As many of you know the REALTORs Association and Multiple Listing Service has adopted new rules aimed at curtailing the practice of "pocket listings". Pocket Listings are an unique and growing issue in real estate. Many people believe that pocket listings are bad for the market, buyer, seller and agent and should not be allowed. Others like the exclusivity and the privacy it affords.
This podcast examines the good, bad and ugly side of pocket listings. Are they legal? Are they ethical? Should you be doing them? Be sure to listen to this week's episode to learn how the new rules affect pocket listings and whether or not you need to be doing pocket listings.
Also in this episode is a Builder's Minute and Gary's Good News Only!
* Gary serves on the South Carolina Real Estate Commission as a Commissioner. The opinions expressed herein are his opinions and are not necessarily the opinions of the SC Real Estate Commission. This podcast is not to be considered legal advice. Please consult an attorney in your jurisdiction for applicable legal advice germane to your issue.
This is edition dirt with Gary pickin South Carolina's only podcast dedicated to the real estate agents crap. Welcome back everybody to another episode edition dirt with Gary Picton. I am your somewhat talented but mainly opinionated, but always correct hosts. And I'm here today to talk to you all about pocket listings. I know this is going to be a very important topic, so I expect lots of downloads this episode. We're also going to do a real quick builder minute and finish up with Gary's good news only. Now, before we get into the episode, if you'd like these episodes, please go to our website, Blair Cato calm and you can click on the button on the upper corner and click on podcasts. You can listen to this podcast as well as all the other podcasts we've done over the last few months. Please like us, share us subscribe to us and tell all of your realtor friends all about this podcast so we can continue to grow it. Let's dish some dirt on pocket listing. So if you've ever watched an episode of million dollar listing LA or New York, they're always talking about pocket listing. And my favorite character on that show, Josh altman always knows that some pocket listing on the bird avenues in Los Angeles that no one knows about, and then he can get his buyer an exclusive preview of the property before it goes on to the listing service. Now, the reality of that is that pocket listings aren't that simple. In most cases, they're simply problematic for the market, the buyer, the seller, but mainly the real estate agents. And this podcast was likely to educate many of you and also runs the risk of angering some of y'all who liked the pocket listing, which you need to understand the opinions expressed here in our just the opinion of this host, which has this uncanny ability to be correct in his opinions, just saying. So let's talk about pocket listings. What are pocket lists, pocket listings are one of the most unique but yet controversial methods of buying and selling real estate in our marketplace today. And most agents don't like them and are very upset about them. Pocket listings became so prevalent that just a year ago, the National Association of Realtors found that up to 30% of all listings, were believed to be pocket listings in some of the real estate markets. I don't believe it was that high in the markets in South Carolina. But it certainly was in Los Angeles, New York, and some of the big markets like that. Now, the pocket side or the two others term is really just real estate slang. There's no literal pocket is essentially a listing that's represented by a real estate agent who is exclusively selling a property. But he's not advertising that property to the general public. Essentially, what he's doing is advertising it to friends and agents within his own company. So basically, they're keeping that in their pocket, not letting the true market see the listing. Other names for pocket listing include off market listing exclusive listings, private listings or off MLS listing. So those terms are all the same thing. So how does this pocket listing work? When a typical listing and a traditional marketed listing, I should say the seller wants to sell their home and they hire a real estate agent to list the property. Now the agent will create a listing agreement between apart parties and this is typically called the exclusive right to sell document. MLS has this form your brokerage has this form, and the home is immediately listed on that multiple listing service, also known as MLS as publicly advertise through what they call an RDX feed is where they push out through the MLS to all these various websites to get your clients property maximum exposure. This will include Zillow, the MLS is website to realtor.com website, etc, including your brokerage website. But most importantly, every agent in the market sees the property so that it generates maximum interest in the property and all buyers across all spectrums. And it ideally will produce not only one offer but multiple offers so that the seller can realize a maximum offer on the property. Now let's compare that to a pocket listing and a pocket listing. The main distinction is these properties are