Compliance And Off-Market Listings: The Fiduciary Duty At Play

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The real estate industry has been anything but dull over the past year, with commission litigation and new practice changes awaiting final court approval. However, I think most practitioners would agree this isn’t the kind of excitement they were hoping for. More recently, controversy surrounding the Clear Cooperation Policy (CCP) has surfaced, prompting me to write this piece.

For those unfamiliar, the CCP was established by the National Association of Realtors (NAR) in 2020 and mandates that properties be listed on a Multiple Listing Service (MLS) within one business day of any public marketing. Enforced by NAR-affiliated MLSs, the policy aims to standardize listing practices, promote transparency, and broaden property exposure through this platform.

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As a real estate compliance consultant, I’ve encountered brokers and agents over the years who have expressed dissatisfaction with the CCP. Many of their complaints echo more widespread public opposition to the policy. Namely, real estate licensees want to be trusted to do their jobs and earnestly serve their clients — without being hindered by unnecessary red tape or restrictive rules.

What often complicates this discussion is the disconnect between state law and NAR/MLS rules. The CCP is a NAR rule enforced by MLSs, not state regulators. In California, for example, there is no state law requiring properties to be listed on the MLS within a specific timeframe after public marketing. Consequently, when a broker client asks whether the Department of Real Estate (DRE) “will come after me” because an agent violated the CCP, the answer is no — unless the circumstances suggest a potential violation of state law. 

While state regulators do not enforce the CCP, real estate law governs the larger context of listing, selling, and buying real property. This encompasses oversight of core principles such as fiduciary duty and its associated statutory obligations, including an agent’s responsibility to prioritize their client’s interests above their own and to represent their clients with obedience, honesty, and loyalty.

It goes without saying that most brokers and agents would far prefer to pay an MLS fine for violating the CCP rather than face a regulatory complaint or civil lawsuit over fiduciary duty. But what if everything were on the line? Well, newsflash — it is. Listing presentations, sales pitches, advertising, representations, agency, disclosures, documentation, and actions are always subject to evaluation, whether the CCP survives or not. Let’s explore this further.

Parallel issue: Lessons from ‘coming soon’ listings

A 2018 California DRE Real Estate Bulletin explored “Coming Soon” listings, which, like off-market listings, raise questions about compliance with fiduciary duty. To clarify, “Coming Soon” is a local policy or feature varying by MLS, with individual systems adopting their own rules for listing statuses. According to the California Regional MLS’ (CRMLS) FAQs:

“The Coming Soon status allows listing brokers and agents to place a listing in the MLS for cooperation for up to 21 days (except New Construction Listings) while preparing a property for showings (staging, professional interior photos, repairs, etc.). Because CRMLS rules do not permit showings while a listing is in Coming Soon, Days on Market (DOM) will not accrue during the Coming Soon period … ”

 The DRE’s bulletin highlights key issues tied to “Coming Soon” strategies, which are equally relevant to “pocket” or off-market listings. According to the article:

“The potential conflict a ‘Coming Soon’ strategy can have with a licensee’s fiduciary duty comes when the listing agent begins accepting offers before the property is exposed to a larger audience via a multiple listing service or by other means. When a property is not exposed to the full market, a client’s best interests might not be served, even when a full price offer is received (because the property may well have sold above the marketed price if better advertised). Imagine the dilemma for a listing agent if a seller accepts an offer on a poorly marketed property and then receives much higher backup offers as the property receives greater exposure.”

 Notably, it rightly cautions against “dual agency” in the following way:

“A listing agent who encourages the use of a ‘Coming Soon’ program, without broadly advertising a property via a multiple listing service or other means, especially exposes himself/herself to the potential for an increased chance of civil liability and regulatory action when the agent also then represents the buyer in a dual agent capacity. Such a dual agent would need to be able to demonstrate that the agent acted in the best interests of the seller to obtain a purchase price that was as high as could be expected for a fully marketed property. This agent, who receives commissions on both ends of the transaction, could face scrutiny questioning whether they worked to obtain the best offer possible for the seller or was acting in such a capacity for personal financial gain.”

 The regulator’s warnings about “Coming Soon” statuses also mirror concerns regarding off-market property listings and the issues real estate licensees must diligently address and proactively avoid. As with any action taken by a real estate licensee, every decision must be grounded in their fiduciary duty to the client, as well as the duty to exercise reasonable skill, care, fair dealing, and honesty with all parties involved in the transaction.

​​Returning to the topic at hand, how does it come to pass that a property is not listed on the MLS? Obviously, every client, property, and transaction is unique. But, for instance, if a property isn’t listed on the MLS and the brokerage later acts as the “dual agent,” representing both the seller and the buyer, let’s examine, using a reasonable line of questioning, how that deal progressed from start to finish. Consider these questions, which could easily be posed to an agent during a regulatory investigation originating from a home seller’s complaint. 

•     How was the decision to keep the property off the MLS reached?
•     What were the exact circumstances surrounding that decision?
•     Did the seller instruct the agent not to market the property publicly, and if so, what were the reasons?
•     Did the agent explain the potential consequences of not listing on the MLS, including the comprehensive exposure and competitive advantages that such a listing could offer the seller?
•     How were the MLS opt-out forms presented to the seller, and were they thoroughly explained?
•     Did the seller fully understand the implications of opting out of the MLS?
•     Was there a record of the agent’s conversations with the seller?
•     How many offers were received, and were all of them presented to the seller? 
•     How did it come about that the broker represented both sides and did the seller understand what dual agency meant?

