A really interesting discussion broke out in the comments section of my post last Wednesday titled “The MLS Is Not Doomed! But Most of Them Are.” A reader with the alias DeRidder LA Real Estate, LLC injected everybody’s favorite topic, Zillow, into the conversation:
Disallow compilations of your MLS data to be sent to Realtor.com, Zillow, or Trulia. Disallow your membership to post homes for sale on Realtor.com, Zillow, Trulia, or any other entity in the future that rises to threaten the profession. An MLS with brokers focused on protecting their market can keep ZTR out. Don’t believe me? I already see it being doing in 3 geographical markets, with two of them being fairly large markets.
All you idiots that posted homes for sale on Zillow and Trulia are the cause of this chaos, along with all you idiots that pay ZTR each month for advertising. Did you guys not see this shit coming 5 years ago? I guess not. I’ll admit I’ve been an idiot before. I have never purchased advertising from ZTR, but I have posted homes for sale there. I wised up though, and you should too!
Which then led to a remarkably civil discussion between DeRidder, me, and a couple others, which, in turn, ignited this question:
In 2017, does fiduciary duty require that the broker put listings on Zillow?
First, a few caveats. I suspect that people will disagree sharply here. But I really would like a civil, measured debate and discussion on this. So for this post, I’m going to warn everyone up front that name-calling, personal attacks, etc. simply will not be tolerated. I will delete the comment and consider banning you from the site if you go out of bounds. You can hate on Zillow the company all you want, but if say Jay Thompson comes by and you get into personal attacks (“shill!” and so on), I will excuse you from the grownup table.
By the way, I’m singling out Zillow upon request from DeRidder, who asked that we focus on Zillow instead of “good portals out there with buyer eyeballs who aren’t trying to take over real estate.” Because I’m a sweetheart, I agreed, although I disagree that Zillow is somehow different from portals like Realtor.com and Homes.com and Movoto and… you get the picture. Given Zillow’s vast lead over all the other portals, it’s fair in my eyes to cast Zillow as the representative of all the portals out there.
Oh yeah, disclosure time: I have a business relationship with Zillow, but of course, they do not control or even know what I’m writing about here — until they read it here like everybody else.
With those caveats in place, let’s get into it.
Fiduciary Duty, Defined
First, let’s be clear on what fiduciary duty means. Because it isn’t clear to me that many brokers and agents know what that means.
The Wikipedia definition is most accessible to laymen, so let’s start there:
A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal“): such that there must be no conflict of duty between fiduciary and principal, and the fiduciary must not profit from his position as a fiduciary (unless the principal consents).
This translates to: “Put your client’s interest ahead of your own.” Now, look at this from NAR Legal:
The REALTOR® Code of Ethics’ Article 1 requires REALTORS® “to promote and protect the interests of the client.” REALTORS® must always keep this in mind when recommending a pocket listing to a client. Even beyond the Code of Ethics, state law generally dictates that real estate agents owe a fiduciary duty to their clients, meaning real estate professionals must place their clients’ interests above their own and act in the best interests of their clients at all times. [Emphasis added]
Obviously, fiduciary duty does not mean that the fiduciary cannot benefit financially from the relationship. Otherwise, no lawyer would ever take on a client, nor would any real estate broker ever be able to earn a commission. It does mean, however, that apart from the fees and benefits that the client clearly understands ahead of time that the fiduciary will get from the relationship, the fiduciary puts the client’s interests first, even above his own.
Fiduciary Duty: Pocket Listings and Coming Soon Listings
The above quote from NAR Legal actually comes from an article entitled “Law & Policy: Professionalism and Pocket Listings.” Whether we call them pocket listings or Coming Soon listings, we’re talking about properties that are marketed without being put into the MLS. Since the MLS is where all of the professionals in a given area go to find out what’s for sale, putting a property into the MLS is the equivalent of putting it on the open market.
NAR Legal rightly points out that fiduciary duty requires brokers and agents to put the client’s interest first. Accordingly, in some situations, pocket listings and Coming Soon listings are entirely appropriate and legal. For example, in the high-end luxury market, sellers often don’t want others to know they’re putting their house on the market. For these sellers, confidentiality is more important than wider exposure via the MLS. When a quick sale is a seller’s top priority, then Coming Soon listings are justifiable. In those cases, the seller wants to get a deal done fast and understands that might mean leaving money on the table.
