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Rising trend of “coming soon” signage & “pocket listings” is raising legal, ethical questions

Reprinted from the Winter/Spring 2014 Ohio REALTOR magazine

By Peg Ritenour, OAR Vice President of Legal Services/Administration

If you drive around many residential neighborhoods in Ohio you may notice a relatively new marketing technique used by some brokerages: “Coming Soon” signs. The use of such signs has been questioned by cooperating REALTORS and their buyers who want to see a property that appears to be for sale, but are told it’s not ready to be shown, only to find out that the property is in contract a few days later.

Another practice that has raised eyebrows is the increase in what has been referred to as “pocket listings.” This is a slang term used to refer to listings that are held by the listing brokerage, not submitted to the Multiple Listing Service (MLS) or made available to cooperating REALTORS to show. In some cases the listing is held back for a portion of the listing term and in other cases for the entire length of the listing.

Are such practices legal? Are they ethical? In most situations they are. However in other situations such practices may not only run afoul of the National Association of REALTORS’ Code of Ethics and the MLS rules, they may also violate the license law and the fiduciary duties owed to a seller.

Let’s look first at the “Coming Soon” sign. Certainly there is no law that prohibits this type of signage and in many cases they are appropriate. The reasons why such signs are used can vary, but generally such signs are utilized by listing REALTORS and sellers who want to generate some “buzz” or interest in the listing by starting the marketing process although the property is not yet in a condition where it is ready to be shown. Such situations commonly include REO properties when repairs are still being made, investment property that is being renovated or homes where the seller still needs to do a lot of purging and cleaning before it is ready to be shown.

As to the appropriateness of marketing such properties, there are several factors that need to be considered. First, does the brokerage/agent placing the “Coming Soon” sign on the property actually have it listed? If it’s not listed, is it legal to place such a sign on the property?

Despite what most REALTORS believe, Ohio license law does not require a licensee to have a signed listing before advertising a property or placing a sign on it. Instead, all that is needed is the owner’s consent. Of course to establish that such consent was given, it is recommended that this be obtained in writing from the seller, however that consent does not have to be in the form of a listing.

REALTORS who advertise a property without benefit of a listing agreement also need to make sure they do not misrepresent to others that they have the property listed. When other agents or their buyer clients see the “Coming Soon” sign they may question whether the property is in fact listed. Certainly if asked this by other REALTORS, the REALTOR marketing the property cannot misrepresent that the property is listed if it is not. Doing so could be found to be a knowing misrepresentation that could subject the agent to disciplinary action by the Ohio Real Estate Commission.

In most cases, however, a REALTOR using a “Coming Soon” sign does have the property listed. If the brokerage is a participant in an MLS, the MLS rules require listings to be submitted to the MLS within a certain number of days or hours (three days or 72 hours is common). If the owner does not want his property submitted to the MLS or will not permit showings, the listing REALTOR must be sure to follow the MLS requirements to document the seller’s instructions. As these requirements can vary, it is crucial for listing agents to check their MLS rules and to comply with them.

As stated above, one of the most common complaints about “Coming Soon” signs is that the listing agent will not allow other REALTORS to show the property because it is not in “showing” condition, but will show the listing to his own buyers and may even write an offer for them. Other REALTORS and their buyers who were refused access to the property are understandably upset when they later see it in the MLS in a “pending” status or see a sold sign on the property.

Listing agents who represent to other REALTORS or buyers that the property is not available to be shown but show it to their own buyers could face both ethical and legal challenges. First, it may be alleged that the agent violated Standard of Practice 3-8 of the NAR Code of Ethics, which provides that “REALTORS shall not misrepresent the availability of access to show…a listed property.” Such a complaint would be handled through the Professional Standards process at the Local Board/Association of REALTORS.

A similar allegation could also be filed with the Ohio Division of Real Estate and Professional Licensing. And if it is proven that the listing agent lied about the availability of the property to be shown, the agent could possibly be disciplined by the Ohio Real Estate Commission for making a knowing misrepresentation or for misconduct.

The second trend that has occurred in the last year has been an increase in “pocket” listings. Also referred to as an “office exclusives,” these are listings that are not submitted to the MLS and the listing brokerage generally does not offer cooperation or compensation to other brokerages. Instead, all showings and negotiations are handled exclusively through the listing REALTOR. Such listings have historically been entered into in situations where the seller wishes to limit access to his property based on privacy or security concerns, and for this reason, only wants the listing agent to handle the sale.

Such listings are not a new phenomenon, but have they have gone from a rarity in the marketplace to something occurring more frequently, making some question if they are truly the result of an increase in security and privacy concerns or are instead motivated by the listing REALTOR’s desire to retain the entire commission.

While this type of listing isn’t illegal per se, potential ethical, legal, and MLS issues may be involved. First, Article 3 of the NAR Code of Ethics provides that “REALTORS shall cooperate with other brokers except when cooperation is not in the client’s best interest.”  Standard of Practice 3-10 clarifies that “The duty to cooperate established in Article 3 relates to the obligation to share information on listed property, and to make property available to other brokers for showing to prospective purchasers/tenants when it is in the best interests of sellers/landlords.”

The basis for these provisions in the Code of Ethics is a belief that cooperation among REALTORS increases the exposure of a listing in the marketplace and that such broad exposure will not only expand the pool of potential buyers, but will also result in better offers for the seller. Thus, offering such cooperation to other REALTORS is presumed to be in the seller’s best interests. For this reason, listing REALTORS who do not offer such cooperation must be able to establish that they are acting in this seller’s best interests to avoid a violation of the Code of Ethics.

Beyond these ethical considerations, a REALTOR’s fiduciary duties also require him to act in the seller’s best interests. Of course the determination as to what is in the seller’s best interests ultimately lies with the seller. However it is important that the seller has all of the necessary information in order to make an informed decision about how the sale of his property will be handled. Thus, before a seller agrees to a pocket listing, a listing REALTOR should explain the expanded market exposure that is gained by placing a property in the MLS and the benefits of offering cooperation. Such an explanation will allow the seller to make an informed decision as to whether it is in his best interests to keep his property out of the MLS and to limit showings to those handled exclusively by the listing brokerage. By obtaining such informed consent, the listing REALTOR can avoid a potential civil claim by the seller that the reduced exposure of his property resulted in a lower sales price.

Finally, as with “Coming Soon” signage, REALTORS taking such pocket listings must also be sure to follow local MLS rules regarding submission of listings and to provide any necessary documentation to the MLS to establish that the listing is not being submitted per the seller’s instructions.

In conclusion, while both “Coming Soon” signs and pocket listing are not illegal, there are ethical and legal issues involved, as well as MLS rules that must be followed by REALTORS. And most importantly, when representing a property owner in the sale of their home, the client’s best interests must be a REALTOR’s primary focus.

Tags: legal