Brokerage, Marketing

Agents not obligated to keep secrets when they don’t get the listing

April Fools' Day joke raises questions about sellers' expectations of privacy

Can a real estate agent sell information she or he obtains during a listing presentation if the homeowner chooses to list with somebody else?

If the seller has divulged confidential information about an upcoming divorce, personal financial crisis, or problems with the house, that information could be of value to a buyer or the buyer’s agent. Does the agent who failed to land the listing owe any duties to the seller?

What if the information is as straightforward as the fact that a homeowner plans to sell soon? If the neighborhood is red hot and buyers are clamoring to learn about the next new listing, could you sell that tidbit to a buyer’s agent or a shopper?

What about more specific details that could give a buyer a strategic advantage in negotiations? Say the sellers confided that they want to net a specific amount out of the sales transaction — say $450,000 — even though they’re listing at $495,000. Would that inside advantage be worth something to the right person? How much? $1,000? More?

These are provocative questions on a subject that even the National Association of Realtors admits it hasn’t explored. Provocative enough, in fact, that one Washington D.C. area Realtor launched a website last week announcing the startup of a new business venture designed to facilitate the sale of inside information picked up by agents who made listing presentations but weren’t selected.

Sample wares: a “foundation crack being covered up or hidden” and costing an estimated $30,000 to fix might be worth thousands of dollars; a “seller’s desire to sell quickly to avoid foreclosure” at a price $25,000 under market value might be in the same league.

“What would you pay for information on a $30,000 defect?” asks the sponsor of the site. “Now on, unsuccessful listing agents can sell their acquired information at auction to either buyers directly or to buyer’s agents.”

LostListings, launched April 1, is (or was) the brainchild of Frank B. Llosa, owner-broker of Frankly Real Estate. It was intended as an April Fools’ Day joke, but many recipients of his initial email and YouTube video plugging the idea didn’t follow Llosa’s instructions to proceed to enter the website itself. Everyone who did immediately got the message: April Fools!

Frank Llosa explains “,” the fictional website he made up as an April Fools’ Day joke.

Some people, including myself, thought, “Wow! Llosa has a law degree, he knows his stuff, he knows the Realtors Code of Ethics and here he’s saying that there are absolutely no legal or ethical rules banning the sale of confidential information obtained from a seller during a listing presentation if you’re not chosen as the listing agent.”

But an online marketing site for such info? Sounds dubious. Way over the top. Couldn’t be ethical. It would change the whole dynamics of listing presentations, right?

Some visitors to the site thought so, too. One, a fellow Realtor, said it “seems pretty slimy.” Another said, “If I had read (your) post prior to listing my house with Frankly, I would have gone to a different Realtor. This is absolutely and without question unethical.”

But a few saw real value. “Awesome,” said one. “I’ve been looking for a ‘Carfax’ type website on houses. It would be really great to know about mold problems the seller is not disclosing.”

Enough people took Llosa’s joke seriously that he added a cautionary post emphasizing that the video and website were an April Fools’ Day prank.

But the LostListings concept, even though it was floated in jest, poses some intriguing, practical questions for real estate professionals. So I asked NAR’s top legal official, Laurie Janik, senior vice president and general counsel, for her thoughts.

She said this: “The Realtor Code of Ethics does not impose any duty of confidentiality with respect to information provided by a prospective seller client who does not engage the Realtor.”

OK. I also contacted Bruce Aydt, the ethics columnist for Realtor Magazine and senior vice president and general counsel of Prudential Alliance Realtors in St. Louis. I asked him to comment on the broader issue of confidential information obtained at listings being shared by agents among colleagues, not necessarily for money but as a professional gesture, helping out a friend with a sale. Aydt said in response that the core issue here is, “When does a duty of confidentiality begin?”

On the one hand, the Code of Ethics currently is silent on information divulged during listing presentations. On the other hand, sellers discussing the possibility of listings with competing agents typically “believe they are talking … in a confidential manner. In other words, if you took a poll of sellers (who discussed listing with different agents) my guess is that most have an expectation of privacy …”

One way to handle potential problems, said Aydt, might be for agents to give sellers a “Miranda warning” that alerts them that “until you actually list with me, I don’t owe you a duty of confidentiality and anything you tell me while were are discussing your property listing is not confidential if I do not become the listing agent/broker.”

Alternatively, agents could be bound by an ethical standard — not yet in effect – that would be analogous to what attorneys follow when making initial consultations with potential clients: Anything disclosed during the discussion will remain confidential, whether or not the attorney is ultimately hired. This approach, however, could prove problematic because the agent might later represent a buyer and have a duty to provide the client all relevant information.

As to an online marketplace facilitating sale of confidential information, Aydt is emphatic: Forget about it. Home sellers wouldn’t tolerate it.

But the broader issue involved — the implicit expectations of privacy by sellers concerning the information they reveal, intentionally or otherwise, during listing presentations — just might merit a closer look.

Don’t be surprised if it gets one. No joke.

Ken Harney writes an award-winning, nationally syndicated column, “The Nation’s Housing,” and is the author of two books on real estate and mortgage finance.