not listed on the local MLS database and thus they do not go out through the ID x feed. And they don't go out to the other websites so they won't show up on the MLS. They won't show up in Zillow, realtor.com or even the brokers website. And even though this agent has been retained to sell the property and to get the highest offer possible for the seller, the seller and or the agent has chosen not to submit it through the MLS or to publicly advertise it, essentially keep the property off market. Rarely do you see a market plan to keep it off entirely. Usually it's just for a few days. So either the agent can shop the property select people, or the buyer can get the proper excuse me, the seller can get the property ready for selling. In many cases, the agents own greed that drives the pocket listing. For example, the seller has not directed the agent to withhold the property from the MLS, but the agent slow plays it to the MLS so that the agent has time to shop it to their preferred buyer list or their preferred group of agents that they want to work with. And of course, most of the time, those are the agents within their own brokerage office. Now if they're able to shop it to one of their brokers in their own office or a buyer that's represented by someone in their office. This allows the company to arm both sides of the commission which puts more money in pockets of the brokerage and also helps to help that agents buyers find property that other people cannot find. So why would anyone want to do a pocket listing? Well, the sellers do have some valid reason for wanting to do a pocket listing. Sometimes a property is being repaired and staged. And so the seller needs some time before they weren't willing to entertain any offers. Sometimes a seller has security issues, they may be a famous person or they've gone through a messy divorce, or they work as a police officer or maybe even a football coach. And they just don't want the general public coming in and out of their house so much. Sometimes the owner is the one that wants the privacy of not having tours of the homes. Sometimes they want to test the market price before they actually go live on the MLS. But there are other avenues for doing this, quite frankly. So if they don't want to have the general public in the house, and they don't want private tours of the house, they can also always go to an odd buyer and have the property offered for sale through an odd buyer which doesn't require all that agents like to do pocket listings because they want to get the money in the farm, they get both the buyer side the seller side. And they get to reward their buyer clients with the first chance to buy a property, particularly in a market like we're experiencing today. Whether is a tight market, this allows an agent who has a listing to shop it to his buyers and reward his buyers for choosing Him as their agent Plus, I get both sides of the Commission in that situation. Now buyers think that if they can buy a pocket listing, they're going to find a piece of property that's for sale that nobody else knows about. And in a low inventory market, like we're experiencing today that this will be very beneficial to them. They also believe that there won't be any competition because they're the only one who knows about the property. So they'll be able to get the only offer and and there won't be a bidding war. So our pocket listings legal and short. Yes, pocket listings, as long as they're done in the best interest of the client are completely legal. But sometimes as I stated, they actually serve to sell the house more effectively. But that's a rarity. And that doesn't mean it's always okay to do it this way. In fact, I don't think you should be using pocket listings. But on the very rare occasion, an example would be a seller calls an agent on the phone and says, Hey, I'm interested in listing my house. And the agent says, Well, I have a buyer out now who wants to buy a house in that neighborhood that would be interested. So that someone says hey, I might not want to list it with you. But let's get this buyer out here. So maybe the buyer goes ahead and wants to go look at and the seller sides will just go ahead and list the property with you. And that way if your buyer doesn't want it will be ready to go. But where we run afoul of the law as a real estate agent, is it you have the fiduciary duties of old car remember obedience loyalty, disclosure, confidentiality, accounting and reasonable care? Is that reasonable care not to put the property on the market for everyone to say to generate the highest price? I'm not sure that it is you also have the consumer choice statutes, which may or not may or may not be violated by this rule. It's not a very well written statute in 40 dash 57 but those are some issues you got to worry about on legal aspect. But if you are a realtor, member of the realtors Association, which you should be, I think it runs a follow their rules. Now according to the real estate realtor code of ethics, realtors are required to promote and protect clients interest. I'm not sure how a pocket listing does that. And when pocket listings become questionable, it's when they're done in the best interest not done in the best interest of the client, but in