Open competition is inherent to a free market—or so they say.
One of the hallmarks of the real estate industry is the transparency of the landscape. MLS data must be made available (to everyone who pays) and consumers ostensibly can view every available house, with sellers marketing to every buyer, and buyers able to peruse every available home. Consumers also freely choose their agents based on whoever they think will best serve their needs, and (hopefully) for no other reason.
But why the caveats? What is keeping the industry from reaching a maximum level of open, fair competition—or will there always be exceptions, limitations and privileges in the market?
One of these exceptions that agents and brokers have seemingly become comfortable with is the so-called “office exclusive” listing. In 2020, a policy called “Clear Cooperation” sought to curtail the long-standing practice of “pocket listings,” which the National Association of REALTORS® (NAR) has defined as “a listing in which an agent has a listing agreement and the seller does not authorize the placement of the listing on the MLS.” Those are now banned, at least by NAR members.
But while Clear Cooperation requires all REALTORS® to list a property widely on the MLS within one business day of marketing it publicly, an exception was explicitly carved out for listings that are marketed, but not publicly—properties that are kept within the same brokerage or office. The purpose, according to NAR, was to allow consumers who need privacy for whatever reason to still sell a home without attracting unwanted attention.
In today’s market especially, however, this ability to protect and shield listings from the broader public has come under increased scrutiny. It has also fallen in the shadow of a handful of lawsuits that have accused NAR and big brokerages of anticompetitive practices.
But as it stands right now, is the office exclusive a great tool for a savvy agent and a specific consumer? Or is it a loophole that is allowing big companies to eat up market share at the expense of both agents and consumers?
Denee Evans, the CEO of the Council of Multiple Listing Services (CMLS), a collection of more than 200 MLSs which advocates for an organizes around industry issues, tells RISMedia that at the highest level, keeping listings on the MLS provides a “transparent, accurate and pro-competitive marketplace” for the industry.
“It’s not just consumers, it’s agents,” she says. “If we as an industry…are not sharing the most listings with the most amount of people, I think it’s negative.”
Mutually assured destruction
Simon Black is an agent with independent boutique brokerage Red Oak Realty in the San Francisco Bay Area. Even in a real estate market that has been inventory-constrained and unaffordable for decades, he takes the stance that office exclusives are not a runaway problem for the region.
“I think it was probably a bigger deal many years ago when people didn’t see the power of staging a property,” he says. “We’ve trained our buyers and sellers specifically in this market, because they’ve seen how that really does get such great results. I think we’ve trained them to see there’s real value to bringing things on market, and so I think off-market has become less of an event here.”
One notable stipulation made alongside the Clear Cooperation policy was requiring office exclusives to still be “filed” with a local MLS to ensure data accuracy, even though the data is not shared (a “certification signed by the seller” must also be included to affirm that it is the seller’s choice not to put their property on the MLS).
Evans says that is one of the most important evolutions of the “pocket listing” landscape, because that way the data is at least verified and reliable.
“ still gets entered into the MLS,” she says. “But a ‘pocket listing,’ to me, is one that never gets on the MLS and is in the ‘secret society club’—I call it the dark data of real estate. That’s where a lot of the issues can arise.”
But that doesn’t mean that office exclusives are themselves not potentially a source of problematic behavior or changes in real estate, especially as their use hasn’t accelerated during the current inventory crunch. Mega-brokerage Compass was explicitly called out during a recent Harvard panel focused on housing issues for allegedly trying to carve out market share using office exclusives in the Bay Area.
Speaking recently to RISMeda about the company’s tech platforms, Compass Regional President Rory Golod showed the way agents working there receive an “inventory advantage” by having access to listings that no one else does.
“Because of our market share in so many of our markets, we have hundreds of listings that are private exclusives, that are off-market listings that only Compass agents have
Black says Red Oak does not dabble in the practice of “pitching…potential sellers and buyers as having that magical place where these off-market listings exist,” though he adds there are some agents who certainly do that in the region.
“It seems sort of discriminatory in a way, where you’re restricitng who can see property, which doesn’t feel right to me,” he says.
Chris Kelly, president and CEO of Texas-based brokerage Ebby Halliday, says that “members of the public who are most impacted” by this type of scenario are underrepresented communities—often people of color.
“They are disproportionately impacted by this,” he says. “I have to be connected to the right real estate agent at the particular right brokerage in order for them to be able to tell me what they have for sale that they’re not sharing…so if you look at affluent areas, you can see how that can get disproportionate pretty quickly.”
While there is nothing intentional or inherent about this scenario, Kelly emphasizes that without extremely thoughtful, careful and transparent practices, the impacts can start to move into fair housing issues.
While the marketing benefit for an agent with a large number of office exclusives is obvious, the brokerage in question also gets to double its share of commission by essentially guaranteeing these listings will be dual-agency deals, providing an obvious motivation to increase the number of office exclusives from the brokerage side. Brokerages also can use office exclusives as a recruiting tool both for agents and homebuyers, especially in times of tight inventory.
Kelly says that this scenario could easily spiral into an “arms race,” where every brokerage or office in a given region is trying to grow their exclusive listings to compete with everyone else, rather than using office exclusives in the limited scenarios the policy was intended for.
