The local real estate market has been under a microscope lately with new restrictions pertaining to the COVID-19 guidelines. Now, a new rule from the National Association of Realtors (NAR) called the Clear Cooperation Policy that went into effect on May 1 is impacting the use of private “pocket” or off-market listings.
Based in Chicago, the NAR is a North American trade association for the real estate industry. It is involved in all aspects of the residential and commercial real estate industries and functions as a self-regulatory organization for real estate brokerage.
Pocket or “whisper listings” help protect a high-profile buyer’s privacy and keep the looky-loos at bay. They can be a means of testing the waters prior to putting a home on the market, or a way to hide the public paper trail of a home that was perhaps priced too high and sat dormant for too long.
This new policy dictates that all listings must be submitted to the Multiple Listing Service (MLS) database within one day of being on the market, or they must remain in-house and exclusive to the listing agency only and not shared with outside brokers or sources.
One prominent real estate executive in Beverly Hills told the Courier, “The origin of this new NAR ruling is discrimination against minorities. They don’t want anyone to be discriminated against, but the execution is questionable. We are still refining how are we going to do this, but we need to follow their rules.”
While the new policy is national, it presents a particular problem in Los Angeles and Beverly Hills A-List circles. Pocket listings are thriving, particularly with higher value, higher-profile homes (over $10 million) and this can represent up to 30 percent of revenue for a top brokerage firm.
“It’s a killer for us,” Rochelle Maize of Nourmand & Associates told the Courier. “It’s so hard because it was a national vote and middle America is very different than Beverly Hills. A lot of business here locally is off-market because there are so many high-profile people and celebrities here.”
“I’m not aware of issues people are having.” said Rodney Gansho, Director of Engagement at NAR and MLS committee Staff Executive. “This is not a prohibition on pocket listings and doesn’t eliminate the ability to take pocket listings,” he told the Courier.
“The only thing that the Clear Cooperation did was create a standard where if the listing is publicly marketed, it’s questionable. If it’s a pocket listing for privacy reasons, brokers can still do that but once they start exposing it to the market, the policy indicates that listing should be put in the MLS so that others in the marketplace can also be informed about that. Then it’s no longer a pocket listing at that point.”
He added, “There is no national policy from the NAR about what a ‘whisper listing’ is or certain numbers of people who can know about a listing. For fair housing concerns, you want to make sure that you are treating everybody fairly, plus it’s in the best interest of the client, you want to make sure you get wide distribution of a listing.”
Jeffrey Saad, who is an Estate Director at Compass in Beverly Hills, feels the outcome could be counter to what the NAR set out to protect. “They have taken our industry from open and collaborative to private and exclusive,” he told the Courier. “This ruling has reversed the amazing progress [in the industry] and has literally done the opposite of what they were trying to accomplish.”
“The moment I share a listing with more the than one person or it goes public in any way – this could be a sign in the front yard, postcard or an e-mail blast – it must be entered into the MLS within 24 hours,” he said. “Now the whole world knows [about the listing],” he said.
With the new system, the listing will go into “private exclusive” so it’s only shared in-house not with the public. “This just made the bigger company the winner, he said. “The bigger your company, the more you’re sharing with in-house. Before, you could have a pocket listing forever as long as the client agreed on not putting it in the MLS to reduce number of people who saw it,” said Saad.
The NAR and advocates of the rule say it will create a level playing field and increase transparency, but larger companies such as Compass or Coldwell Banker may have an advantage because they can expose it to not just a single office, but multiple locations.
On Monday, May 11, a lawsuit was filed in the Northern California U.S District Court against the NAR by Top Agent Network in San Francisco. According to a recent Wall St. Journal article, the agency is claiming that the Clear Cooperation Policy will put them out of business.
“Top Agent was a paid for service where you could post your pocket listings and it was a great way for people to find out about those listings without having to go on Zillow or Redfin,” said Maize. “Hopefully, they will figure out a way to stay in business. They have a been a huge asset amongst agents, especially in Beverly Hills, to make deals happen. It will be a shame if they couldn’t continue to do this.”
This new policy seems to have created more competition in Beverly Hills. Most agents are bound by the NAR policies, and are subject to hefty penalties for noncompliance. “They are not just hand-slapping,” said Maize. The fines are $2,500 for the first offense, $5,000 for the second and you lose your license on the third. “Unfortunately, because our industry is so competitive, you have naysayers that are watching and if you do anything, they will turn you in. So, it’s not worth taking any risks until they figure it out,” she said.
Josh Flagg of Rodeo Realty and Bravo television’s decade long series “Million Dollar Listing,” told the Courier he is conflicted about the new policy.
“Most pocket listings don’t have a signed agreement,” he told the Courier. “It’s word of mouth and only about 10 brokers know about it. If you actually sign it, then one could make the argument that it should be on the open market. I can see both sides but no one should tell me what I should do with my home.”
“What if I’m Madonna and I don’t want people to know that I’m selling my house? Or, let’s say my neighbor knocks on my door and wants to buy my house and I tell my broker at a dinner party, ‘I guess if I got the right price, I’d sell my house,’ and he tells a friend. Now I’m supposed to put my house on the market so other people can have a shot at it? It’s stupid and where does it stop? There has to be a caveat to this rule,” Flagg said.
Despite the industry pushback, Maize remains optimistic. Like anything, it’s just really hard in the very beginning but I’m confident that it will fall into place and we will have some type of a system to fall back on,” she said. “We will continue anyway and figure out how to sell homes. The value in Beverly Hills is still holding and it’s looking good.”