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At the request of the NAR Multiple Listing Issues and Policies Committee and the NAR Professional Standards Committee, an informal working group of both committees met in Chicago on September 24, 2013 following the meeting of the Interpretations and Procedures Advisory Board. The working group included June Barlow (CA), Daryl Braham (ND), Carl DeMusz (OH), Bonnie Fitzgerald (NJ), B.J. Harris (USVI), Rick Harris (OR), Jim Harrison (CA), Steve Hoover (VA), Brad Knapp (OH), Bill Lublin (PA), Robert Moline (MN), Greg Zadel (CO). Also participating was Law and Policy Liaison Linda Page (NY).
The working group was convened to consider issues and concerns that cooperation between REALTORS® as historically mandated in the Code of Ethics was in decline, including the practices informally referred to as "pocket listings" and "coming soon" marketing techniques.
Materials available to the working group included the Code of Ethics and Standards of Practice, NAR’s model MLS rules, extensive information provided by Jim Harrison, CEO of MLSListings, material provided by the California Association of REALTORS®, proposed case interpretations considered but not adopted by the Interpretations and Procedures Advisory Board, Ethics and the Competitive Edge by Edward I. Sumber, Off MLS Marketing: From Pocket Listing to Industry Tsunami by Jeremy Conaway, a Top Agent Network press release, and a Seller Opt-Out of MLS Service form provided by the Northern Ohio Regional Multiple Listing Service.
Discussion
The group noted that cooperation between brokers is the norm expected of REALTORS® except in those rare instances where cooperation is not in a particular client’s best interest. The group also noted that cooperation is institutionalized and facilitated efficiently and effectively through multiple listing services. MLS provides participants with market information, including current listings, pending sales, sold and expired listings. Sharing this information in an organized way promotes orderly markets serving the interests of sellers and buyers of real property.
The working group felt that certain practices, including “pocket listings” and “coming soon” marketing techniques are impacting cooperation between participants, resulting in less complete and consequently less useful property data. The working group also discussed whether efforts to circumvent the duty of cooperation required by the Code and by MLS rules may be a temporary phenomenon largely attributable to limited residential inventory or, alternatively, a harbinger of increasingly fractionalized and less efficient residential real estate markets.
Issues
"Pocket listings" take several forms including:
- “Office exclusive” listings, where the seller specifically directs that information about their property not be included in MLS compilations. In infrequent instances, sellers have valid reasons for limiting marketing of their property.
- “Pre-MLS” listings, where property is exclusively listed and the seller authorizes inclusion of the property in MLS but showing and/or presentation of offers by other participants and subscribers is prohibited until after a specified period of time.
- Verbal prelisting agreements (“whisper listings”), where property is marketed without being subject to an actual listing contract, and when a buyer is procured a listing contract and a purchase and sale agreement are executed concurrently.
- “Institutionalized office exclusives,” where the participant actively discourages sellers from consenting to have their property included in MLS compilations.
- “MLS clubs” and “private agent networks”
The working group found the last two forms particularly troubling since while sellers decide how their property will be marketed, including whether it will be included in MLS, they may not be aware of the potential consequences of not having the broad market exposure provided through MLS. Sellers may also not realize they may not receive full value and/or best terms for their property. These practices raise questions about whether actively discouraging inclusion of sellers’ property in MLS without first obtaining sellers’ informed consent satisfies brokers’ fiduciary duties to their clients. They also raise questions about whether actively discouraging inclusion of listings in MLS on a blanket basis can be reconciled with the duty of cooperation imposed by the Code of Ethics.
The working group believes NAR should educate brokers about the risks of discouraging inclusion of listings in MLS without disclosing the potential consequences to sellers.
The working group also expressed concern about “MLS clubs” and “private agent networks.” These entities reportedly consist of non-principal brokers and agents who cooperate and compensate one another outside the context of MLS. The “rules” may prohibit inclusion of listings in MLS. The working group was concerned that non-principal brokers compensating non-principal brokers in other firms is prohibited under the Code of Ethics, and likely violates the license laws in some states. The practice can fractionalize markets, impact integrity of MLS data, and may raise anti-trust concerns if these “clubs” dictate commissions and the amounts of cooperative compensation members will offer and pay. The practice also has potential to violate fair housing laws. The working group believes NAR can play a role in educating members about the risks of such practices. Additionally, should sellers later conclude the lack of market exposure they would have received had the property been in the MLS arguably resulted in their receiving a lower price and/or less favorable terms, the principal brokers of the licensees participating in these “clubs” or “networks” may find themselves exposed to potential liability for not acting in their clients’ best interests.
The working group also discussed the “coming soon” marketing campaigns in certain markets. “Coming soon” advertisements can focus on unlisted properties which may or will be listed with a broker in the near future, as well as properties that are subject to listing agreements where property is available to potential purchasers after a later, specific date, or only through the listing broker and not available, temporarily or indefinitely, for showing or purchase through other participants.
With respect to unlisted property being marketed as “coming soon,” it was suggested this might be the result of marketing requirements imposed by REO sellers, some of whom insist on placing signs on their properties before determining a market strategy and asking price that would permit the property to be included in MLS. It was also felt this may be primarily a license law issue, though it could raise questions under the Code of Ethics’ “true picture” requirement.
The working group believes this is primarily a broker risk management issue, and that NAR should educate brokers about the importance of familiarity with license law. Continued consideration should also be given to developing case interpretations or other ethical guidance dealing with the practice of marketing unlisted property as “coming soon”.
The working group also addressed exclusively listed property marketed as “coming soon.” It was agreed that there can be valid reasons for property to be listed and filed with MLS, even though the property would not be available for showing and/or purchase for a specified period of time. The working group had no concern with practices where the prohibition on showing and/or presenting offers applies across the board, including the listing participant and licensees in the listing participant’s firm. Of concern to the working group was the practice of listed property being included in MLS compilations and being available for showing and for purchase, but only through the listing firm, either temporarily or indefinitely.
The practice diminishes cooperation between listing and selling participants, and may conflict with other participants’ exclusive relationships with their buyer clients since buyers can only view and/or purchase listed property through the listing firm during periods where cooperation is unavailable. The practice also raises concerns about whether sellers’ informed consent is obtained, and whether listing brokers’ fiduciary duties are met.
It was mentioned that some MLSs will not publish information about listed property if it is unavailable for showing or for purchase through cooperating participants. Other MLSs, in addition to not publishing information about properties unavailable for showing and/or purchase through cooperating participants, also require execution of a new listing if and when the property becomes available for showing and/or purchase through cooperating participants. Concerns were again raised about whether “coming soon” advertisements do, in fact, present the “true picture” required by Article 12 of the Code of Ethics.
Conclusions
The working group acknowledged, as noted earlier, these practices may, to a greater or lesser extent, be attributable to limited inventories of available residential property. It was also noted, though, that lack of familiarity with REALTORS®’ ethical obligations to cooperate with each other, as well the obligations imposed by MLS rules, may also be responsible for diminished cooperation as evidenced by these issues. The working group concluded that increased member education about the potential risks inherent in such practices, development of sample disclosure/consent forms explaining the possible consequences of withholding property from MLS, and continued emphasis on the value of cooperation, both informally and through the mechanism of MLS, may be appropriate steps for NAR to take to enhance its culture of cooperation.