Given the current Seller’s market and scarcity of homes for sale, office- exclusive listings (also called whisper listings) have become a more common occurrence. In this situation, a broker/agent takes a listing with a buyer in mind, so the property is never advertised to the general public via the MLS and/or other public sources.
This practice is not illegal or unethical in and of itself — however, it is problematic and does present several possible pitfalls.
Watch the webinar, listen to the podcast, or view the transcript below to learn more about pros and cons of whisper listings, commission issues, differences with pocket listings, “coming soon” listings — and how to reduce your risk while doing business.
DISCLAIMER: This article is a brief overview of whisper listings and is intended to serve as a general guideline only. This article does not constitute legal advice. The reader should consult with a licensed, experienced attorney in their jurisdiction for any specific legal advice.
Video Transcript: Possible Pitfalls of Real Estate Whisper Listings
Thank you for joining us today on the possible pitfalls of whisper listings. I’m Laura Prouse with CRES. Today we welcome Kathryn Holbert from Farmer Case & Fedor. Kathryn has been defending real estate professionals in Nevada for more than 15 years and is a very active member of the CRES legal panel. Along with Kathryn, we have Dave Miller, Regional Vice President of Fidelity National Home Warranty. Dave manages the CRES Advantage Home Warranty Plan. When you purchase a CRES Home Warranty Plan for your client, you’ll reduce your out-of-pocket claims costs on your real estate errors and omissions insurance.
Well, thanks Laura for having us. Kathryn, could you tell us what a whisper listing is?
A whisper listing is when a broker takes a listing from the seller with no intention of putting the property on the MLS or advertising it to the public. Typically, the agent or broker already has a buyer in mind for the property. The listing is just kept within the office and is handled by the broker without going out to the general public at all.
Whisper Listings Can Benefit a Buyer
So, in this market where people are just dying to buy, it doesn’t sound like a whisper listing is a benefit to buyers. They’re not being shown this property.
It actually does help the buyer. If buyers are wanting to buy, they want to get in with a broker that has a lot of listings and that can maybe give them an advantage. If they’re working with a broker, they can tell the broker exactly what they’re looking for. So if somebody comes to the broker to sell, they ask that the broker give them first chance at the property.
The term that the MLS likes to use is office-exclusive and it can go back and forth. And now the listing agreement form that they use specifically in Southern Nevada has got the box, “Is this an office-exclusive listing?” And that means no, I’m absolutely not putting it on the MLS.
You could take an office-exclusive listing, a whisper listing, and then later change your mind and put it on the MLS. But it requires a change order to the listing agreement and notification to the MLS.
Typically, if the agent/broker thinks, “I have a buyer in mind, let’s see if he’s interested. And if not, we’ll put it on the MLS” — that would be more like your pocket listing.
With a whisper listing, the broker/agent has essentially got the property free sold at the time of the listing and has absolutely no intention of ever putting on the MLS.
So these transactions aren’t really uniform with a lot of the other ones. So because they’re not, are they legal? Are they unethical or just not nice?
They are absolutely legal. They’re absolutely ethical. The MLS allows for them, provides the forms for them. You can do them. They can be problematic and you have to handle them carefully. There are various advantages and disadvantages. The problem comes in, frankly, where a lot of problems come in: If brokers/agents get greedy, and take the whisper listing for their benefit, rather than for their client’s benefit. If you focus on how does this benefit my client or clients, you can usually avoid some of the concerns. If all you’re focusing on is a quick commission — specifically, a quick dual commission — you’re going to get in trouble.
Pros and Cons for the Seller
So what are some of the best practices that real estate professionals should be aware of if they’re involved in a pocket or whisper listing?
The good place to start is to focus on what are the pros and cons here. Have the conversation, it really begins with informed consent of the seller. Explain to them, “I was just talking to this person, I think that he be the perfect buyer.” You can say, “We can maybe do a whisper listing here. This is the buyer I have in mind.”
