Why are some agents and brokerages persuading sellers to keep their home’s availability hidden from the vast majority of interested buyers, limiting marketing only to those represented by that agent or that brokerage? The answer is simple: More commission for the agent and brokerage.

Even if a home sells for significantly less money, the agent and brokerage will come out far ahead if they get both sides of the commission. Additionally, brokerages with access to hidden listings can use the promise of that access as bait to attract buyers interested in purchasing a home at a discounted price. 

While some agents may argue that sellers should have the option to sell their home with less exposure if they value privacy or expediency over the sales price, that’s not always how it’s being presented. Some sellers are being led to believe that they will get the same price (or more) by focusing marketing solely on the small fraction of buyers already working with that brokerage. While this may seem counterintuitive, a surprising number of intelligent sellers are falling for these polished sales scripts.

Market Reality

It’s not the 1980s anymore. Gone are the days when buyers learned of homes from agents driving them around in their Lincoln Town Car or Crown Victoria. Today, most buyers first learn of a home’s availability through the Multiple Listing Service (“MLS”), third-party websites that syndicate MLS data – such as Zillow, Redfin, or Realtor.com – automated alerts from those platforms, or from public advertising.   

Even when buyers first learn of a particular home from a newspaper ad, TV commercial, social media post, or via direct mail, they often visit one of the aforementioned websites for more information, including pictures, videos, 3-D tours and floorplans.

If a home is listed on the MLS, it will be prominently featured on all these third-party websites, as well as most local brokerage sites, including Compass, Coldwell Banker and DeLeon Realty. However, if it’s not on the MLS, the seller is vastly limiting exposure and with it, competition.  

Desire for Commission Drives Push for Off-Market Listings

There are two distinct ways that hidden listings result in more commission – at the expense of the client. First, it dramatically increases the likelihood of the brokerage getting both sides of the commission because the home’s availability is hidden from buyers working with another brokerage or not yet working with any agent at all.  Second, the brokerage can use the promise of exclusive access to these hidden listings to entice buyers to work with them.  After all, buyers understand that these homes are likely to sell for less money due to the reduced exposure and competition.  

Court Settlement Increases Push for Off-Markets

The real estate industry recently – and rightfully – lost a major antitrust lawsuit that found the industry had conspired to artificially maintain inflated commissions via various dubious and illegal techniques. As a result, the National Association of Realtors and most major brokerages including Compass, Keller Williams, the parent companies of Coldwell Banker, Sotheby’s and Intero, reached a settlement of nearly $1 billion and agreed to significant industry reforms, including:

1. Strict limits on advertising of commissions offered to buyer’s agents, if any; and
2. Buyers must now agree in advance to the commission that the buyer’s agent will receive from the buyer before starting the home search process.

One of the primary goals of these reforms was to encourage negotiation of the commission paid to buyer’s agents, rather than having it predetermined in the listing agreement. After all, buyer-side commission should come down, or service should improve, if buyer’s agents must compete for buyers.

Unfortunately, the settlement has done little to curb misleading practices by some agents and brokerages. In fact, some sellers have encountered agents falsely claiming that nothing has changed and they should still pre-commit to pay 2.5% commission to the buyer’s agent—nothing could be further from the truth.   

The Handwriting is on the Wall

Although the local real estate industry has been largely effective in “working around” or circumventing the client-favorable elements of the settlement, many in the industry recognize that it is only a matter of time before sellers realize that they should never set any buyer’s-side commission in the listing agreement—a position shared by both DeLeon Realty and the California Association of Realtors.

Once this shift occurs, buyers will have the power to negotiate far more favorable commission rates with their agents. Naturally, they will only pay what they believe their agent is truly worth.

This is precisely why certain self-interested forces in the industry are encouraging sellers to hide listings from buyers. When listings are public, agents cannot effectively boycott them –   buyers are simply too smart and well informed. But “private,” “office exclusive,” or “pocket” listings can be effectively hidden unless the buyer agrees to pay unjustified commissions to the agent or brokerage. 