the best interest of the real estate agent. And believe me, that's an easy thing for a real estate agent to think they are doing is doing something in the best interest of the client. But ultimately the client is going to be the one who determines whether it was in their best interest or not. And we already know how that typically goes. But because pocket listeners usually result in the brokerage representing both the buyer and the seller, the broker receives a higher commission, it already puts the pocket listing in question. Now while that isn't necessarily a violation of the code of ethics or legal this should not be the reason an agent suggests a pocket listing because it could set you up for a lawsuit. We're gonna talk about that a little bit later on. In fact, the National Association of Realtors, the Board of Directors voted to ban this practice of pocket listings on November 11 2019. And it was so widely disliked at the National Association realtor board that the vote was 729 to 70 to pass this resolution. Now the National Association realtors policy states within one business day of marketing a property to the public. The listing broker must submit the listing to the MLS for cooperation with other MLS participants. This is known as a clear cooperation policy. Now this change came effect January 1 2020. But the National Association of Realtors waited until May 1 to implement it in order to provide the 800 MLS services time to adopt this. And in fact MLS here in Colombia just came out with some new rules. Oh this exact issue which is now you see the reason why a lot of people are like why are these issues coming out now with MLS This is why so let's talk about the MLS rules. If your broker is a member of the MLS, which most of you are, you are subject to their rules by your broker signing the contractual agreement to be part of the MLS. He subject you to all of these rules, then you have to follow them and these rules are in place to ensure a free An open market which is the most important part of being a real estate agent is having a free and open market not only for the agent but for the buyer and the seller what the rule says that the MLS now this is about the Columbia MLS, is it with the written permission of the owner, either through a withholding listing temporarily form or as noted in special step stipulations in the exclusive right to sell contract. A listing can be withheld from the state from the MLS database for a period of time, but it cannot exceed 90 days. So why do we have this rule? Well, sometimes you might have a seller who's interested in selling their property, but they're not ready to put it on the market. Remember, under agency rules, you're not allowed to advocate counsel or advise a seller unless you're under agency. So oftentimes, when they have a house, they know they need to declutter or they need to make repairs on they want you to provide advice and counsel for them. But they don't want to list the property yet. Well, this gives you the avenue to do that you get the withhold from listing form signed, or you put in special stipulation, you can go ahead and advise and counsel the seller and provide them the information necessary for them to get their house ready for sell. That's how that should be done. You should not be advising them if you don't have a listing agreement. So be sure you get your listing right and plus there's lots of demand, they're not going to get free advice from you and they wind up listing the property with some friend or family member they meet at church. Now during this period of delay. This is very important, the property may not be advertised for sale, republish or offer for sale through any medium until the delay period has ended. This also means you cannot install a sign or even an MLS approved lockbox, it's very important to understand this, the violation is first offense $250 fine with a warning email second is $500 fine, third is 1000 fine. For the fifth is a 30 day suspension from the MLS or penalty is determined by the board. So you need to follow these rules because the penalties are very steep. So what is advertising advertising would be anything from flyers, yard signs, email blast pocket listings, Facebook groups, letting them know about it digital marketing or public facing websites, multi brokerage, listing sharing networks, putting anything on a brokerage website display whether it goes out through RDX or vo W. Any application is very basically available to the general public. You can't go around talking about the property to other agents trying to get interest in the property that's advertising and marketing. Pretty much everything is advertising, marketing, putting it on Facebook, coming soon. All of that is marketing and advertising. So outside of the MLS rules and the realtor rules which seem to frown on pocket listings or pocket listings generally good or bad for the consumer in the marketplace. Let's look at it from the agent perspective. Let's say you're an agent that has an office outside of the downtown area. And most of the listings downtown, go to one or two or three brokerages downtown. That agent that is not in the downtown market, per se would be completely locked out of the market. If those three brokerages every