One benefit to sellers is privacy. Sometimes they don’t want pictures of their home on the MLS, which stay forever. I mean, once those pictures go out, they can’t be taken back. They go to the MLS, they go to Zillow®, they go to a bunch of other sites and there’s no getting those photos back.
So sometimes it’s a privacy concern for a seller. The transaction can usually go much quicker and be cleaner as far as the terms. So there are definitely some advantages to a seller in doing a whisper listing.
They may or may not get a better offer. Typically, that would be a con. They’re likely to get their very best offer with the biggest pool of potential buyers, which is using the MLS and getting it out there to everybody and letting everybody bid on it. And then they can pick between multiple offers and get their best offer. But that’s not necessarily a guarantee.
Commissions and Dual Agency on Whisper Listings
Are agents taking a reduced commission on that deal because they’re not going through all of the activities that they usually would?
Yes, they can. They’re not all doing it and they don’t have to do it, but that would definitely be one of the advantages to a seller. And definitely agents are using that to encourage sellers to do a whisper listing. ”We’ll do this at a 5% instead of a 6% commission, so you save a little bit too.”
If what the agents are focusing on is their own commission, that’s what’s going to lead them into trouble. If it’s a great deal for your sellers to do it and a benefit to them, you don’t necessarily need to reduce your commission. So, I discourage reducing commissions just to get the whisper listing, but you can do it.
Are you saying that some of these transactions are done when a trust owns the home? Maybe somebody passed away and they don’t want to take it to market, so they’re doing this more secretly?
I don’t think it really matters who the seller is — trust, LLC, or an individual. Where you’re more likely to see the whisper listings is in situations where the sellers want privacy, where there are a lot of privacy concerns. And they don’t want people going through their house. They don’t want a lock box on their property. They don’t want photos of their property on the internet. Generally, those very high-end, celebrity-type people would be more inclined, since they’re more concerned about privacy than they are about getting the very top dollar.
That makes perfect sense and especially coming out of a pandemic where people are worried about germs and people in their house, and they just don’t want it.
Absolutely.And that is a positive. Sellers may be saying, “I don’t want a lot of people going through my home, I prefer it to be a whisper listing. And if you’ve got a buyer in mind, let’s just get the deal done.”
Absolutely.You made a great reference about dual agency, and it seems to me that in these transactions, it would be likely that the brokerage would be on both sides of that transaction. Can you just talk about the dangers of it being a dual brokerage and certainly the dangers of it being a dual agent on both sides?
There are states that absolutely prohibit dual agency. Nevada is not one of them. You can actually be a dual agent. It’s a separate consent form that everybody has to sign. And again, it comes down to informed consent, but if everybody consents, you can legally be a dual agent.
I’ve always found that very troubling. And I’ve always said “don’t do it.” The reality is that buyers and sellers have two different interests, and it’s just impossible to really represent them both, and give both of them your best effort.
If a brokerage is handling both sides, that can be handled by just having two different agents within the brokerage represent the buyer and the seller. Then you’ve got both of those agents talking to the broker, but at least you have separate agents talking directly to the buyer and the seller.And they can both communicate and handle the transaction better.
So if the brokerage is handling both sides, I’m okay with that. But I strongly recommend that it never be actually the same agent that represents the buyer and the seller.
Something about going to trial and trying to convince the judge and the jurors that you have a fiduciary duty to both parties. They’re probably looking at you thinking, how is that possible?
Right. And that goes back to why were we reducing the commission on the transaction Because the broker can say, “I’m not, I still want 6%. This is a good deal for you. 6% is fair. I’ve got two different agents on this transaction. They’re each entitled to their 3%.”
And so, I guess that I get concerned with them saying, “ I’m doing both sides of this, so I’ll give you a reduced commission.” My advice is don’t do both sides, and then you take full commission.
