What Is A Pocket Listing And Are There Downsides?
This article provides an in-depth look at pocket listings and their pros and cons, but let’s start with the key takeaways:
- A “pocket listing” refers to a real estate listing that is not found, as nearly all properties are, on a standard multiple listing service (MLS).
- As the name implies, the listing is kept in the “pocket” of the seller and their agent, instead of being made fully public.
- Pocket listings have been banned by the industry’s main trade association, but if you want to work with a real estate agent who is not a member of the National Association of REALTORS®, a pocket listing may still be an option.
- Unless you’re a celebrity or public figure in need of privacy, or you own a house that is so expensive or niche in its appeal that it doesn’t belong on the conventional market, a pocket listing is inadvisable.
- Pocket listings limit the options of sellers.
- Pocket listings create ethical binds for real estate agents, as it is difficult to promote in a manner that benefits all parties.
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 found 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.
How Standard Multiple Listing Sales Work
There is not a single, comprehensive multiple listing service. Each local real estate market has its own MLS, which publishes detailed information on each home listed on it, from square footage to photos. This information is known as a “listing.”
Real estate brokers and agents pay to gain access to this information, which they then use as part of their research for prospective buyers. Before the formation of the MLS, real estate agents met informally to share this information; now, the process is much more organized. The information is exclusively available to members who pay for access to the MLS.
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 use 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. This traffic 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 their 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.
When choosing a real estate agent, assessing their credentials will be key. Do your research and find the best fit for you and your situation.
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Who Benefits From Restrictions On Pocket Listings?
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, 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 through real estate comps, 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.
Summing Up: The Benefits Of 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.