time they got a downtown listing, shut it amongst themselves and sheltered only in their offices. In a hot market like we're experiencing today, that agent that is an outside market and that one of the suburbs around downtown would never be able to get a chance of showing their consumers that market. So it locks agents out of the market. It also locks consumers out of the market for that agent. So if I'm a buyer working with an agent in the southeast section of town, and I quickly realized that that agent can ever get me a showing or let me see a house in the downtown market. I may in my representation agreement with that agent and go to a downtown agent so that it can lock you not only out of the market, but we have the result of your consumers going to people who are in that market for buyers, it is very problematic. So one of the reasons that the National Association of Realtors passed a clear cooperation policy is because that their desire to promote equal access to information and opportunity and pocket listings have historically resulted in discriminatory practices. And prior to this ban, with pocket listing, the property would be marketed and sold to those with their own privilege networks, preventing the majority of buyers agents from having a shot at offers on these deals. Unfortunately, these outside buyers were members of minorities who were left with fewer housing opportunities. That was one of the big drivers behind passing this rule. Secondly for buyers is that they often were overpaying these homes for sale as pocket listings are overpriced from time to time. There's no true market value being established. And so they wind up overpaying because they don't know what the true value is. And then most importantly, the missed opportunities and being locked completely out of the market as we explained earlier. Now pocket listings contrary to what some sellers believe, are awful for sellers, they're not getting a true market value of the property. If an agent and a brokerage takes the listing and shots it to five or six agents in his office. Those four or five agents and their clients are setting the market value compare that to 30 or 40,000 agents in your marketplace having access to all of the same information and all of their buyers, and all of those opportunities to stablish the market value, so you're not getting a true market value. And oftentimes the seller is selling the property for less than market value. Also, if you're only going to be selling to a select few group, it could take much longer for the seller to sell the property. And they may also wind up accepting an offer with worse terms, where there might have been a cash offer on the table that could have come somewhere else. The only offer they may get may have a lot of contingencies and things of that nature. Now for the market. Pocket listings don't just affect buyers, they affect the entire market. as I've stated many times before, people are simply locked out of the market, and it becomes about who you know, and that is not the best way to run a market. Because these are rarely entered into the MLS once they're sold, they limit the information available local housing prices, and both nearby sellers and appraisers use these numbers to determine the current market values of different properties. So without this information the entire market suffers. It affects the accuracy of the database, which is the MLS. So is there even a good reason for using a pocket listing? Well, for sellers, as I mentioned, or they can maintain some of their privacy, they may have upper hand in negotiating prices, and their home doesn't have to sit on MLS. I think there's other avenues. However, as I mentioned earlier, such as an odd buyer that would eliminate the need to keep the house basically quiet so that you don't see how other people coming into your house. So the question begs is this new rule eliminate the problems with the pocket listing? That's a No it doesn't. The National Association realtors clear cooperation agreement does have a huge loophole. And as Alex Martinez of real estate skills mentioned in his article that I read, it says a new rule isn't likely to put a stop to the practice, however, because agents can use other classifications such as coming soon to hold properties out of the MLS and off the market. I think that might violate the MLS rules here in the Columbia market and probably the Greenville market other markets. But that's something that is happening in other markets. It's just an example he says of how agents try to game the system by saying a listing is coming soon may not be permitted under their rules. But I do believe it could be forbidden under other roles such as the multiple listing service roles, but it also could set you up for claims with your client. So remember, once a listing contract Assad agents have 24 business hours to enter into the MLS. So an agent wants to keep a property as close to the best as possible, can ask the client to sign the agreement late on Friday night. That way they want it to end until Tuesday morning leave in 72 hours to try to peddle this house to people in their own market. And unfortunately, as the report points out, many listing services have policies regarding such listings. The