“Coming Soon” Properties on MLS
Let’s talk about the MLS for a second. I’m hearing that there’s a new box that is available to be checked called “coming soon” properties. Kathryn Holbert:
Yes. That is a fairly recent change that has at least happened in Nevada. I don’t know exactly where it started, whose idea it was. I don’t think it’s a good idea. I think they are still working through it.
Instead of an active listing, it’s a coming soon listing. I think the intent was for when an agent has taken a listing agreement and is allowed to list the property, but all the photos haven’t been taken yet. They don’t want to put it onto an active listing until they have all the photos, the lockboxes, install the signs in the yard, etc. So it goes into the MLS as a “coming soon,” but you have a lot of the details about the property, including the list price.
Because there’s such limited inventory that’s active, people are looking at the coming soon. The problem is people are trying to actually make offers on the coming soon. That is very troubling.
I don’t think you should ever think you’re going to do a pocket listing and use that “coming soon” as a way to generate offers from the general public — without ever actually going active. So you’re basically turning what you always intended to be a pocket listing or a whisper listing, and just kind of pretending for a short time that you were going to put it on the MLS.
That I think is a very bad idea. I don’t think you put it on the MLS at all, even as a coming soon listing, unless you’re going to go live with it, unless you really intend to put it on the MLS. And I don’t recommend accepting any offers while it is in the coming soon category. If you receive an offer, just tell them, please resubmit your offer once it is an active listing.
You’ve told us in these webinars before that the listing agent has to go through each offer and either reject or accept each offer. So if it’s coming soon, do they have to respond to those offers?
Oh, yes. Technically, it is still an offer. Technically they have to respond to it. But, it isn’t actually an active listing yet. So, “Please resubmit your offer once it goes active.” But that’s got to be a clear, consistent response to everybody. You can’t be telling somebody, “I love this offer. I’m going to hold it. I’ll accept it once it goes active.” Do not do that. The offers should actually be resubmitted once it becomes an active listing.
I can imagine with these transactions, you might be just putting it on the MLS for one day, just as a courtesy to then just close it. Doesn’t that skew the numbers on the MLS? Does MLS probably not like this?
Yes, MLS wouldn’t like that. Of course, if it’s a true whisper listing or an office-exclusive listing, then that would never be on the MLS. The MLS doesn’t love that because they’re losing data. And they generate a lot of data that helps the industry at large, as far as average sell days on the market, etc. So they prefer that all listings go through the MLS.
But the pocket listing would be more of the one that would be on the MLS just for a very short time. In this case, they basically reached an agreement, put it on the MLS and immediately accepted the offer. The listing comes off active status. It can sometimes be just a matter of hours that the listing is active and then in contingency status. But, I don’t recommend doing it that way. Either don’t ever put it on the MLS and do the exclusive listing process right. Or, put it on the MLS and do that entire process right.
For Sale by Owner
Are there any similarities between whisper listings and for sale by owners? I know you don’t have a listing agent in that situation, but are there any similarities with the dangers in these two?
Yes, there are some similarities, and there are some differences. And that can be very problematic, in the situation where a broker or an agent has a buyer who’s looking for a specific piece of property. And the broker/agent hears about this person that wants to sell, or the person comes in and maybe wants to enter into a listing agreement.
And the broker says, “We’ll take it for a 3%. I’ll only represent the buyer. You’re going to pay less in commissions and you’re just selling it on your own.” I definitely do not recommend doing that. If somebody has clearly made the decision to sell on their own, and you’re representing the buyer and somehow come across that person that is sellingon their own, that’s different.
But, I would never encourage agents to recommend that they essentially just represent one side of the transaction, thinking they’re going to avoid a dual agency.
It leaves the seller with technically no representation. And even worse is to make it look like on paper that they’re unrepresented, but behind the scenes, you’re helping them and representing them.
Thank you, Dave. Thank you Kathryn, great content. You’re so on top of it and keeping our agents well informed. It seems like weekly there are changes to the market. So, it’s great that we can get this content out.
I want to thank everyone for watching. And stay tuned because we have a lot more content coming.