Brokers brace for NAR’s stricter rules on pocket listings

For traditional home sellers, the idea of a pocket listing is likely baffling: Why on earth would you try to sell your property in secret?

But for celebrities, people going through a major life change or those wanting to test a price before officially marketing, pocket listings have been crucial to selling their homes.

That’s set to change with a ruling issued late last year by the National Association of Realtors (NAR) called the Clear Cooperation Policy, which effectively bans pocket, or off-market, listings. By May 1, all listings must be submitted to the 633 NAR-affiliated MLSs within one day of being publicly marketed. It’s a change that is likely to shake up luxury residential markets in major cities across the country.

Rene Galicia, director of MLS engagement at NAR, stressed that it’s “not a new mandate; it reinforces the existing mandate.”

For years, NAR rules have required listings to be submitted to the MLS within one business day of being publicly marketed. But the definition of “publicly marketed” was fuzzy. And because the rule exempted certain “office exclusives” from the MLS submission requirement, agents could designate any listing as an office exclusive and thus create a lot of leeway in how they promoted the property and to whom.

The new rule clarifies public marketing, defining it as basically anything printed or disseminated in any capacity: everything from email blasts and brokerage websites to yard signs and flyers in windows. Office exclusives are still allowed, but agents must keep it truly in-office in order to stay in compliance with NAR.

The fact that the new rule allows for true office exclusives has many questioning whether large brokerages like Compass will have a leg up over smaller outfits, since their “office” includes thousands of agents across the country.

That’s not technically how “office” is defined, according to Galicia, who clarified that NAR defines “office” as all agents under one designated broker or broker of record. That can widely vary, he said, anywhere from a couple of agents to 1,000, depending on how the brokerage is structured. Still, even with that designation, larger brokerages with more agents have a clear leg up, or at least the potential for it.

Cory Perkins, who heads up Compass’ inventory strategy team, said he understood the critique but said Compass agents will act in the best interests of their clients, which will often mean putting a property on the MLS and marketing broadly. Galicia, for his part, said he believes sellers will choose the brokerage that fits their needs regardless of the NAR policy on pocket listings.

Rejiggered strategies

The new rule could be a blow to the luxury residential market in top-tier cities like Los Angeles, where 22 percent of the deals that closed in the second quarter of 2019 were whisper listings, according to an Elliman report.

“When you get to $10 million properties and above, pockets are probably about 20 percent to 25 percent of those listings [in L.A.],” said Christopher Dyson, a broker with the Agency. “The majority of the country doesn’t work in those realms, [so pocket listings are] a strategy that doesn’t even appear on their radar.”

Dyson launched the Pocket Listing Service with his Agency colleagues Mauricio Umansky, James Harris and David Parnes in 2017. The website for off-market listings, which was free for brokers, was designed to give agents across the country access to the same pocket listings. It will take a hit under NAR’s new mandate, but Dyson said they’ve been preparing for it for months. The Pocket Listing Service, which has close to 20,000 users, according Dyson, will relaunch in the first quarter of this year. “Pocket listings aren’t even going to be part of that conversation,” Dyson said. Though he declined to go into specifics, he said the new iteration aims to provide “the most effective direct lead-generating platform that exists.”

“Our goal was always to create the largest, strongest agent-only network in the country,” he said. “We feel there is strength in numbers, and we’ll be introducing new opportunities through the network that don’t exist right now.”

Compass’ Coming Soon site has also had to make adjustments, given NAR’s new policy. The public-facing website includes pocket listings but has been more focused on off-market properties that truly are “coming soon.” Perkins said 90 percent of Coming Soon’s listings ultimately hit the MLS and that, up until now, homeowners have used the site “to gather insights on their home” about price point, staging and marketing strategies before publicly listing it.