survey found that most of these rules are locally controlled, and they're far from uniform. Luckily, I do believe that our multiple listing service doesn't allow this kind of shenanigans. But the big issue for you is if you want to do these types of shenanigans, is it How are you going to protect yourself from lawsuits? Because you know, when the seller gets their house under contract, the nosy neighbor next door is gonna say how much did you sell your house for? Oh, wow, I had a friend who would have paid a lot more than that. And so now the seller regretting the fact that they sold this under pocket listing, and wants you to explain why you did not notify them of all the issues, concerns and problems with the pocket listing. This is a real issue. I am seeing this day in and day out where every buyer and seller thinks there's something the real estate agent failed to tell them or do. I often think that the consumer is incorrect on this. But I could easily say where you do a pocket listing somebody in your office makes an offer, they accept it. And then they find out just weeks later that they could have gotten more offer. higher price offers better offers, and they put their house on the MLS. And now they're coming to you wanting Do you know why you did not advise them of such. So what do you do when your client simply wants to do a pocket listing? Well, first of all, you have to disclose the disadvantages. And you need to do this in writing. Listen to let them know that they're not going to get broad exposure for their list of property and not listing in the MLS is probably going to reduce their exposure and negatively impact their sales price. You should explain to them that agents from other offices are unlikely to ever be aware of this property. And then that information will not be transmitted to the various websites, internet websites that sell real estate like Zillow and realtor.com and MLS websites. And that it's also likely that you as the listing agent could wind up becoming the agent for both the buyer and seller, and there could be a dual agency issue at hand, you should explain why you can't do it. And you also should explain all the advertisement bands. As I said earlier, I'm not saying that pocket listings are illegal. I'm saying they're very dangerous for you as an agent, because I do believe that sets you up for grievances. I do believe that sets you up for lawsuits they should be done very rarely, very, very rarely. And if you take a pocket listing, you'd better not be advertising and I think the only time you can do a pocket listing is where somebody wants to bother wants to sell their property they need Time to fix the property up, you should not be marketing that property to anybody in your office or outside of your office, you have an absolute duty to go over all of the risk and dangerous. Now, as I mentioned earlier, your risk is an ethics complaint, that's very expensive is very time consuming is very stressful, you could also have a grievance filed against you with the realtors Association. And now we know the quick clear cooperation policy out there, you could be required if found guilty of violating this rule required to take other ethics classes, you can be fined up to $15,000 for the incident, and they can even revoke your membership. So you need to protect yourself on it. So in Final thoughts, I think there's valid reason to restrict pocket listings, I think they do not encourage a level playing field, we need to be encouraging a level playing field and inclusion for all buyers, and including inclusions for all buyers. And we need to make sure that everybody has the opportunity to see the house and then the seller has the broadest market possible for selling it. I know that you're going to have a lot of questions and how about questions about this? So if you have those questions, please feel free to email me at Gary at Blair Cato calm. And I will do a follow up episode I'm sure in a few weeks to answer some of those questions. In fact, I'm trying to I want to reach out to a couple of people that run the MLS in various markets and see if we can't do a roundtable with Alice roll right into our builder minute. Couple of weeks ago, I had executive constructions Eddie yandell on the show talking about soaring lumber prices. Since then, lumber prices have just gone up even worse. I've talked to several builders, custom builders, track builders, builders, like executive construction, asking them what they're seeing with lumber prices and how it's affecting the houses for builders is making the price of the houses skyrocket if you're trying to build a custom house, the price of your house may have gone up 50 6070 $100,000 since you started looking to build I've actually had friends who were in the middle of building houses start because lumber prices have exploded so so that I'm also hearing from builders that houses that they just built and sold three four months ago are now 50 $60,000 more expensive, only because of the price of the lumber is going up. So recently, the 37 organizations are calling for immediate attention of the United States Department of Commerce Secretary Gina Raimondo, as well as the Biden administration to address the skyrocketing lumber prices and