6 Rules to Protect Yourself

1. Sellers should never agree to preset any buyer’s agents commission in the listing agreement.
2. Sellers should never allow any period of “early access” or “exclusive access” to buyers represented by the listing brokerage.  All buyers should have an opportunity to compete for the home at the same time.
3. The listing agent should include an addendum to the listing agreement with a detailed list of what home prep, staging, marketing and inspections the agent will pay for as a part of their listing agreement. Sellers should not accept vague promises like “I will reach out to my network” or “I will use my best efforts.”  
4. All listing agreements should end no more than 45 days after the home is placed on the MLS.  If the seller is unhappy with the agent’s efforts, or if they feel that the agent was deceptive in getting the listing, then the seller will not extend.  If the seller is happy, they will extend the listing agreement even if the home has not sold.  The agent should have to earn that extension.  
5. Sellers should have an express agreement regarding the maximum commission they will have to pay if the listing brokerage also represents the buyer.  
6. Sellers should get a predefined credit for the amount that the agent would have otherwise spent on staging, home prep, inspections, included legal services and marketing, if the home is in fact sold off-market.

Why Do Some Sellers Agree to Let Listing Agents Hide Listings

Some may wonder why a seller would ever limit exposure to only buyers that will generate a dual-sided (or “double-ended”) commission for the listing brokerage. The reality is the deck is stacked against clients because some unscrupulous agents or brokerages have developed multi-stage scripts to persuade sellers to do something that is intuitively against their financial best interests.  

Rarely do agents start by saying that they are going to limit exposure entirely.  Rather, they emphasize that they will promote the home to all interested buyers – but only after giving early access to buyers that they represent. As a result, buyers that would have been willing to pay more, or that would have fueled additional competition, don’t get the opportunity.  

While this still doesn’t make sense, some sellers report hearing agent arguments that include:

• A home should be prepped, touched-up, improved, cleaned, and staged before hitting the market so buyers see the property at its best. So far, so good.  However, agents then argue that the property should be shown to their buyers before it is ready. 
• Other agents claim that pricing homes can be tricky, especially for less experienced or less knowledgeable agents. Showing the home to a small portion of the market, they say, will give the agent information about its actual fair market value.
• Once the agent obtains an offer, they are perfectly positioned to tell the seller that all the feedback that they have received indicates that the seller should accept the offer, even if it is lower than they originally thought. As a result, the seller ends up in contract without knowing what the result could have been with broader exposure and maximum competition.
• Other agents dangle an unrealistically high price and suggest “testing the market.” While the agent knows that this strategy is unlikely to succeed, it almost always includes a listing contract duration of at least 90 days – far longer than advisable. When the dust settles, the homeowner finds themselves contractually obligated to work with an agent that lacks the experience and marketing resources of more capable competitors.

The Tide is Starting to Change

A major national brokerage, very active in this area, has faced significant negative press related to its position on off-market or office-exclusive listings. Recently, that brokerage announced that it will start sharing a portion of its off-market or office-exclusive listings with other agents if the other agent comes to their office.

While this is a small step in the right direction, it still begs the question: Why hide these listings from the vast majority of buyers that use the MLS, Zillow, Redfin, or other brokerages’ websites? Similarly, why hide them from agents that don’t know to stop by the listing brokerage’s office? Additionally, some agents have reported being turned away when requesting Compass’s list of off-market listings. While Ken and I were ultimately reassured – following our discussion with Compass’s management – that one of our realtors/attorneys could pick up the list weekly, the question remains: why make it this difficult if the goal is to achieve the highest possible sale price for the seller?

Zillow and Redfin have taken a stance against brokerages that encourage this hidden listing strategy.  They have announced that agents that hide their listings at the beginning and only offer them to their clients will be barred from promoting these homes on Zillow and Redfin’s very important platforms when, and if, the homes ever come on the MLS.

It is hard to imagine that hiding listings from so many buyers, whether this restricted access is only temporary or for the duration of the listing, is consistent with an agent’s fiduciary duty to the seller. This risk is so
significant that a knowledgeable real estate attorney would urge any agent engaging in this type of questionable practice to get a signed waiver from the seller saying that the seller knew that they could have had full marketing and promotion but it was the SELLER’s decision to limit exposure to only a small portion of the potential buyers. If not, there may be another major class-action lawsuit around the corner.

Michael Repka | michael@deleonrealty.com | 650.668.3958 | DRE #01854880