In order to do an off-MLS listing without violating the Code of Ethics and state law, the broker must thoroughly discuss doing that with the client and get prior approval (usually in writing) to leave the property off the MLS. NAR Legal states:
When an agent recommends a pocket listing to a client, it is crucial that he or she thoroughly discuss with the seller the pros and cons of listing a property through the MLS. The agent should go one step further and be sure that the seller understands the benefits being waived by not including the property on the MLS. In general, the MLS offers sellers the greatest exposure of their property, allowing it to be actively marketed to every real estate agent belonging to that MLS. In addition, by listing on the MLS, the property may be downloaded to and displayed on third-party advertising sites used by the general public. Withholding a property from listing on the MLS significantly diminishes these marketing opportunities, which may result in reaching fewer potential buyers and a longer time from listing to selling the property, and, perhaps at the core of most sellers’ minds, it may not yield the highest price for the property. [Emphasis added]
Just in case you think it’s just NAR that feels this way, here’s a column entitled “Off MLS or “Pocket” Listing? You’re at Risk!” from the legal counsel of HAR:
You get the picture? This current love affair by some with “pocket listings,” meaning property listed with a REALTOR® who in turn does not place it on the MLS, can invite trouble. In fact, this issue of pocket listing may be the greatest legal risk facing REALTORS® today.
Why? Once you have taken a listing, you have created the highest level of trust in our legal system: the fiduciary relationship, a “special relationship of trust.” A relationship created to help sell a property on the market. Market access is best provided by the MLS, with listings exposed to other brokers, agents and their buyers, as well as listings routed to public websites for consumer access and review, versus unknown and minimal exposure from a pocket listing. No jury would find that you fulfilled your fiduciary duties by choosing to sell a property under a pocket listing that results in limited exposure and limited buyers. [Emphasis added]
HAR’s legal counsel also notes that your insurance might not cover this kind of liability:
A seller may ask you a month after the closing on a property, “Why did you ‘pocket’ my listing, and not put it on the MLS like my neighbor’s property who received a higher price for a similarly situated property?” Your response might be to call your liability carrier to report a new claim. Your insurance company might, however, take the position that intentionally leaving a property off of the MLS is not covered, i.e., no REALTOR® should be that careless.
Well, it’s 2017 y’all and consumer behavior has changed significantly in the last ten to twenty years. Everything said above in relation to the risks and responsibilities of taking off-MLS listings applies with full force to refusing to market the home on Zillow.
Market Exposure, 2017 Edition
We simply cannot deny that in 2017, Zillow has the buyer eyeballs. Even DeRidder admits to that fact of life. In Q3, Zillow had 165 million monthly unique users. No one else is even close.
We also know that in 2017, consumer behavior has changed. From the NAR 2016 Profile of Home Buyers and Sellers:
- For 44 percent of recent buyers, the first step that they took in the home buying process was to look online at properties for sale, while 17 percent of buyers first contacted a real estate agent.
- The typical buyer who did not use the internet during their home search spent only four weeks searching and visited four homes, compared to those who did use the internet and searched for 10 weeks and visited 10 homes.
One does wonder what the 39% of buyers who didn’t look online at properties and didn’t contact a real estate agent did first. Read Home Buying for Dummies? Get prequalified for a mortgage? Beg mom and dad for a loan to make the downpayment?
In any event, that’s NAR’s study. Another source, the real estate CRM provider Contactually, says that 80% of all home buyers are searching online.
Furthermore, in 2016, 94% of Millennial buyers — who make up the largest group of first-time homebuyers, like ever — used the internet. And critically for our discussion is this set of facts from NAR:
That was in 2014. Do we think that the percentage of people who found the home they ultimately purchased increased or decreased over the last three years?
But, Rob… Apples and Oranges
Given the above, it seems like a pretty strong argument that a listing broker who ignores Zillow is not providing maximum market exposure to his seller client. But there are counter-arguments, and DeRidder makes it in the comments:
A suit about not listing on Zillow would be drastically different than a pocket listing suit. Just so the audience knows, a pocket listing is when a real estate brokerage keeps a listing in house in an effort to sell the listing with a double-sided commission. That’s a far cry from a real estate brokerage not listing on Zillow because competition from Zillow has harmed their business.
The goal of a pocket listing, according to this line of reasoning, is to double-end the deal: get both the buyer and the seller. That’s quite different from refusing to help a competitor like Zillow who is harming one’s business. DeRidder continues, after a back-and-forth with Drew Meyers (a former Zillow employee):
Zillow is not part of my marketing plan, however I completely respect your preference, or any other seller’s preference, to have your home listed on Zillow. In that case if my company was not including Zillow in the marketing plan I would recommend other real estate agents who would perhaps be able to accommodate your preference.
So, what do we make of this line of reasoning?
No Difference in Fiduciary Duty
I don’t see the difference, at least from a legal standpoint.
First, the goal of pocket listing is not necessarily double-ending a deal. In many states, dual agency is actually prohibited under the law. Plus, most of the pocket listings and Coming Soon listings end up being a cooperative transaction where someone else who is in the listing agent’s network brings the buyer. This is actually pretty common in luxury markets where the number of people who can afford a $40 million oceanfront mansion is tiny, and so are the number of agents who know such buyers.