Now, Coming Soon is working with local MLSs to make sure its framework is in line with theirs. Regional listing services have their own “coming soon” options, so Compass’ product will shift to make sure it’s in compliance with all of their rules. While the interface might not look that different, it will mean, crucially, that all listings on Coming Soon are also on the MLS.

While NAR’s policy went into effect Jan. 1, local MLSs have until May 1 to comply. Dyson said it’s “business as usual” until then, although he anticipates “more confusion as the date gets closer.”

Peter Hannis Hernandez, Elliman’s president of brokerage for the Western region, is largely supportive of the new policy, but said NAR will likely need to continue fine-tuning it to make sure it matches clients’ needs.

Policing pockets

As far as enforcement goes, Galicia said, NAR provides policy guidelines but it’s ultimately up to local MLSs and would likely be a progressive series of disciplines: citation, fines, suspension, etc. He said while there’s some software that can flag listings, for the most part it will rely on member reports and self-policing.

The question of how a blanket policy will work with hundreds of MLSs and thousands of brokers is significant — and a big reason agents in L.A. who handle high-end listings aren’t pleased.

“The problem is, they’re making a national decision when real estate is practiced so differently in every different area,” said Hilton & Hyland’s Gary Gold. “To apply one idea to the entire country is bad business.”

Meanwhile, NAR and proponents of the rule say it will increase transparency and create a more level playing field. Dyson, Gold and other brokers who disagree with NAR’s policy said it ultimately hurts sellers because it limits their options.

The Chartwell Estate was originally marketed for $350 million as a pocket listing before it closed for $150 million in December 2019.

“It’s really important to know that pocket listings exist because certain sellers demand a certain level of discretion, not because we think it’s a better idea,” said Dyson.

While this is often the case with high-end sellers, Dyson said pocket listings can appeal to a range of homeowners who want to maintain their privacy and don’t want photos of their homes distributed widely across the internet.

“It doesn’t have to be a celebrity,” said Dyson. “It could be any person that’s changing jobs, if you don’t want neighbors to know you’re selling your house, maybe you’re going through a divorce. It’s the prerogative of the client, or has been, to want to [sell it as a pocket listing].”

Galicia questioned the privacy case for pocket listings, noting that many of the high-end properties were still advertised, such as on the abovementioned sites. He noted that the MLS has a feature that allows brokers to limit a listing’s reach if the “broker to broker” box is checked. While it doesn’t allay all privacy concerns, it does keep the property from syndicating to Zillow and other real estate sites.

Dyson countered by saying that since the Pocket Listing Service was only accessible to brokers, photos and property information were kept off the broader web. Coming Soon, meanwhile, is less of a privacy play and more focused on giving sellers an opportunity to pre-market the home before publicly listing.

Testing pricing

Privacy isn’t the only reason sellers are drawn to pocket listings.

They have also been a way for sellers to experiment with price points before putting the property on the MLS, which tracks price drops. For instance, Bel Air estate Chartwell was originally listed as a pocket for $350 million in 2017; it sold in December 2019 for around $150 million.

Keeping a listing off the MLS also limits the official “days on market,” which can doom a property. This is good for sellers who want to put their best foot forward but makes it difficult to have accurate data for buyers, according to Hernandez.

Critics argue that some brokers push pockets as a way to serve as both the buyer’s and seller’s agent, cutting out other brokers and doubling their commission. But Gold and others disputed this, saying their fiduciary duty was to the client, which meant making the property as widely available as possible so the seller could get the best possible deal. Brokers who try to “double-end it and get twice the commission … should lose their license,” said Gold.

“Consumers want things done a certain way, and we’ll have our hands tied. They’re going to have people other than NAR members selling their homes. That’s a guarantee. That’s how this happens every single time,” Gold added, comparing the real estate industry to the music business and the taxi industry, both of which saw a stubborn old guard upended by new technology.

“We should let people do what they want to do within reason,” he said. “NAR is probably doing this for self-preservation, but that’s not a fair reason to do it. We should be doing things that are in the best interest of our clients.”