In Which I Have Fun With Sam DeBord's Inman Article on Pocket Listing Liability

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It’s a busy day here, but I couldn’t resist this. 🙂

Sam DeBord, a really intelligent and perceptive guy, who is also a working broker for Coldwell Banker Danforth in Seattle, wrote a long column on Inman about the possibility of huge liabilities for brokerages because of pocket listings. Read the whole thing.

There are important issues Sam raises, but I couldn’t help but um… rewrite huge sections of it, especially when it came to attorneys speculating about legal liability and the like. Think of the following as friendly repurposing. 🙂

There are serious issues to be discussed here, I guess, but that doesn’t mean we can’t have a little fun while trying to do it. Here we go then.

Open real estate agent data generates vast new liability for ‘non-syndicating’ brokers and agents

A new twist in the expanding refusal to syndicate listings may start to cause real estate brokers to reconsider their positions on the practice. Scrutiny over “non-syndication” has led to questions of potential financial liability for real estate agents, and their brokers, who regularly involve themselves in these transactions.

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Possibly more striking was the conversation with Neil Garfinkel, a partner with the law firm AGMB in New York. In his personal opinion, those who refuse to syndicate listings are opening themselves up to potential litigation. A former client who felt they were led into a practice that didn’t maximize their financial return, and didn’t fulfill the agent’s standards of duty, will at some point be the bellwether for non-syndication litigation in the industry. Real estate licensee duties can be fiduciary or statutory depending on the state, but almost always call for a high standard of care for a client’s well-being.

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This new look into the practices of real estate agents and their brokerages will allow consumers to see everything their professional service providers do in a new light. Individual sales and practices will be boiled down into averages, probability and patterns.

For the agent or brokerage heavily involved in non-syndication, it may be the biggest liability they’ve ever encountered. The sales production they’ve been touting for years will now be scrutinized against the backdrop of syndicated sales. Non-syndicated sales, known to be attributed to these agents, will be dredged up from public records and contrasted against similar homes that were exposed to the broader market via syndication. Class-action lawsuits and fair housing violations are just the start of the new potential threats that will need to be analyzed by a real estate broker entering this new world of “transparent” production data.

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Consider a “boutique” brokerage whose agents, across the board, refuse to syndicate listings to major portals. The owner or managing broker of this office will inherently be assumed to approve of, or even encourage, limiting the listings’ exposure. This demonstrably repetitive practice will be available for every disgruntled, poorly served or financially troubled ex-client of the firm. There is a very real opportunity for a group of former clients to bring litigation against a broker, without having to prove the details of an individual transaction. The broker — and its agents — will have digitally written their confession in the form of a long-term record of syndicated vs. non-syndicated production statistics.

Fair housing violations have always been considered a potential red flag in pocket listing transactions. When an individual agent refuses to syndicate, he may or may not be limiting a home from any number of protected classes or groups, but it’s difficult to prove in a one-off transaction.

As open production data surfaces, however, the brokerage that repeatedly limits which groups of the buying public have access to their listings will be under an enormous amount of scrutiny. There will be, without a doubt, organizations dedicated to crunching this data and matching past transactions to buyers and sellers, attempting to determine if a certain class of citizens is being excluded in practice. The potential of being labeled as a fair housing violator should be enough for most brokers to immediately re-evaluate their agents’ policies.

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It’s likely that a brokerage with a regular pattern of refusing to syndicate will have a record that shows lower final sale prices than those garnered by comparable homes listed on the major portals. It won’t require a “he said/she said” client vs. agent level of proof. There will be a long-term statistical testimony of a brokerage’s approved practices, the industry’s knowledge of that practice’s deficiencies, and a data-driven picture of the clients’ losses.

Of course, this vast picture of liability could be overblown if the data reveals not syndicating to be a boon to home sellers. While the overwhelming industry consensus casts a great amount of doubt on that scenario, it is possible. Still, there’s far more downside potential to taking that position as a broker. Having your company’s non-syndication practices justified by data merely allows you to continue doing business as usual. If the data turns the other direction, the vultures looking for deep pockets will start circling quickly.

In the end, the publication of agent production data, done in a responsible and ethical way, could force some unintended positive changes on industry practices. If more consumers are advised by their agents and brokers to get full exposure in their local markets, home sellers’ personal financial outcomes will be enhanced. At the same time, an increase in public listings will expand and improve the quality of closed sales data used by brokers, appraisers, banks and others. Raising the level of real estate’s professional practices, improving clients’ returns and increasing overall sales data quality are just a few more reasons the industry is leaning toward a more accessible future.

I think…

Both the “pocket listing” topic and the “syndication” topic are linked, at least at this larger statistical level.

If you’re afraid of liability from pocket listings, then you ought to be afraid of liability from refusing to syndicate listings. Since the same statistical tools that purport to show harm to consumers from pocket listings could show harm to consumers from not sending listings to the portals.

Asking an attorney whether there is the possibility of legal liability is rather like asking a car dealership mechanic if your vehicle needs additional maintenance work or a home security consultant whether you could do more to your home to make it more secure. Or for that matter, asking a consultant whether your business strategy could be better. Heh.

Fact is, most marketing practices likely fall under the business judgment rule of the agent. If an agent is not legally required to do EVERYTHING POSSIBLE to market a home, like hiring clowns at a fair or doing TV ads, then the agent is probably not going to be legally required to put listings on a portal… or in the MLS.

If the reverse is true, and failing to put a listing into the MLS results in liability, then in 2014, I rather think there’s gonna be liability for failing to put a listing on Zillow.

Your thoughts, of course, are welcome as always.

-rsh

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Rob Hahn

Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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