those supply constraints. They're in danger, the economic recovery and housing affordability. And you can see that because if you start looking at what are some of the cheapest new houses you can buy in the market, it's a lot higher than they were just six, eight months ago. So it is literally pricing the lower value houses right out of the market. So the Biden administration needs to help find some remedies to boost what production for the prices are gonna continue to develop. And that's your builder, man. Let's roll right into Gary's good news only. Well, Gary's good news only starts with a Happy Anniversary to everybody is one year ago this week that we were told 15 days to flatten the curve. It was all we needed just 15 days hospitals won't be overwhelmed or Everything will be fine. Well, we knew that wasn't right. Just like we've learned now that shutdowns and kids being out of school and kids being in danger of dying from COVID have all been wrong. It's amazing how many things that the media has never spoken the truth about when it comes to COVID. And probably never will. It's also amazing how many times the so called experts have been so blatantly wrong and giving contradictory advice that one day and then tell you something the opposite the next day. Remember, it's also one year ago that Fauci said it was fine to go on a cruise and then less than 48 hours later, he was saying this is the apocalypse and we all need to be locked up in our houses. So it's amazing that how many things aren't reported and how many things were completely opposite of what they said, which is what we have here is good news only because we want to give you the good news that the media is so blatantly refusing to give you. So let's start with the vaccine as of 6am. On March 15 135,847,000, vaccine doses have been distributed the United States remember this is the same media that told you in January, there was no plan to distribute it somehow, in less than what three months we have 135 plus million vaccines have been distributed. Of those 109 million have been administered. Again, the media told you there was no plan to get them administered. That was completely crap. 80% of all vaccines that have been sent out have been administered. That means 71 million plus people have received at least one or more doses of the vaccine. 38 million have received two doses remember 71 million people once you get one dose, you're starting to create immunity to it. That means 21.4% of the US population has received at least one dose while 11.5% have been fully vaccinated, we're quickly going toward herd immunity closer to home in South Carolina. 310 new cases were reported on Monday with zero deaths. I can't remember a day we've had zero deaths. That's been twice now the last couple of days we've had only 300 new cases, cases have been between 306 100 for well over a week or two. When you compare that to the five or 6000 cases a day we were averaging back in January in February. In fact, US cases are down 18.6% in the last two weeks and deaths are down 31.9% in the last two weeks. Vaccines in South Carolina is now at 20.2%. Andrew Boston Boston tweeted this week that the US COVID era performance index was just released. This is a concept where they ranked states based on more than just COVID outcomes. They actually base it on. Mortality death rates, unemployment rates in school in person schooling. 100 being your highest, the top five were Utah with an 89, Nebraska Vermont, Montana, Wyoming, South Carolina was in the top half with that number 24 with a 54% waiting Florida was number eight. And look at the bottom five, Washington DC and California were tied with a 21 rating. New Mexico 13 Massachusetts 13 New York 11 New Jersey 11. Lastly and COVID News Texas hospitalizations are below 4000 is the lowest level since October. They will likely stay that way. The declining is down 73% since its peak earlier this year. Now economic news one quick thing for you. home sellers looking toward record profits. The End report says weeks away from the start of our spring Home Buying season and us home owners are looking to our record gains. corelogic Home Equity report for the fourth quarter of 2020 shows that homebuyers with mortgage, which accounts for roughly 62% of all properties have seen their equity rise by 16.2% year over year with a gain of 1.5 trillion plus in equity, an average game at 26,300 per homeowner since the fourth quarter of 2009. So hope everybody is getting ready for the spring. I think we're going to have another hot spring market. And that's Gary's good news. And that's our episode for today. appreciate everybody tuning in. As I said earlier, I am sure that the pocket listing portion of this episode is going to create quite a few numbers of emails and comments and questions. Please send them to Gary at Blair Cato calm and we'll try to follow up with yet another podcast on this topic. Also try to get with some of the MLS and see if I can't get somebody to come on the show to talk more about the new rules. If you like this show we'd ask you to please like us, subscribe to us and share us with as many relatives as you can so we can continue to grow dish and dirt with yours. Until next week. hope everybody has a great weekend.