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The problem with banning pocket listings

HW+ agent putting sign in the yard

This is Part 1 of HousingWire’s two-part series examining the National Association of Realtors’ clear cooperation policy, better known as a ban on pocket listings, or homes not marketed on Multiple Listings Service. Part 1 looks at the history of NAR’s mandate and the labyrinthine network of MLSs that ostensibly sought the pocket listings ban and are now supposed to enforce it.

Jim Quinn just won his appeal on his pocket listings punishment.

“An agent of mine put a ‘for sale’ sign out in the yard,” said Quinn, the operating principal at Keller Williams Peace River Partners in Punta Gorda, Florida. “Another agent saw the sign and instead of the courtesy of calling us, he called the local MLS board and they slapped us with a $500 fine.”

In the eyes of the Florida Gulf Coast Multiple Listing Service, the Punta Gorda Keller Williams franchisee had defied the National Association of Realtors’ clear cooperation policy, more commonly known as the pocket listings ban.  

Quinn was fined, he said, with no warning or due process. But after challenging the fine, the local MLS later dropped the penalty.

The pocket listings ban has ignited stark differences in both opinion and practice among real estate agents, with opponents contending it may be the trade group’s fatal overreach. These naysayers point to the Biden administration – already pursuing a “broad investigation” of NAR activities – intervening in a lawsuit challenging the ban.

But if the pocket listings guidelines indicate NAR’s heavy hand, the policy also demonstrates that NAR power is channeled through a glass mosaic of countless MLSs, each with their own bylaws, level of resources, and coterie of nosy agents.

“We pay to support these organizations,” Quinn said. “They wouldn’t exist without us, so they should give us the benefit of the doubt.”

Why people started caring about pocket listings

For all the professed dismay and voluminous legal filings over pocket listings, there’s scant data on the number of off-market homes for sale before and after NAR’s decree.  

Ken H. Johnson, a real estate professor at Florida Atlantic University who co-authored a study over a decade ago that appeared in the Journal of Real Estate Finance and Economics estimated that less than 5% of all home sales close without being put on a public listing database.  

Johnson has no reason to suspect this percentage changed much. But he also acknowledges that the current ethical and legal debate over pocket listings is not something he anticipated.

“I would think it would be a very low priority,” he said. “It’s like going 73 miles per hour in a 70 miles per hour zone.”

NAR’s “MLS Technology and Emerging Issues Board” created the pocket listings ban, per NAR’s website. Enacted in April of last year, the policy requires agents list a home on their local MLS within one business day after marketing it. Marketing means many things, from yard signs to an Instagram post. NAR gives some examples of what marketing is but doesn’t say what it isn’t.

NAR did not respond to several inquiries over a period of weeks for this story. 

The trade group explains on its website that banning pocket listings “reinforce the consumer benefits of cooperation,” adding, “The MLS creates an efficient marketplace and reinforces the pro-competitive, pro-consumer benefits that realtors have long sought to support.”

Agents have a noble interpretation of what NAR is really saying, and a cynical one.

The uplifting version is that NAR, which has offered mea culpas regarding past racism in housing, implemented the policy to ensure listings are posted publicly, reducing opportunities a seller has toward discriminating against a buyer.

“The ban on pocket listings needs to remain,” said Kevin Polite of Solid Source Realty in Atlanta. “It has a discriminatory past whereby white realtors who didn’t want to sell to Blacks and Jewish people would do pocket listings so that people of color or different religions would not have access to these homes.”

Michael Lissack, an agent for Virtual Realty in Salem, Massachusetts, partly agreed.

“I do sincerely think that NAR is focused on making sure nobody is steering and redlining, and keeping people from accessing property,” Lissack said.

But Lissack also sees another reason, which is that MLSs collect dues from agents. And those MLSs, in turn, make their listings accessible to all dues paying members. Maybe some agents – like the Los Angeles reality TV stars Mauricio Umanksy, James Harris and David Parnes who are suing to repeal the pocket listings ban – are so plugged in they don’t need this public database to succeed.

