As part of our mission to provide readers with timely and relevant information, we may publish curated articles by recognized authorities and contributors. Today we are pleased to present Melanie J McLane, a long time friend and fellow real estate educator, and the proud owner of designations in the longest digital signature on record!
Welcome Melanie.
How Office Exclusives Hurt Sellers, Buyers, and Agents
by Melanie J McLane
The latest shiny object in the real estate industry is the rise of “office exclusives”—listings that are not placed in the MLS and do not offer unilateral cooperation. Compass, the company most associated with this strategy, promotes benefits such as testing aspirational pricing, pre-marketing exposure, engagement insights, and data control. They claim:
“Eliminate Days on Market & Price Drop History Risk. Extend your marketing runway by controlling when the property is put on the MLS, helping minimize public days on market or price drop history. Excessive days on market and price-drop history can devalue your property in the eyes of buyers.”
But the reality is more straightforward: buyers in the market won’t pay aspirational prices. Motivated sellers typically reduce their prices to attract offers.
Many have already commented on the risks of office exclusives, including:
– Potential Fair Housing violations
– Increased likelihood of dual agency, limiting independent representation
– Exclusionary practices that reduce market transparency
– Withholding critical data, denying market participants the information needed for informed decisions
These risks can negatively impact sellers, buyers, and agents.
Pricing Risks
To discuss pricing risks, we need to remind ourselves of the information used to either do a CMA or an appraisal. Let’s revisit the definition of market value, as used by Fannie Mae and virtually all lenders:
Definition of Market Value
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale with, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- buyer and seller are typically motivated;
- both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
- a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
- the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
When we unpack this definition, we see some of the components would not be present in an office exclusive. First and foremost, of course is ‘a reasonable time is allowed for exposure in the open market’. Many appraisers, including me, often shy away from using a comparable which appears in the MLS as ‘pending’ and ‘new listing’ simultaneously, because we cannot confirm there was exposure. The next one is ‘both parties are well informed or well advised, and each acting in what they consider to be in their own best interests. Many brokers and appraisers, including me, can give you examples of an out-of-town buyer, either unrepresented, or poorly represented, who purchased a home way above market value for the area, because they didn’t know any better. One of the worst ones I know about involved a buyer who moved from Southern California to very rural Pennsylvania. He bought a house which had been on the market for five years, because no local person would pay the asking price. His context was Southern California, and he thought it was a steal. A year later, his company transferred him, and I did a relocation appraisal. Two qualified, local appraisers agreed that the current market value was about half of what he had paid for the house!
Impact on Sellers
As an experienced broker, I value being able to tell my seller:
“We’ve fully marketed your home, it has been shown, and this offer represents the best price, terms, and conditions currently available.” In multiple-offer situations, I’ve advised sellers to accept better offers from competing brokers—even when one came from my own office. A “secret” listing only benefits the agent who controls it—not the seller.
Having up-to-date market data helps me keep my seller knowledgeable about where the market is moving. The information that a house in the neighborhood has just had a price reduction is as valuable to the seller as what other homes have sold recently. In an ‘off-market’ system, the sellers won’t know this. We know they may ‘hear’ that their neighbor sold their house, but if it is not in MLS, we won’t know the price, terms, and conditions. In a non-disclosure state, we won’t even have the sold price. Not knowing actual days on market can create the illusion that it sold quickly at full price. Not knowing the original asking price means we don’t really know the list price/sales price ratio, and we surely don’t know if there was market resistance to the original asking price.
We already know sellers tend to price their homes on emotion, not logic. Logic is what we use to bring sellers back to reality. It’s how we remind them that they are entitled to their own opinion, but they are not entitled to their own facts. The vast majority of sellers understand that buyers determine market value. The small minority who don’t want to accept that concept are generally owners of listings we don’t want.
And when sellers become buyers, do they want access only to their company’s office exclusives? Of course not—they want to see the entire market.