Second, and more importantly, fiduciary duty specifically requires that the fiduciary — in this case, the broker and agent — put the beneficiary’s interest first. NAR specifically states that the REALTOR is to place the client’s interest above his own interests and act in the client’s best interest at all times.
That a broker considers Zillow to be a competitor harmful to his business is irrelevant when it comes to fiduciary duty. In order to live up to that “highest standard of care,” the broker must do what is in the client’s best interest, even if that means helping a competitor harmful to his own interests.
Accordingly, I wonder if the disclosure and discussion requirements for refusing to put listings on Zillow mirror the requirements for taking a pocket listing. DeRidder rightfully admits that marketing on Zillow is not part of his strategy, so if clients want that, they should find some other company/agent.
Unfortunately, that isn’t where the inquiry ends, is it? Rephrase the language of the HAR legal counsel from above this way:
A seller may ask you a month after the closing on a property, “Why did you limit exposure to my listing, and not put it on Zillow like my neighbor’s property who received a higher price for a similarly situated property?” Your response might be to call your liability carrier to report a new claim. Your insurance company might, however, take the position that intentionally leaving a property off of the number one website and mobile platform is not covered, i.e., no REALTOR® should be that careless.
Let’s also rephrase NAR’s requirements of the agent before taking a pocket listing:
When an agent recommends not marketing on Zillow to a client, it is crucial that he or she thoroughly discuss with the seller the pros and cons of marketing a property on Zillow. The agent should go one step further and be sure that the seller understands the benefits being waived by not including the property on Zillow.
Seems to me that simply telling the client that you don’t market on Zillow is inadequate to fulfill your fiduciary duty. You must thoroughly discuss the pros and cons of not putting the property on Zillow, and be sure that the seller understands the benefits being waived.
So, just like with off-MLS listings, before you refuse to syndicate the listing to Zillow, you will probably need the seller’s agreement in writing.
Obviously, nobody is doing any of that today, or required to do any of it. Question is, should they?
What Are the Cons of Marketing on Zillow for the Seller?
I can’t see how the answer is anything other than, “Yes, you should.”
The key concept in both the off-MLS and no-Zillow cases is reducing market exposure in order to achieve some goal of the client or deliver some benefit to the client.
We’re all agreed as an industry that convincing the client to market the home as a pocket listing in order to double-end the deal is a no-goodnik violation of the Code and the law. We’re all agreed that convincing the client to do a Coming Soon listing so that you can do the deal only with your friends and avoid having to cooperate with a competitor is a no-no.
“You’re forcing me to benefit a competitor who harms my business” was and is never a valid reason to breach one’s fiduciary duty to do what is best in the client’s best interest. If you’re going to reduce market exposure to the seller’s property, then reducing that market exposure has to be in the client’s best interest and the client must understand what he’s giving up.
Therefore, the core issue is when it is in the client’s best interest not to get market exposure via Zillow. Just as in the case of off-MLS listings, if the broker must thoroughly discuss with the client the pros and cons of putting the listing on Zillow, you have to discuss both the pros and the cons? So what are the negatives to the seller for marketing a property on Zillow?
We saw that in the off-MLS case, there are circumstances — e.g., privacy — where not putting the property on the MLS is in fact in the client’s best interest. We also see in some cases that doing a “Coming Soon” may in fact be in the seller’s best interests:
The data shows that properties marketed as “coming soon” before being listed in the multiple listing service (MLS) tend to sell faster than MLS listings that never receive “coming soon” promotion.
In both of those cases, the broker is fully justified in not putting the property on the MLS, with the understanding of, and with the approval from, the seller client.
What are the equivalent considerations for not putting a property on Zillow? I can only think of one: the Zestimate.
Maybe if the Zestimate is consistently way below the actual market estimate of value for the area (not uncommon in nondisclosure states, like Texas), it would be in the seller’s best interests not to put their home on Zillow where uninformed and unrepresented buyers would wrongly believe that the home is way overpriced. I could see that reasoning.
Do any other situations exist that would justify not marketing the property on Zillow? Let’s hear it!
Call for Expert Opinions
While I realize we may get a more than usual number of temper tantrums in the comments of this post, I’d like to reiterate that I’m hoping for civil discourse on this issue, especially from those people with expertise in this area. (I’m looking at you, MLS and real estate lawyers.) I’d also like to hear from brokers and folks who have been dealing with agency and fiduciary duty issues for years and years.
If refusing to market on Zillow is not the same thing as taking a pocket listing, from the standpoint of fiduciary duty, why is that? What’s the difference?
If they are the same today given the massive change in consumer behavior, do brokers and agents who choose not to market on Zillow face liability from unhappy sellers? If so, how would they minimize that?
What are the circumstances and considerations for when it is not in the seller’s best interests to put the property on Zillow?
The floor is yours, ladies and gentlemen!