RealEstateEconomyWatch.com

As inventories shrink and buyers frantically search for homes to buy off-market, “pocket listings” are becoming more prevalent, especially in luxury markets where the appeal of keeping the entire commission can be hard to resist for listing brokers.

However, many real estate leaders are pushing back against the practice of selling homes outside multiple listing services, which often results in the listing agency representing the buyer as well and earning both sides of the commission, known as dual agency. They’re concerned that large numbers of pocket listings will compromise the effectiveness of MLSs and skew the level playing field that is a hallmark of the cooperative system. The absence from the MLS of large numbers of properties for sale, especially if they are concentrated in a single price tier like luxury, diminishes the accuracy of listings-based market price reports that consumers and professionals rely upon to track market trends. Above all, these leaders worry that sellers are getting talked into staying off the MLS when it is not in their best interest.

In recent years, celebrities in the LA market and elsewhere have chosen not to list their homes to avoid publicity. More and more sellers of higher priced homes are using off-market sales techniques to test the market before for their homes before going onto the MLS. In super-heated Northern California markets, where prices are appreciating at double digit monthly rates and inventories are down by 40 percent on the year, sellers don’t need the MLS to find buyers and pocket listings have been on the increase. A number of agencies and at least one Web site now specialize in serving the pocket listing market, using social media to market pocket listings to networks of agents. (See Pricey Pocket Listings Put a Dent in MLS Dominance).

Off-market sales techniques and dual agency can cause serious legal problems for brokers and agents even in states like California where dual agency is legal. Concerned about the rise of off-market sales, the California Association of Realtors’ legal department distributed a Q&A on April 4 that discussed how pocket listings can lead to a civil suit for violating California Real Estate law for breach of fiduciary duty, how withholding information about listings violates the Realtor Code of Ethics and how the failure to make information available to all buyers can lead to federal Fair Housing Act violations. CAR is also hosting a webinar April 24 for members on “The Pressing Issue of Pocket Listings.”

In an interview with Real Estate Economy Watch, one of the nation’s leaders in luxury real estate spoke out against the pocket listings and shared her concern for their impact on organized real estate.

“If the seller is fully informed and provides written consent not to place their home on the MLS, then I’m not concerned,” said Betty Graham, president of Coldwell Banker Previews International/NRT, the Realogy franchise’s luxury brand. “But I’m not sure that’s the case in many of the pocket listings I have seen. The fact is that our first responsibility is a fiduciary responsibility to act in the seller’s best interest and with a pocket listing there is a great potential to violate that fiduciary responsibility.”

Ms. Graham has been observing pocket listings in the LA celebrity market for years. Before heading up Previews International, she was the president and chief operating officer of Coldwell Banker Residential Brokerage in the greater Los Angeles area. In her 30 years as an agent and broker in Malibu and elsewhere in the LA market, she represented such luminaries as Rod Steiger, Dustin Hoffman, Charles Bronson, George C. Scott, Cecily Tyson, Cleavon Little, LeVar Burton, Madonna, Sean Penn, plus five transactions with Johnny Carson.

“Often sellers will start out off the MLS, and then change their mind. Jennifer Anniston didn’t list her Beverly Hills house on the MLS but after a month or so it didn’t sell. When she put it on the MLS she sold it immediately,” she said. Candy Spelling, widow of the late TV producer Aaron Spelling and mother of actress Tori, tried to sell her $150 million home as a pocket listing for two years and it sold in a few months once she listed it. The sale was the top price ever paid for a home in Southern California.

Ms. Graham said another risk in marketing pocket listings is private showings to select buyers. “Many luxury buyers want to be the first to see a new listing, and sometimes they will pay more if they are. But if they are not, their interest in that property may be diminished,” she said.

“When you list on the MLS, it is a level playing field where all buyers have equal access,” she said.

Finally, there is the problem caused when a seller hires more than one agency to handle a pocket listing. “A seller will often tell several brokers they can have a ‘pocket’ on the listing. Which listing broker should a buyer work through? This creates confusion in the brokerage community for a broker representing a buyer,” she said.

Coldwell Banker Previews International is a dominant force in Beverly Hills and the greater LA celebrity market, and under Betty Graham’s leadership, a force discouraging the use of pocket listings. Advocates of pocket listings, like Andrew Clark, co-founder of Pocketlistings.net, deny the ethical and legal concerns raised by Betty Graham, CAR and others, and talk about the benefits for brokers rather than the consequences for sellers.

“Pocket Listings are not illegal, they are not unethical, and they are not unfair. The only people that complain about them are the agents that don’t have the wherewithal to adjust to the changing landscape that is marketing real estate for sale. It’s high time an alternative to MLS comes along, and it’s just a matter of time before MLS, as we know it today, either adapts or goes away,” writes Clark. “The argument about hoarding commissions is just untrue.”