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Agency Law and Pocket Listings

by James A. Erwin, Founder, Erwin Law, LLC

In May this year, the National Association of Realtors (“NAR”) enacted a new policy called the “Clear Cooperation Policy”. That policy requires that any member of the NAR must add their listings to one of NAR’s multiple listing services (“MLS”) if the property is being publicly advertised for sale. The policy targets a common practice of some agents (known also as “pocket listings”) to market their properties within a smaller pool of agents or buyers, rather than to the public at large through an MLS.

 

Shortly following the enactment of the Clear Cooperation Policy, a nationwide group of more than ten thousand real estate agents, the Top Agent Network (“TAN”), filed a lawsuit against NAR, arguing that the policy constitutes an unfair restriction on competition, and an illegal limitation on their business.

 

Supporters of the policy argue that it promotes transparency and better serves sellers by increasing the market to which they expose their properties. Opponents argue that a wider market is not necessarily a benefit or in the best interests of all sellers, and that the choice should be left to the seller and their agent/broker. Those opponents contend that, because TAN’s membership is limited to agents ranked in the top ten percent in their market, the homes they sell are best marketed within this exclusive group first; that it increases the exclusivity (and price) of a home – thus, better meeting the seller’s objective.

 

It is that very same “exclusivity” that rubs many non-TAN agents the wrong way, creating, in the opinion of many of them, a super-secret, closed-door environment of pocket listings which should be eliminated through efforts such as the Clear Cooperation Policy.

 

TAN lost the first round of its litigation, with a judge ruling against its request for a temporary restraining order against NAR. It remains to be seen what the final result of the lawsuit will be.

 

Regardless, this case should remind all agents that a key question in the delivery of their services is whether or not they are representing the best interests of their clients. The answer may depend, in part, on the specifics of state laws, but is largely grounded in certain basic principles of agency law.

 

The law of agency addresses the relationship between an agent and the party on whose behalf they are authorized to act. Agency does not arise only out of contractual situations, but can also be created without contracts. However, in the case of real estate agents, at least in Illinois, those agency relationships must be established in a written contract, typically the listing agreement in the case of a seller. And those contracts are governed by Illinois law, including the Illinois Real Estate License Act of 2000.

 

In the opinion of this author, if an agent is fully transparent with their client, and has valid reasons for not listing on the MLS which line up with the best interests of that client, and the client agrees to a pocket listing marketing strategy, this is a contractual arrangement that should honored.

 

Of course, there are standard contractual defenses which could come into play, such as undue influence, or lack of capacity on the part of the client, etc., but those defenses raise conduct that would always be a violation of an agent’s obligations.

 

Erwin Law has litigated contractual and agency issues for nearly 30 years, and we’re here to help you resolve these, and any other real estate law issues that arise. Feel free to reach out to us with your questions at 773-525-0153 or visit us at www.erwinlawfirm.com.

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