“The analogy I like to use is the buildup of nuclear arms,” he says. “As more brokerages are holding more properties back as office exclusives—ones that don’t fit a unique seller or a unique property circumstance—eventually other brokerages say, ‘Gosh, I’m giving you all my listings, you’re giving me half of yours or whatever percent—I’m going to do the same thing to you, I’m not going to share.’ And then everyone does that.”
Office exclusives or other pseudo off-market listings don’t always include the same disclosures, at least in California, according to Black, which can make a transaction more complicated for everyone involved.
“You can imagine because oftentimes there’s still sellers living in them, they won’t always have that robust inspection, maybe, the general inspection or the best inspection,” he said. “It can be a complete disclosure packet or it can be an incomplete disclosure packet, and you as the buyer and the buyers’ agent need to decide, do we need additional inspections?”
It is hard to track exactly how prevalent office exclusives are since how they are categorized and collected depends on the brokerage, as well as the MLS. Some are disseminated in private Facebook groups, according to Kelly, or intranet platforms within a company.
Kelly adds that in the past, off-market listings were made up of “typically” high-price point homes and mostly fit into the explicit reasoning for the policy—high-profile people looking for privacy. But that does not appear to be the case in the current low-inventory, highly competitive market that is especially brutal in major metros.
“In a normalized market, having a certain percentage of office exclusives probably doesn’t make a huge difference in respect to the consumer,” Kelly says. “What we have seen in some markets is the office exclusive, I think, gets abused in some capacity where it is being used for properties that do not have a unique selling point or a unique circumstance for the seller to justify the office exclusive.”
One way to look into the future of off-market, or semi off-market listings, is to look at a region that has already experienced a few decades of low inventory with high appreciation and demand. Black says that the Bay Area can serve as this kind of sample.
“Most people in this area have been living where we haven’t had property to sell for such a long time,” he explains. “You realize there is value in you actually moving out of your property and getting it professionally painted and staged and getting those professional photographs taken, and so most people who transact in this area, they do transact on the market.”
Those sellers that do utilize off-market listings nearly always do so for the sake of convenience rather than just for privacy, he says, because they do not want to go through the trouble of vacating the premises and allowing strangers to stage, photograph and fix-up their home. They are willing to sacrifice some degree of profit, knowing the house will still sell at a premium in the highly competitive market.
Black adds that real estate agents are not often pushing the office exclusive because they know it will almost certainly cut into their commission. Sometimes they will, according to Kelly, because there will be less work overall for them to do, but that is not a widespread issue—making the most money for both yourself and your client is still going to be a strong motivation.
“Where do I maximize the potential eyeballs of interested buyers for my product? It’s putting it in the place where most consumers go to get their listings,” he says.
While Black and Kelly both emphasize there are and will always be appropriate reasons to keep a listing from a wider view, that doesn’t necessarily mean there is only one method for doing that. Evans claims that MLSs can—and do—individually provide nuanced ways to list properties while still allowing sellers the flexibility they want or need in terms of marketing.
“It just depends on what that local marketplace is driving at,” she says.
One of the most widespread alternatives—one that is also nuanced and diverse—is the “coming soon” designation, which NAR does not directly regulate. Depending on the local rules, this designation can restrict viewing of a property just to members of the MLS or to agents rather than the general public, as well as limit when offers or showings can happen, according to Evans. This potentially allows for a more localized, more curated way to carry out some of the functions office exclusives were intended for, and these rules can be modified by any individual MLS board based on local market conditions, she adds.
For that reason, Evans says there is no real consensus on the future of office exclusives from MLS leaders, to her knowledge.
“The approach in each marketplace can be different…my one thought is, the heart of our industry is cooperation, so anything that promotes and furthers cooperation, I would be in support of,” she says.
From the legal side, some industry insiders have been hesitant to address the issue of office exclusives because of an ongoing antitrust lawsuit that is targeting the entirety of Clear Cooperation as a violation of antitrust laws. A district court specifically cited office exclusives as evidence that Clear Cooperation was not anti-competitive or illegal when dismissing the case—though a federal circuit court recently reversed that decision, putting Clear Cooperation back in the spotlight.
Black says the current rules allow for significant flexibility, at least in California. Some can stay fully within a company, some can be marketed more broadly across an MLS or across the state, but not syndicated on Redfin or Zillow, which is very important for some people’s privacy.
Both Kelly and Black also acknowledge there might be some temptation from the agent’s side to push clients to sign up for office exclusives because it means less work from them, and in the hot market right now, the home is likely going to sell anyway for a good price. Black says he recently had a home go under contract after 350 showings over 12 days.
“It was a 63-stair walk-up to the front door, it’s not for everyone clearly,” he laughs. “It received multiple offers, and we will close with a really great offer.”
But in the end, both argued that most agents are going to be motivated to put the work in and go the extra mile—both for their client’s and their own bottom line—and the agents who offer this more fundamental value proposition will ultimately be successful.
“The idea of saying, ‘Well it’s really stressful to have all these people coming in ’— that’s the agent’s job,” Kelly says. “If my lawyer or doctor came to me and said, ‘Hey, I need you to make it easier on me when I’m operating on you, or working on this case’—I kind of feel like that’s what an agent could be doing sometimes …we get paid to manage stress, take it off of that seller.”