NAR Rules are Irrelevant When It Comes to Off-Market Sales

Mike Cooke, Employing Broker Professional Development

Undeniable seller advantages, not regulatory and trade association constraints, should motivate agents to get their sellers into the MLS. The National Association of Realtors (NAR) approved the Clear Cooperation Policy (CCP) on November 11, 2019. CCP virtually eliminates the off-market sale of seller listings by agents participating in a NAR sanctioned MLS system. Agents not playing by the new rules face stiff fines.

Some agents are oblivious to the new policy. Others are grumbling.

In reality, the CCP is just giving more specific guidance that implements the prohibition on vest-pocket listings that has always been part of the Realtor Code of Ethics. CCP is also in alignment with Colorado Real Estate Commission rules that only allow agents to do off-market sales when they have the seller’s “informed consent” … and informed consent is a very high bar that most agents don’t clear when advising sellers on this issue.

At CHR, we applaud and support the new NAR policy … but it is NOT the reason that agents should be getting their sellers into the MLS.

Agents should be bringing all their listings to the MLS simply because their sellers get better deals by doing so!

Let’s start with price. In April of 2018, half of all sellers in the metro Denver MLS got more than their original asking price. 

The 2018 pattern also prevailed in 2015, 2016 and 2017 and we saw only slight variations from that pattern in 2013, 2014 and 2019.

If those over asking price transactions had occurred off-market at the actual list price, vast numbers of sellers would have received less than full market value for their houses.

Price, however, is just the tip of the iceberg when it comes to seller benefits. The sellers that ended up getting above asking price probably had multiple offers. Knowing they were competing, buyers likely offered higher earnest money, limited inspections, appraisal gap coverage and free/inexpensive post-closing occupancy terms. These items undoubtedly put even more money in the seller’s pocket and/or made the transactions more likely to close.

The negative impact of being off-market that we’ve just documented from MLS data is not just a local phenomenon. It is confirmed by the best nationwide For Sale by Owner study ever done.

Completed by Collateral Associates in 2017, using a statistically valid sample of homes in the U.S., it showed that FSBOs receive 4% to 5% lower net proceeds than sellers that used an agent and were in the MLS. The reason for the lower prices is that FSBOs don’t get broad exposure to the 92% of buyers using an agent to make a purchase.  And this doesn’t even include the difference between a great agent who helps the seller prepare the home and just the average agent. 

What is borne out by experience both locally and nationwide is backed up by economic theory, which states that a property sells for its fair-market value only if all “fair-sale circumstances” are in play. Fair-sale criteria include items like unrelated parties, voluntary exchange and normal motivations.

Conversely, a property has not sold for its fair market value if any of the fair-sale circumstances are missing or violated. A sale between parents and a child for example might not be at the fair-market value because personal factors likely influenced the pricing decision.

One of the vital fair-sale principles is that a property must receive “wide exposure in a large, open and competitive market for a reasonable time.” If broad exposure is missing, a property by definition has NOT sold for its fair-market value.

Both theory and experience agree that sellers benefit most when they take advantage of being for sale in the MLS. The MLS system is used by 90% of resale home sellers and 92% of resale home buyers to find each other.

The MLS system is one of the most powerful marketplaces ever invented in the history of mankind. Make sure your sellers get the maximum advantage from your services by having all listings in the MLS.