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What Is A Pocket Listing And Are There Downsides?

4-Minute Read
Published on February 10, 2020

Typically, putting a home on the multiple listing service is considered the gold standard for real estate agents who want the homes they’re representing to get maximum exposure. But is there ever a situation where a seller or their agent might want a house to get minimal exposure?

Though the practice has been seen by some to be on ethically murky ground (and has been banned by the industry’s main trade association), pocket listings have been used by real estate professionals throughout the years to keep certain listings on the down low. But are there downsides to this practice?

What Is A Pocket Listing In Real Estate?

Most real estate listings are posted on the MLS, which is the network of databases real estate agents use to find information about homes on the market in their area and provide information about for-sale homes that they’re representing.

A pocket listing is a real estate listing that isn’t listed on the MLS, but is instead marketed to potential buyers through alternative means, such as word-of-mouth or private listing networks that limit who can see information on the property.

The term refers to agents holding listings in their metaphorical “pocket.” These types of listings are also known as off-MLS or off-market listings.

Why Would A Seller Want A Pocket Listing?

Generally, sellers should want their homes to have the most marketing exposure possible. After all, the more people who see your listing, the more likely it is that you’ll find someone willing to pay full asking price (or higher). But is there ever a situation in which a seller would want fewer people to know that they’re selling?

One big reason why a listing agent might utilize a pocket listing is if their client wants to keep the sale of their home private. A well-known local politician or a nationally recognizable celebrity may want to keep their home sale on the down low to minimize the traffic that comes with house showings, which often includes onlookers who are more interested in seeing an expensive or celebrity home than they are in actually putting in a serious offer.

Real estate agents have also used pocket listings to “premarket” a property to generate interest on it while the seller prepares it for the market or makes vital repairs.

A seller may find a pocket listing beneficial as a way to price test a home and see if the property can generate any interest at the seller’s ideal asking price. That way, they aren’t putting a potentially overpriced home on the MLS, where it will show a price history and the number of days spent on the market, which could raise concerns with buyers if the price has been lowered or the home has been on the market for a long time.

In spite of these possible pros, pocket listings come with a lot of potential downsides that could mean way less money for the seller. Plus, many real estate agents are now barred from engaging in the practice.

Have Pocket Listings Been Banned?

The National Association of REALTORS® recently cracked down on pocket listings with its newly approved “Clear Cooperation” policy, which requires that properties be listed on the MLS within 1 business day of marketing a property to the public. The policy went into effect on January 1, 2020, though local MLSs have until May 1, 2020 to fully implement it.

NAR members, known as REALTORS®, make up a large portion of working real estate professionals, so while nonmembers aren’t bound to the trade association’s rules, this is a significant shift for the industry. REALTORS® who don’t follow the rules may be subject to warnings or fines, depending on the rules of their local REALTOR® association.

Though there have been some detractors, this policy has largely been seen as a win for consumers. Pocket listings can be beneficial for a select few, but detrimental to the market as a whole.

When a significant portion of an area’s available housing inventory is not publicly listed, it not only prevents buyers from having a fair shot at a home they might be interested in, but it also skews local market data. This makes it more difficult for industry professionals to get an accurate sense of how much homes are selling for in a given area, which can ultimately impact everyone’s property values.

Some have also raised concerns about whether the practice could violate fair housing laws in certain circumstances. If a real estate agent is only marketing their properties to certain buyers, it can be hard to know whether they’re following anti-discrimination laws, or if they’re excluding certain groups from seeing their properties, either on purpose or unintentionally.

The practice generally isn’t very helpful for sellers, anyway. Not listing on the MLS seriously diminishes your pool of potential buyers, which could translate to a lower selling price.

There is, however, an exception to this new policy for what are called “office exclusives.” This is a type of discreet listing that agents or brokers who work within the same real estate firm share among each other, which they can then market one-on-one to their respective clients. This exception allows for sellers who want to maintain privacy to sell their homes without having to advertise on the MLS. However, if the listing is advertised publicly in any way, such as on the firm’s website or in an email blast, the listing will have to be submitted to the MLS. The NAR policy even considers a “for sale” sign in the yard to be public advertising.

The Benefits Of Opting For A Traditional Listing

A traditional, above board listing is almost always going to provide the most benefit to all parties involved in a real estate transaction.

With a traditional, MLS listing, a for-sale property is visible to all real estate agents and buyers in a given area. This allows for more competition between buyers, which is good for sellers looking to get the best possible price for their homes.

It’s also good for buyers because it gives them a larger selection of homes to choose from. Even more importantly, it ensures that all buyers have equal opportunity within the housing market.

Listing the properties they represent on the MLS also benefits real estate agents and brokers, because it ensures that the give-and-take of real estate listings continues smoothly and fairly. A healthy MLS relies on cooperation among all the participating agents, and when available properties are consistently listed, agents have better data to provide their clients. Everyone wins.

Want to learn more about the home buying process? Check out our article on the basic steps of buying a house.

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