Impact on Buyers
Buyers often fear missing out on “the perfect house.” They usually form strong, trusting relationships with their buyer agents and don’t want to be forced into dual agency situations. They deserve independent representation and an agent who evaluates homes objectively and advocates for their interests.
Buyers also rely on their agents to advise them about market conditions, and what to offer on a house. Honest agents, in a strong seller’s market, may advise buyers: “It’s probably only worth $XXX,XXX, but if you want to buy it, you are probably going to have to pay more than that.”
Agents know the market and in addition to performing CMAs on houses buyers are interested in, they often point out things buyers miss. For a buyer to be knowledgeable, they and their agent need to have access to the entire market. A dark side of office exclusives is the threat, stated or implied, ‘you had better buy this now before it goes on the open market’. That implies that the asking price is market value, and not the seller testing the market.
Impact on Agents (and Appraisers)
Let’s consider the appraiser’s perspective. As someone fluent in both appraisal and real estate practice, I can confirm that appraisers hesitate to use comps that only appear in the MLS as “pending.” Why? Because market value assumes reasonable exposure on the open market—and a listing that never appeared publicly doesn’t meet that standard.
In one example, a seller using the Compass strategy nearly sold her home for $100,000 less than she ultimately received once it hit the open market. (Source: https://www.msn.com/en-us/money/realestate/a-real-estate-giant-wants-sellers-to-list-their-homes-privately-will-homeowners-benefit/ar-AA1E8smb) I read this article and immediately thought: “there’s a basis for a lawsuit!” Agents already operate in a litigious environment. Why invite more risk? Real estate laws throughout the US require agents to work on behalf of their clients. The REALTOR® Code of Ethics (Article 1) requires REALTORS® to put their client’s needs ‘above all others, including their own’. Imagine an agent in a courtroom defending a practice which resulted in a below market sale. The advocates of this practice are using carefully prepared documentation for sellers to sign, to protect themselves in the event of a lawsuit. Why even risk a lawsuit? Even if a broker were to succeed in a hypothetical lawsuit, there’s the time, money, and damage to reputation—is it worth it?
Beyond legal concerns, office exclusives harm the agent’s ability to perform basic tasks. Our CMAs rely on MLS data—sold comps, active listings, expireds—all of which build market context. Without that data, how can we properly price homes? How can appraisers confirm the details of sales? Especially in non-disclosure states, verifying sale terms without an MLS record becomes an exhausting (and often fruitless) task.
Whether you are an agent or an appraiser, you are hamstrung in developing a market approach to value if you don’t have market data. Even when we use an income approach to value, we are deriving GRMs and cap rates from the market. All of us have already faced the problem of trying to value or price a very unusual property with no real comparables. Imagine a world where everyone is using office exclusives, and you don’t have comparables for even typical properties.
Data drives decisions. Without sound data, we are making decisions in a vacuum.
Conclusion
MLS systems and cooperative broker networks in the U.S. have long supported transparency, open markets, and informed decision-making. This system was never broken. While the industry has adapted to DOJ/NAR changes, we don’t need to dismantle a structure that benefits all parties.
The MLS is still the best tool we have for ensuring that buyers and sellers make well-informed decisions and that agents and appraisers can do their jobs with confidence—all of which directly support the definition of market value.
ABOUT THE AUTHOR
Melanie J. McLane, REALTOR®, Broker of Record, Jackson Real Estate, RB067421; For real estate inquiries, call 570-398-1201, or the cell phone number at the end of this signature. Certified PA Residential Appraiser, and PA Certified Broker Appraiser. Real Estate Educator, AQB Certified USPAP Instructor, REBAC Hall of Fame 2008, RSPS of the Year 2012, ABR, CRS, CRB, EPRO, GRI, GREEN, RAA, RSPS, PSA, SRES, SRS, CDEI Certified Distance Educator. West Branch Valley Association of REALTORS®, REALTOR® of the Year 1994 AND 2017, Pennsylvlania Association of REALTORS® REALTOR® of the year, 2018. For all things real estate, including education, email me at the above address or call me at 570-660-9671.
One Response
Excellent assessment Melanie, as always. !