holmen’s, NAR Associate General Counsel, Window to the Law: Antitrust for Real Estate Professionals
- Fair Housing: Participants in private groups must refrain from unlawful discrimination even when there is no intent to discriminate. HUD has a long-standing position that & 3604(a) of the Fair Housing Act may be violated by actions which have a disparate impact on protected classes without a showing of discriminatory intent.
Susan Dioury, JD – Senior Vice President, Risk Management
The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.