Even when licensed services are carried out ethically and legally, a brokerage or its agent may still need to explain the sequence of events surrounding a property listing and transaction — particularly if questions develop or allegations are made about a licensee’s fiduciary conduct in connection with a pocket listing. To be clear, if the CCP is repealed, the removal of these guardrails could arguably create opportunities for some licensees to exploit the system, potentially to the detriment of their home-selling clients.

Real issues in a hypothetical courtroom 

Imagine a home seller files a lawsuit against their agent, claiming they were misled about keeping their property off the MLS. How might this unfold in court? Drawing on my experience as an expert witness and my familiarity with issues surrounding breaches of fiduciary duty, I will reenact this scenario from an expert’s perspective. The purpose of this exercise is to shed light on the potential legal scrutiny that may arise when licensees fail to properly fulfill their fiduciary obligations, particularly in cases involving off-market listings.

Scene: Courtroom. The plaintiff’s attorney is questioning the expert witness regarding the defendant agent’s representations and conduct regarding an off-market listing.

Plaintiff’s attorney:

In your professional opinion, what are the typical obligations of a real estate agent representing a home seller?

Witness:
An agent representing a seller has a fiduciary duty to act in the best interests of that seller, putting their interests above their own, which includes a duty of undivided loyalty, honesty, disclosure, and highest standard of care. This duty obligates the agent to accurately inform the seller of all options that could maximize or limit the property’s exposure and potential sale price.

Plaintiff’s attorney:
Would you say listing a property on the MLS is one of those options?

Witness:
Absolutely. Listing a property on the MLS is the standard and widely recognized practice in real estate for maximizing exposure. By placing a listing on the MLS, the property is accessible to a vast network of buyers and agents, increasing the likelihood of competitive offers and achieving a fair market price.

Plaintiff’s attorney:
In this case, the defendant agent advised the seller to keep the property off the MLS. Based on your expertise, what impact did this have on the seller’s transaction?

Witness:
Keeping the property off the MLS can significantly reduce the pool of potential buyers, limiting competitive bidding and potentially lowering the final sale price. Without the MLS and its extensive exposure, a property is often less visible to prospective buyers, which can disadvantage the seller. 

Plaintiff’s attorney:
In your opinion, does advising a seller to keep their property off the MLS align with an agent’s fiduciary obligations?

Witness:
Every case is fact driven, but generally, it can be problematic, especially if the agent has not provided full disclosure of the potential drawbacks to the client. Advising a seller to keep a property off the MLS without fully explaining the risks involved — or without a compelling, seller-focused reason — could indicate a breach of the agent’s duty to act in the seller’s best interest. A fiduciary duty requires transparent communication of all available options so the seller can make an informed decision. 

Plaintiff’s attorney:

Was there any evidence that the agent informed the seller of the potential risks associated with excluding the property from the MLS?

Witness:

The evidence in this case shows that the seller was initially unsure about listing their property on the MLS. However, there is no documentation indicating that the agent provided a thorough explanation of the risks associated with an off-market listing. Specifically, there is no record showing that the agent clearly outlined the potential consequences, such as reduced buyer exposure and potentially lower offers. In fact, the agent only advised the seller of the benefits of an off-market listing, as evidenced by numerous text messages. For example, the evidence shows that the agent told the seller that their brokerage had a private network of qualified buyers, including two all-cash purchasers already interested in the property and capable of closing quickly. Regarding the exclusion of the listing from the MLS, the agent sent the seller a form requiring electronic authorization to exclude the listing but never explained the form to the client.

Plaintiff’s attorney:
What would you expect to see if the agent had fully met their fiduciary obligation and performed their duties according to the standard of care?

Witness:
The agent had a duty to fully disclose all potential advantages and disadvantages associated with an off-market listing, including the fact that keeping the property off the MLS could significantly reduce the pool of potential buyers, limit competitive offers, and potentially lower the final sale price. In this case, while the agent may have had potential buyers, listing the property on the MLS would have offered significant benefits — especially if maximizing the sale price was a priority for the seller, which it was in this case.

Plaintiff’s attorney:
In your opinion, based on the facts of this case, does it appear that the agent acted in the seller’s best interests by advising them to avoid the MLS? 

Witness:
Based on the facts and evidence I’ve reviewed, the answer is no. The agent’s lack of justification for the off-market decision and omission of its potential disadvantages to the seller indicate a breach of their duty to act in the seller’s best interests and support an informed decision. In this case, the listing agent secured their own buyer while acting as the “dual agent” and arguably placed their self-interests above their principal’s by earning a higher commission on the sale.

Plaintiff’s attorney:
In your experience, do the agents’ actions constitute a breach of fiduciary duty?

Witness
Yes. Fiduciary duty is built on transparency and the requirement that agents prioritize their clients’ welfare over any potential gain or convenience. By failing to fully inform the seller of the potential disadvantages of keeping the property off the MLS, the agent breached that duty.

Plaintiff’s attorney:
Thank you. No further questions at this time.

Fiduciary duty is a constant 

This fictional reenactment illustrates the real-life challenges agents and brokers may encounter when advising against MLS listings without adequate, client-focused reasons and proper documentation. Every word — whether in emails, text messages, or other forms of communication — and every action matters, underscoring the paramount importance of fiduciary duty. When breaches are alleged, an agent’s actions, as well as their brokerage oversight, are subject to intense probe.

Before closing, it’s important to note that there are legitimate cases where an off-market listing may serve the best interests of a seller — such as when privacy or discretion is a priority. However, it is vital to ensure that the ultimate decision is made with full client understanding and in alignment with fiduciary duties.

Regardless of the CCP’s future, fiduciary duty remains a constant in real estate practice, demanding an unwavering commitment from licensees. More than a legal obligation, it serves as a protective force, shielding both agents and clients from risks inherent in real estate transactions.