Are Private Listings And Fiduciary Duty Truly Opposites?

As the debate over the Clear Cooperation Policy (CCP) and the proliferation of private listings has heated up, the term “fiduciary duty” has been bandied about. But could listing a client’s property on a private network instead of the MLS really be considered a breach of fiduciary duty? HousingWire consulted legal and consumer advocacy experts to find out. 

What is fiduciary duty anyway? 

According to the National Association of Realtors (NAR) a real estate agent’s fiduciary duty to a client consists of several tenets, including obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and diligence. 

Examples of a breach of fiduciary duty, according to Perigon Legal, a Georgia-based law firm, include things like declining or accepting an offer without the client’s advice, permission, or approval, or receiving a bonus or other payment related to the sale of a property without disclosing it to the client.

“Essentially, if I am an agent representing a seller, I have a fiduciary duty to not put my client in worse financial shape than they were previously,” Marx Sterbcow, the managing attorney of Sterbcow Law Group, said. “I have to look out for all of their best interests and not my own, personal best interest.”

In addition to NAR’s definition, fiduciary duty is also a legal concept governed mostly by common law and case law, but also subject to a variety of state-level statutes depending on the context of the fiduciary interaction. 

It varies by state to state.

“Some states might say that a real estate agent has an outright fiduciary duty and may define that fiduciary obligation pretty broadly, while other states may say they don’t have a fiduciary duty at all and they are really an intermediary in certain transactions,” said Marty Green, an attorney at Polunsky Beitel Green LLP.

Where do private listings come in? 

But there are gray areas related to private listings.

“I’ve yet to see convincing data that says keeping a home off the market nets a better deal for the seller,” Jaymes Willoughby of Keller Williams Realty told HousingWire in April. “We have a fiduciary obligation to expose their home to as many buyers as possible to get the highest and best price. Why would we hide it?”

A study from Bright MLS backs up Willoughby’s assertions. The study found that homes take longer to sell when a broker pre-markets a property as an office exclusive, and that in contrast to claims made by office exclusive proponents, pre-marketing a home as an office exclusive did not generate a higher price than if the property was immediately marketed through the MLS. 

By not helping their client gain the maximum sales price possible for their property, some legal experts would argue that these agents have failed to fulfill their fiduciary responsibilities.

“If a Realtor proposes a private sale or a limited audience to a seller, they need to fully disclose to the seller what that means, noting that there is no assurance that they couldn’t get a better offer by offering it more broadly,” Green said. “To fulfill their fiduciary obligations they need to fully explain this to the customer so they can make an informed decision about which path is best for them based upon the current market and the local dynamics at play.”

If an agent or even the brokerage double-ends the deal, that’s even more of a sin, according to Doug Miller.

“Dual agency in an adversarial situation is illegal for all fiduciaries, but NAR has used its immense lobbying power to pass laws in many states to legalize dual agency for Realtors even though it is considered to be a fraud for everyone else,” Miller, an attorney at Miller Law PLLC and the executive director of Consumer Advocates in American Real Estate, said. 

Stories about double-ending deals has hit the mainstream media in recent weeks. San Francisco condo seller Caitlin Bigelow found a buyer for her condo at her desired sale price while it was listed at a Compass Private Exclusive. However, the deal fell through and Bigelow decided to list the property on the open market. After six days on the MLS, Bigelow, who is a real estate developer, said roughly 60 prospective buyers toured her property, resulting in a multiple offer situation. She ended up getting $100,000 more than her desired price. 

“I think that the off-market exclusive ultimately is bad for people and good for Compass,” Bigelow told CNN. 

If Bigelow had sold to the original buyer only to find out later that she could have made $100,000 more, some would consider this a breach of fiduciary duty. But if the listing agent had disclosed this risk to Bigelow in the first place and she agreed to it anyway, she might have been out of luck.

Disclosures, disclosures, disclosures

Under NAR’s Multiple Listing Options for Sellers (MLOS) policy, which allows sellers to delay marketing their listing via IDX feed, the listing agent must have the seller sign a disclosure that shows the seller’s “informed consent to waive the benefits of immediate public marketing through IDX and syndication.” These disclosures are required for both delayed marketing listings and office exclusives.

Even if a seller signs one of these disclosures, they could still have a breach of fiduciary duty claim, according to Miller. 

“Yes, you can say it is seller choice and if it is coming from the seller and the seller is educated then that is ok, but that probably isn’t the case,” he said. “The sellers are not educated enough about the situation to fully understand the decision they are making. If this were properly disclosed to a seller, no seller would agree to it. They are using misleading disclosures and they are not obtaining the informed consent of the seller.” 

Other attorneys interpret it differently.

“I think if they have informed their clients of the risks, then I think they have fulfilled their duties as a fiduciary,” Sterbcow said. 

For Sterbcow, fiduciary duty is a bit like a swinging scale, and not as black and white as others may feel it is. 

“If you have a client that isn’t really positive they want to sell, but they want to see if there is interest in their property, if they put it on the MLS, the tax assessor may reappraise the property causing their property taxes to increase,” Sterbcow said. “If you keep the property off the MLS and the seller decides to pull it off the market, they won’t be penalized with a larger tax bill for doing that. So, it is a bit like scales of justice where things move from side to side.”

Another grey area, according to Sterbcow, is when an agent is working with an unrealistic seller who wants to list their home at an aspirational price and won’t budge.

“If you know that home is really going to sell for close to $1.1 million, but you still list it on the MLS for $1.7 million and it sits there for months and buyers can see all of the price drops, it starts to become stigmatized and the seller may not even get the $1.1 million. Is that being a good fiduciary?” Sterbcow posited. 

With this in mind, it becomes harder to pass judgement on some of the stories that have popped up on social media of agents with private exclusive listings not returning the calls of agents at other brokerages or allegedly refusing to allow buyers from other brokerages view a property before a certain date, as the listing agent may have been instructed to do this by the seller. 

The future of fiduciary duty

In Wendy Glich’s mind, the current debate surrounding CCP stems from a conflict between competing fiduciary duties.

“In this scenario, when you look at fiduciary duty, Compass the corporation owes fiduciary duty to its shareholders, which is different from the Compass agent who has a duty to their client,” Glich, a fellow at the Consumer Policy Center, said. “I think that is why we are coming into this conflict, and in my opinion, right now it looks like for some, duty to shareholders is overriding their duty to consumers.”

Due to this alleged conflict and the rise in private listings, Green believes the real estate industry may be in for more breach of fiduciary duty claims.

“Anytime that you see alternative marketing arrangements than what people have come to expect, you are going to have an increased environment for breach of fiduciary duty claims, particularly when you get into a more dynamic market where prices are moving more aggressively one way or another, as you may have some sellers with seller’s remorse,” Green said. “I do think there is a possibility of seeing a heightened number of fiduciary duty claims, if you see more and more of these transactions that are going an alternative route rather than just being available to the general public.”

As for Bigelow, she would still start her journey by listing privately.

“I would still publish off-market, because then all the Compass agents get notified about it. I just wouldn’t accept any offers during that period,” she told CNN.