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Back Pocket Real Estate: Exclusive Buying Groups and Pocket Listings

By
Real Estate Broker/Owner with Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate

There's a myth that pervades the discussion of real estate amongst professionals in the real estate industry that goes something like this:  Just about everything for sale/on the market is on the Multiple Listing Service.  And...most FSBO's (For Sale by Owner) will eventually land there too.

 

While, there is a lot of truth to the statement, as REALTORS through their networks and the Multiple Listing Service do facilitate the vast majority of successful real estate transactions, there's a less well known subtext which is also true.  

Today's real estate market is far more fragmented than a cursory overview would suggest.  In fact, Pocket Listings which are OFF MLS transactions (meaning the listing is never listed on the open market and is sold without reporting to the Association or MLS) are not new.  What's new is how pervasive the practice has become in a market which has very low inventory levels.  In some markets, it is becoming difficult to accurately determine if the 'low inventory levels' are truly reflective of market activity or if they are artificially skewed due to off market listing and selling activity.

Exclusive Buying/Selling Groups comprise of REALTORS and/or Investors who trade data about market inventory within a group that excludes other REALTORS. Listings may or may not be recorded with the MLS.  Both Pocket Listing advocates and Exclusive Buying Groups sometimes market the inventory privately and then subsequently list the home on the MLS if the listing does not sell within an allotted period of time.  This has led to some Associations adopting more stringent rules and penalties regarding when a home is listed for sale on a listing agreement and when it is uploaded to the Multiple Listing System.

 

Every Broker has the right to determine, along with their client what is the best way to market a property.  There are definitely issues of privacy with regards to certain types of  properties which may preclude a wide broadcast.  Proponents of the practice also argue that the Agent is in the best position to understand how to market the property and provide buyers or investors who are qualified to bid. But, there's an issue of  potential liability to Brokers which may not be under sufficient consideration when managing the risk and liability of different sales models.

 

April, is Fair Housing Month.  While, many automatically think about Fair Housing as a race issue, it is far broader.  In fact, many of the cases which have been settled in West Michigan recently have dealt with issue such as:  gender discrimination, sexual harassment, age discrimination, familial status and steering.  REALTORS are bound by the laws of the United States to abide by Federal, State and Local Fair Housing Ordinances.  In addition, several articles in the REALTOR CODE OF ETHICS reference Fair Housing Issues.  Without the transparency of the Multiple Listing Service as well as the professional monitoring that most Associations provide to ensure compliance with the law, are Brokers inadvertently opening themselves to unmitigated risks?

 

When real estate professionals sell real estate, we are bound by the terms of our license and the law. When REALTORS facilitate real estate transactions, we are bound by the law, the terms of our license, the REALTOR Code of Ethics as well as the rules and regulations of the Association.  This reality is not somehow magically obscured by where the activity (selling/buying of real estate) takes place.  The long arm of the law reaches across the Internet and certainly has the capacity to become involved in private back room dealings or deals that reside in our back pockets.

Some things to consider when managing the risk and liability of working with Private Listings:

 

1.  Am I familiar with the Fair Housing Guidelines? (Federal, State, Local Ordinances)

2.  If the terms of the agreement are disputed, do I have the documentation in place to avoid the appearance of wrong doing?

3.  Does the conversation in my 'Private Group' ever violate Anti-trust Laws or could it be labeled as discriminatory if shared?  (Remember we live in a world of ubiquitous recording devices)

4.  Am I exercising fair dealing in service of and protection of my fiduciary duty to my client?

 

We recently created a course entitled: Fair Housing:  Risk Reduction Strategies.  If you would be interested in sponsoring this course for your Association, Brokerage or Team, please contact us.

 

 

Comments (26)

Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Thanks for the blog post on an important real estate topic!

Apr 13, 2015 09:37 AM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Very well said, Lola. 

   My take on pocket listings is that they are for the benefit of the Broker who is trying to get "both sides" of the commission.

Apr 13, 2015 10:26 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

HI Andrew, Thanks for stopping by to read and comment. In our area, it can be hard to find a class on Fair Housing. Unfortunately, there are many agents who don't really understand the breadth and wide scope of this law and how complaints originate and are prosecuted. Private listings have always been a part of the industry, but as the issue proliferates it is important for agents to understand that just because it is considered 'private', it is not exempt from the law.

