What is a Pocket Listing?

What is a pocket listing in real estate?

A pocket listing is any property not advertised on the multiple listing service (MLS) or other public real estate listing platforms.

Unlike traditional listings, where properties are widely marketed to a large pool of buyers, real estate companies privately share pocket listings within a specific contacts network.

The key difference between a pocket listing and a traditional house listing is visibility.

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Traditional listings aim to reach a broad audience to generate competitive offers, typically resulting in a higher selling price through an agent's traditional and digital marketing efforts.

In contrast, pocket listings are more exclusive.

They're ideal for sellers who value privacy, wish to sell to a particular network of buyers, or perhaps want to test the market without public exposure.

While a private sale can be quicker, it may limit the property's exposure to buyers, potentially affecting the final sale price.

How do pocket listings impact the real estate market?

Pocket listings can significantly impact the real estate market in various ways:

1. Reduced market transparency: Pocket listings aren't publicly advertised, contributing to a lack of transparency in the market. Buyers and real estate professionals may not have a full view of available inventory, which can skew perceptions of current market conditions.

2. Pricing ambiguity: Without wide exposure, it can be challenging to determine if a pocket-listed property has a realistic selling price. This can lead to disparities in property valuations, as comparable sales data may be incomplete.

3. Limited buyer access: Pocket listings restrict the pool of potential buyers, which can benefit privacy but limit competition. This could result in a lower selling price than in the open market, where multiple buyers can drive up the sales price.

4. Market segmentation: Pocket listings can create a segmented market where only certain buyers can access premium property listings. This exclusivity can disadvantage average buyers who aren't privy to these opportunities.

5. Potential for bias: By keeping listings exclusive, there's a risk of discriminatory practices, where properties are only shown to certain types of buyers, potentially violating fair housing laws.

6. Influence on agents: Agents with exclusive networks can gain a competitive edge, potentially sidelining less connected agents and affecting overall market competition.

Why would a seller opt for pocket listings?

A seller might choose a pocket listing for several reasons despite its limited visibility:

1. Privacy: Some sellers (like celebrities and other public figures) want to avoid public attention.

2. Targeted marketing: Sellers might prefer to market their property to a select group of potential buyers who are likely to be interested, which can speed up the sale.

3. Testing the market: A seller might want to discreetly gauge interest or test pricing strategies before going public.

4. Avoiding market stigma: Properties that linger on the market can sometimes be perceived negatively. By avoiding public listing, sellers can circumvent the risk of their property being labeled as undesirable.

5. Exclusive appeal: Pocket listings can create a perception of exclusivity and uniqueness, which can fetch a premium sale price.

6. Relationships with agents: Sellers with a strong relationship with a trusted real estate agent might prefer to follow the agent's advice and enter into a pocket listing agreement, especially if the agent has a successful track record with this approach.

How do pocket listings work?

When a seller decides to go with a pocket listing, they agree with a real estate broker who leverages their connections with other agents, potential buyers, and industry professionals to privately share information about the property.

Buyers interested in pocket listings typically need to have strong relationships with real estate agents who are well-connected and informed about such homes for sale. These agents can notify buyers about available pocket listings that match their criteria, allowing them to purchase unique or highly sought-after properties.

Throughout this process, negotiations and discussions occur behind closed doors, focusing on confidentiality. The agent is crucial in facilitating communication between the buyer and seller and meeting both parties' needs.

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Once they reach an agreement, the sale can proceed like a standard home sale.

Example pocket listing scenarios

Some of the following scenarios may make pocket sales the ideal route to go through:

• The seller already has a buyer. They don't need a real estate agent to market the property or virtually stage their home but need one to help with the other parts of the transaction process.
• A buyer has a super-niche taste. Agents dealing with niche or unique properties can best help them.
• The property has a tumultuous history. Perhaps it was a former crime scene. The seller wants to be transparent with serious buyers but doesn't want to go public for fear of bad press or sensationalization.

How do you create a pocket listing?

Typically, the property owner approaches a real estate agent intending to sell privately.

The agent and the seller agree on the terms of the sale. The agent carefully controls who knows about the listing, focusing on potential buyers likely to have a genuine interest and the financial means to proceed.

Throughout this process, the agent privately facilitates showings or discussions about the property to pre-screened buyers, ensuring that the seller's privacy is respected.

By carefully managing who knows about the property and how information is shared, the agent helps maintain the listing's pocket status until the sale is complete.

Pocket listing pros

Pocket listings offer several advantages for sellers.

• Discreet and customized marketing methods that maintain privacy but provide enough exposure to the right networks.
• Access to qualified buyers who have the means to purchase the property.
• The sense of exclusivity fetches higher profits.
• Celebrities and VIPs can sell properties with no fuss and public attention.
• Reduced agent fees: As marketing requirements aren't as comprehensive, the agent’s commission will be lower.

Pocket listing cons

While pocket listings offer certain advantages, they also have potential drawbacks for sellers and buyers.

For sellers, the limited exposure can result in less competition, leading to a lower sale price. As a result, the seller can't take advantage of a bidding war that typically raises property prices.

Additionally, the agent hired to sell the property could be the same agent the buyer has hired to help them buy a property. This could result in a conflict of interest. Sellers would prefer an agent who only has their best interests in mind.

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Due to the nature of pocket listings, buyers will simply miss out unless they are well-connected with agents. Those who become privy to pocket listings may end up overpaying because they have limited means of comparing the price to the wider market and, thus, no negotiation power.

Are pocket listings legal?

In November 2019, the National Association of Realtors (NAR) made a significant decision that was tantamount to banning the use of pocket listings. They voted to pass the Clear Cooperation Policy as part of their Code of Ethics and Standards of Practice.

This policy mandates that all real estate agents list a property on the MLS within one business day of publicly marketing it, leading to many private listing services opening up membership to the public.

This policy aims to promote transparency and fairness in the real estate market, which the practice of pocket listings may not provide.

Naturally, this has impacted an agent's ability to market properties to their private networks. Buyers who are less likely to miss out on real estate opportunities are the real winners in this policy change.

How to find pocket listings

The Clear Cooperation Policy makes it difficult for sellers and buyers to find pocket listings that are true to their description.

At the time of writing, a number of listing agencies, such as Top Agent Network, are taking NAR to court over the Clear Cooperation policy.

So, is it completely impossible to make a pocket list? Not necessarily. Some communication between an agent and buyers/sellers may not constitute "public marketing" and thus trigger the requirement for an MLS listing in one business day.

It all comes down to the interpretation of public marketing!

In fact, one Redfin analysis of MLS listings found that, as of March 2021, 4% of listings were marked sold or pending on the same day they were added to the MLS.

This means they were likely pocketed and sold to a buyer offline, then put on the MLS to abide by the law before being marked sold.

The Bottom Line About Pocket Listings

Until the implementation of the Clear Cooperation Policy, pocket listings had their place in the overall real estate property market.

Although it seems counterintuitive for a seller to deliberately reduce the exposure of their property, some may be compelled to do so due to their status in the public domain, and others want to test the waters before going public.

Some agents are willing to entertain pocket listings to expand their client base. Established agents will likely have a network of fellow agents and high-net-worth buyers whom they leverage to help sell a property.

Of course, NAR put a serious spanner in the works. Although it's still possible to pocket list to a certain extent, one would need to be careful and intentional about it so as not to break any laws.