MAR Legal Hotline

December 2013: Notes from the MAR Legal Hotline

Q:  I have heard a lot of buzz about “pocket listings” and “coming soon” arrangements between brokers and their seller-clients. I remember this being popular many years ago. What is the difference between a “pocket listing” and “coming soon?

A.  The terms “Pocket-Listing,” and “Non-MLS listing” generally refer to those listings that are never listed in a Multiple Listing Service. They are different than FSBOs in that the seller engages a broker to sell their property, but the home is not advertised through MLS.

Properties that are advertised as “coming soon” usually refer to those listings that may be listed in the Multiple Listing Service at an upcoming date, but are not currently listed, either because: 1) a listing agreement has been executed and the client has agreed that the property will not be marketed through the MLS until a specified date; or 2) the Broker has engaged an owner in some form of an unwritten or limited marketing arrangement to “pre-market” or sell the owner’s property prior to executing a listing agreement with the owner.

Q:  My seller-client asked me if he should keep his listing off of the MLS. Why would he want to do this? Are there any ethical or legal obligations that I should consider?

A.  Celebrities, public figures, and other individuals who wish to maintain privacy may request that you list their property without entering it into the MLS. Although legal, there are certain considerations that should be discussed thoroughly with your client prior to entering into either a “pocket” listing or a “coming soon” arrangement:

1) MLS Rules and Regulations:

Upon the execution of the listing agreement, most Multiple Listing Services require that the listing be entered into the MLS within a certain amount of time. If you and your client have agreed to keep the listing out of the MLS, most require an opt-out form be signed by the broker, agent, and the seller, acknowledging that the choice to not market the property in the MLS is the sole discretion of the seller. In the circumstance of a “coming soon” listing, where a listing agreement has been signed, but the seller chooses to not market the property for a specified period of time, most MLSs require an opt-out form for that specified time frame. If the broker and client verbally agree to “pre-market” the sale, with no written listing agreement yet in place, the MLS mandatory submission requirement typically does not kick in. To avoid any confusion, be sure to check with your MLS Rules to be sure you are properly handling the listing.

MLS Note:  If you’re client initiates a discussion on excluding their listing from the MLS (and with it all internet exposure that the MLS provides via syndication, and IDX) there is a signed form that the seller(s) must sign indicating that they understand the benefits and chose to keep their listing out of the MLS for a fixed period (entire contract length or set time period).  You still must submit your signed Exclusive Right to Sell agreement to along with a signed copy of the ‘REFUSAL TO LIST PROPERTY IN MLS’ form within 2 business days.

2) REALTOR® Code of Ethics:

All REALTORS® are bound by the REALTOR ® Code of Ethics. For purposes of this discussion, close attention should be paid to Articles 1 and 3. Article 1 states that, “REALTORS ® pledge themselves to protect and promote the interests of their client.” Further, Standard of Practice 1-12 specifically requires REALTORS® to discuss with the sellers his or her “company policies regarding cooperation and the amount(s) of any compensation that will be offered…”. When a property is listed with the MLS, the amount of compensation to be paid to cooperating agents is specified on the listing, and is generally offered to any MLS participant who is the procuring cause of the sale.  If the property is sold while not in the MLS, how will compensation be handled with cooperating agents? It is important to have a conversation with your seller to determine how cooperating agents will be paid if the listing is sold outside of the MLS.

Article 3 of the Code of Ethics places on a REALTOR® a duty to cooperate. Further, Standard of Practice 3-10 states that the “duty to cooperate… relates to the obligation to share information on listed property, and to make property available to other brokers for showing to prospective purchasers… when it is in the best interests of sellers…” If your seller is not fully educated on the ramifications of keeping the listing out of the MLS, it could be perceived that by opting out of the MLS, you are not operating in the best interests of your seller because you are restricting the availability of information and showings to outside brokerages.

3) Massachusetts Law: Under Massachusetts license law, agents owe their clients a number of fiduciary duties, including the duties of loyalty and obedience to lawful instruction. As an agent, you work for your client, and it is important that you always work in his or her best interest. Be sure that the decision to opt-out of the MLS is at the sole discretion, and to the sole benefit, of your client – not the other way around.

4) Listing Agreement: Included in the “Broker’s Duties” section of the Massachusetts Association of REALTORS® Listing Agreement is the requirement that the Broker “use reasonable efforts in marketing the Property and agrees to list the Property with…a multiple listing service.” As part of your discussions with your client, be sure to point out this clause and allow the seller to decide if he would like it stricken.

In order to both protect yourself and act in the best interest of your client, it is important that the items above are considered. It is recommended that prior to opting out of the MLS, either temporarily or entirely, you make sure that a seller truly understands the advantages and disadvantages of opting out of the MLS, including any options available within the MLS to address their concerns (such as declining Internet display if apprehensive about privacy or non- placement of a lockbox if concerned about security). After full disclosure, make sure the seller voluntarily decides to keep the listing off the MLS. Specifically, you may want to explain to your client that listing a property in the MLS maximizes exposure of for-sale homes to potential buyers and the participating brokers who work with them, advertising the property to a wide range of people generally helps sellers obtain the highest possible price for their home, and when seller’s property is in the MLSs, it is included in its download to various real estate Internet sites that are used by the public to search for properties.