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The Ethics of the Pocket Listing

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The Ethics of the Pocket Listing

By Darrin Friedman

In almost every market across the country, there is a debate that rages among real estate agents — is the pocket listing a good or bad thing for business, and is it even ethical?

A pocket listing is a property that a brokerage lists “in house" -- meaning that only agents in that brokerage know it is even for sale -- for some period of time before officially putting the home on the market by entering it into a multiple listing service. Some brokerages swear by the practice, because it gives them the first shot at selling their own listings and getting both ends of the deal. Defenders of the pocket listing sometimes justify this approach by saying that since they did the hard work of obtaining and preparing the listing in the first place, they ought to have the right to sell it first as well.

Now, not everyone does it. After all, the very practice itself has an almost taboo quality to it. And of course pocket listings are infuriating to most buyers agents. After all, they never even get a chance to show a home that could be perfect for their clients. Pocket listings reek of bad business. Whatever happened to free trade and the open marketplace?!?

In an article called Law & Policy: Professionalism and pocket listings written by Lesley M. Walker, an associate counsel at the National Association of REALTORS®, she brings up several amazing points of emphasis on how the Pocket Listing is perhaps a violation of the Code of Ethics.

She says, “The REALTOR® Code of Ethics’ Article 1 requires REALTORS® “to promote and protect the interests of the client.” REALTORS® must always keep this in mind when recommending a pocket listing to a client. Even beyond the Code of Ethics, state law generally dictates that real estate agents owe a fiduciary duty to their clients, meaning real estate professionals must place their clients’ interests above their own and act in the best interests of their clients at all times.

"Legal risk concerning pocket listings arises when agents or brokers keep listings off the MLS for reasons that are not in the best interest of the client. For example, unlike MLS listings, pocket listings are more likely to result in the agent representing the seller and the buyer, and the outcome would be a higher commission for the agent. This in itself is not illegal or unethical, but if the prospect of a double commission is the reason an agent suggests a pocket listing to the client, then this could violate the Code of Ethics, MLS rules, and laws in most states.”

Now, based on this premise, in almost every marketplace in the country, there are people on both sides of the aisle that can find reasonable arguments for and against the issue. In an effort to be bipartisan, here are just a couple of my thoughts. It doesn’t mean that I’m right. Feel free to discuss.

1. NAR must come out with an official policy — Pocket listings are a nationwide problem, and it should be formally addressed by the people we have voted on to represent us. That is what NAR is for. A statement on pocket listings should be part of the Code of Ethics of our representative body, not just articles in a magazine urging us to go one way or another.

2. It really comes down to open markets — I’m not an economist, but it would seem to me that anything preventing free trade is a bad idea. I’m just not sure private listings pass the stink test. To me, it seems that maximum marketplace competition is always in the best interest of the client, and anything that restricts such competition is unethical. But maybe that’s for NAR to decide ...?

3.  It about fiduciary responsibility not greed!