Realtors group looks to tighten restrictions on pocket listings

With house listings near all-time lows, real estate agents are often able to sell houses before the properties officially hit the market.

Next year, those "pocket listings" could run afoul of a new policy adopted by the National Association of Realtors (NAR) that says agents must list a property on a multiple listing service (MLS) — a national network of databases that agents use to share listings — within 24 hours of marketing that property. Those MLS listings also get picked up by third-party listing sites including Trulia and Zillow.

Pocket listings, also known as coming-soon and off-market listings, have become increasingly common in the Twin Cities and inner-ring suburbs where demand for entry-level houses exceeds supply. For agents who specialize in the most popular neighborhoods, the practice has become a way of attracting buyers who want a first look at a property before it hits the market, decreasing the chance of competing with other buyers.

Off-market listings are often embraced by sellers who don't want their homes exposed to the broader market and buyers who want to see a property before anyone else. Some agents tout pocket listings as a way to entice buyers to their websites.

But the practice is often vexing to those who think it denies options to buyers and deprives sellers of getting the highest possible price.

"It's rough," said Karen Quinby, who is close to retirement and was shopping for a one-level house in some of the most desirable parts of Ply­mouth. Often, she'd run across a house that met all of her criteria, but a sold sign would pop up on the lawn nearly as quickly as the property would show up on the MLS. "There were neighborhoods where we never got a chance to go through any homes," she said.

As a buyer, Quinby understands why a ban on marketing properties before they are listed makes sense. But as a recent seller, she saw firsthand the benefits of the practice. After nearly a year of getting her five-bedroom house in Plymouth ready to sell, her agent noticed a social media posting from an agent with a client who had been on the hunt for a house in her area.

The client had already looked at 50 to 60 homes and quickly made an offer that was accepted, sparing Quinby the cost of professional house photos and a series of open houses with a steady stream of strangers in the house.

"There are pros and cons to this," she said. "Could we have gotten more? Maybe, but I don't know, and we didn't feel like we were sacrificing a ton for that [convenience]."

It's unclear how prevalent pocket listings are in the market, but the practice has become increasingly common as property listings have fallen and the competition for new ones increases. Todd Urbanski, president of the Minneapolis Area Realtors and an agent at Fazendin Realtors in Wayzata, estimated that pocket listings represent about 5% of all listings in the Twin Cities metro area.

"But the perception is that this number is much larger and that buyers are missing out on properties that sell before ever hitting the market," he said. "In a tight market due to lack of supply, this can cause angst for both buyers and sellers."

The NAR restrictions, adopted last month, aren't absolute. Some sellers will be able to keep their listings private in certain situations, and agents could still share listings within their office. "Coming soon" listings could also be permissible.

Office exclusives, which permit direct promotion of the listing between the brokers and licensees affiliated with the listing brokerage, could also be permitted.

The NAR's defense of the proposal is that sharing information and cooperating with others in the MLS is pro-competitive and pro-consumer.

Proponents of restricting pocket listings say it ensures that all buyers have access to all of the properties that are available within a given market, and that sellers are getting the highest possible price by exposing those listings to the largest possible pool of would-be buyers.

"When homes are exposed to the full spectrum of buyers, they should garner higher selling prices than if those homes are only shown to a small percentage of buyers," Urbanski said.

There's also concern that it's difficult to get a sense of how long it's actually taking to sell houses in a particular market when so many are being made available to a select number of buyers without including that off-market time in the official MLS statistics.

Passage of the proposal won't offer immediate clarity on the topic. Ultimately, it will be up to local multiple listing services to develop rules for implementing this new policy. That's still months away.

The decision comes at a time when competition for the least-expensive listings is fierce, and agents and brokerages are eager to find new ways of attracting would-be buyers. Coldwell Banker Real Estate, for example, is already piloting its Exclusive Look in-network marketing tool that allows affiliated agents to share and search for listings before they are launched on the MLS.

"MLS compliance is important to us and we will adjust our platforms if needed," said Matt Baker, president of Coldwell Banker Burnet.

Baker recognizes that without a clear policy, buyers would theoretically need access to many different websites to find properties for sale.

"We want to ensure that our clients can find properties quickly and efficiently, and this is best accomplished through unified participation in the multiple listing service," said Baker.

Mike Vanderheyden, general manager at ReMax Results in Eden Prairie, said NAR members who voted in favor of the policy are trying to avoid the appearance of a conflict between the interests of agents and real estate companies who are doing business internally.

"The primary responsibility we have to our clients is to act as a true fiduciary for them, meaning we always have their best interests at heart and must act accordingly," he said.

At the same time, Vanderheyden recognizes that there are situations when sellers prefer the pocket-listing route, especially when sellers want to guard their privacy or don't want the hassle of offering their property to the broader market, which often means multiple showings.

"Have we gone too far in thinking we are protecting the interests of clients but in fact we are being forced to disregard the interests of another group of our clients?" he said. "We will have to wait and see exactly what that wording looks like to determine the full impact of the new policy."

Jim Buchta • 612-673-7376