Others may feel MLS access is their only chance to compete.

“NAR wants more and more people to pay them dues,” Lissack said. “So, they encourage the proliferation of unqualified neophytes to take on the title of realtor.”

NAR delegated MLSs to enforce the ban through an “escalating process of warnings and fines,” per the trade group’s website. So far, there’s arguably been a scattershot implementation.

“The rule doesn’t make any adjustments for movie stars, and the rule by definition gives discount brokers grief,” Lissack said. “If the issue was only fair housing compliance, then that makes sense. But these things don’t exist in a vacuum.”

Into the cosmos of MLSs

Like stars in the Milky Way, we can name some MLS companies, but we don’t know how many exist.

Today, there are “more than 800 MLSs,” according to NAR’s MLS explainer.

“There are more than 900 MLS systems in the United States,” states Zillow in their MLS explainer. “Each with its own rules, regulations, and database accessible to only its members.”

There are “more than 600 MLSs nationwide that are affiliated with NAR through their ownership or operation by NAR’s Realtor Association,” stated Los Angeles federal judge John Holcomb in an order against PLS.com, the company founded by Umansky, Harris, and Parnes.

Sophia Gilbukh, a real estate professor at Baruch College, is presently studying MLSs and placed the number at closer to 500 due to a wave of recent mergers.

For example, Bright MLS, which is listed as a co-defendant in the PLS.com lawsuit, compiles listings throughout the mid-Atlantic and stems from the consolidation of nine different MLSs in 2017.

“It is confusing who exactly is merging, who owns what, and what fees agents must pay,” Gilbukh said.

That there is one NAR but untold MLSs dates to age-old practices of sharing listings on printed sheets.  

“Before the Internet age, Realtors used to get together regularly in town meetings, and share the listing information with each other, hence the local nature of MLSs,” said Panle Jia Barwick, an economics professor at Cornell University who studies the U.S. real estate industry.

Around two-thirds of MLSs are owned by a local NAR affiliate, Barwick said. This includes, for example, Rhode Island State-Wide MLS, a wholly owned subsidiary of the Rhode Island Association of Realtors.

Rhode Island State-Wide MLS adopted the pocket listings ban, said Phil Tedesco, CEO of the Rhode Island realtors’ group, because “This policy is mandatory under NAR rules.”

However, the largest MLS of neighboring Massachusetts – the Massachusetts Property Information Network, or MLS PIN – is “owned by 230 individual brokers or brokerage entities,” said Melissa Lindberg, MLS PIN’s chief strategy and marketing officer, and is, “Therefore not bound by NAR policies.”

And yet, MLS PIN has its own, separate rule, Lindberg explained, requiring agents post any home for sale within 24 hours of securing the listing.

Other variations abound for MLSs, which are often the gatekeeper of the housing market information agents, and eventually the public, can see.

New York City “has several MLSs, but they are so small, and all the agents tend to list on StreetEasy,” a company independent of NAR, Gilbukh said.

Like Bright MLS, Midwest Real Estate Data is a co-defendant in the PLS.com lawsuit, and one of the biggest MLSs in the country, listing properties for all the Chicago metropolitan region plus parts of Wisconsin and Indiana.

However, Midwest Real Estate Data is not subject to NAR rules, as it’s owned by a group of local brokers.

Midwest Real Estate Data has 58 pages of rules and regulations for its dues paying members who post listings. There is an 877-word rule regulating agents’ use of photographs, and an additional 201 words on photography contractors. Unauthorized dissemination of system access passwords is a $2,500 fine.

There’s also – like MLS PIN – Midwest Real Estate Data’s own iteration on a rule prohibiting pocket listings, which they implemented in 2016.

Gilbukh has only begun her studies on MLSs. But so far, “I have certainly found a lot of inefficiencies.”

Part II in this two-part series examines how MLSs have implemented the measure so far, and the legal challenges to the pocket listings ban.

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