Apr 13, 2015 10:43 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Hi Fred, thanks for your comment. There's no sin in getting both sides of the transaction, but if it is at the expense of the best interests of the client, then that's a violation of our fiduciary and that is problematic on many levels...

Apr 13, 2015 10:44 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Hi Lenn, Thanks for stopping by. Yes, fines can be hefty. I've read cases which were settled for much more than the $50,000. But, ultimately Fair Housing should be about doing what is right and treating people fairly. It's unfortunate that the threat of punishment is necessary to force compliance.

Apr 13, 2015 10:46 AM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

Yes sometimes there are pocket listings amongst big companies.

Apr 13, 2015 10:53 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Hi Russ, I don't think the size of the company matters. It's the principle of unfair dealing in a way that violates the law. At a time when inventory is so low, there is sometimes a greater temptation to cut corners, that's why I use the term risk reduction. As Brokers, we buy Errors and Omission Insurance to mitigate risk. In this area, a little education could go a long way in my opinion.

Apr 13, 2015 10:57 AM
Patricia Kennedy
RLAH@Properties - Washington, DC
Home in the Capital

Lola, here in DC, there is a broker that is famous for it's "exclusive" marketing programs.  If you are a famous American in the DC metro area, and if you don't want the curious to come into your home and judge your housekeeping, this might be the way to go.  But you could also move out, have the place staged and have it totally exposed to the market, which would probably net you more money on the sale. 

But even these "exclusive" guys don't annoy me all that much, because I know all I have to do is to call one of my many buddies over there, and they'll share all of the information they have on these private exclusives (our euphamism for pocket listings). 

I think an important job for a good buyer broker is to know how to find the good stuff that is off the MLS.  And, at the same time, I think any seller is better off going for maximum exposure, and that is listing it on the local MLS.

Apr 13, 2015 11:27 AM
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

I believe that this is a greater threat to the MLS system than Zillow. This is rampant in markets like San Francisco where private groups and pocket listings are growing.

Apr 13, 2015 11:52 AM
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Lola Audu - this is the true picture of our market today!

And yes, the most important question to ask ourselves is -

"Am I exercising fair dealing in service of and protection of my fiduciary duty to my client"

Apr 13, 2015 02:35 PM
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Lola, This is a timely topic because it is Fair housing month. Thank you for the reminder.

Apr 13, 2015 08:36 PM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Lola Audu Pocket listings are not illegal as long as the seller agrees and the terms are incorporated into the listing agreement. However, if the purpose is to circumvent Fair Housing laws, then that is another matter. Good information!

Apr 13, 2015 11:21 PM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I have a client now who has told me to take a few weeks and try to sell the home before we MLS it and is glad if I am able to prevail and make more $$$. But it comes with problems of its own namely dual agency potentials and conflict of interests fine line...Its not as easy as it looks

Apr 13, 2015 11:25 PM
Rene Fabre
ARFCO Media - Renton, WA
Practicing Philosophical Eclectic of the Arts

Timely post Lola Audu and a very well written one too! If it were me, I'd say no to pocket listings because of Fair Housing guidelines. Just seems it would always be in the best interest of the seller and the community to put it on the MLS as a blatant signal of fair play and equal opportunity. Great post!

Apr 14, 2015 01:25 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Patricia, Thanks for sharing your thoughts.   

Joe,  Interesting comment regarding the market in San Francisco!

Praful...thank you for your comment.

Gita...thanks for stopping by.  

Corrine - sounds like she doesn't want to make a sale!

Apr 14, 2015 08:40 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Michael - good point!  Pocket listings are NOT illegal.  However, due to the nature of the 'beast' metaphorically speaking,  there can be more exposure to this type of violation of the law. 

Richie - thanks for your comment.  Good points!

Rene - thank you!

Apr 14, 2015 08:42 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Thanks for the post and the information regarding fair housing.  The class sounds great!

Apr 14, 2015 03:11 PM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Thanks for stopping by Joan!

Apr 15, 2015 01:58 AM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Lola - Good questions for those involved and even those not involved in these situations.

Apr 15, 2015 04:37 PM
Lynn Afton
Greenridge Realty Oakmont - Big Rapids, MI
REALTOR® Near Big Rapids, MI, Mecosta County

It's great that you have a class about Fair Housing rules.  So important to know what you can and cannot do and avoiding lawsuits in the process of learning what we should already know!

Apr 20, 2015 07:04 AM