A phenomenon in real estate, a “Pocket Listing” is one sold outside the Multiple Listing Service (MLS). The MLS exists to serve brokers, their seller and buyer clients or customers and to establish a database of properties that all brokers can access. Listing agents and brokers use the database to market property and provide information to prospective buyers and sellers through their agents. Buyer’s agents use the database to search for properties to present to prospective buyers that meet the buyer’s search criteria.
Pocket listings are not entered into the multiple list and so therefore are not accessible to potential buyers unless their agent is aware of the existence of the pocket listing, usually through word of mouth.
Pocket listings are not a new concept, but they have gained in both number and popularity in the current market. They are a controversial issue within the real estate industry. Below are some of the pros and cons as stated by real estate professionals in a recent article in RISMedia, entitled Pocket Listings: Helpful or Harmful
- Enable privacy for celebrities or public figures
- Seller simply wants to avoid hundreds of potential buyers from traipsing through their home
- Casual verbal agreement with an agent or broker allowing seller to consider selling if the agent can produce a buyer willing to pay the seller’s price, thereby allowing the selling to “test the water” without formally entering into a listing agreement and entering the property into the MLS
- Seller only charged a flat fee by some brokers
- Allows an agent to market listing while setting up formal marketing and listing paperwork reasoning that sellers love that the listing is sold before the sign goes into the ground and to enjoy the privacy of a pocket listing sale.
- Skews the overall MLS data because limited exposure in the MLS makes it harder to browse comparable homes and prices.
- Brokerages with pocket listings most likely will complete those transactions entirely in-house, collecting both the listing and buying side of the listing commission.
- Some states have regulations against denying a buyer’s agent showing a pocket listing. However, payment of commission is generally governed by MLS rules and regulations, so Buyer’s broker may not be able to collect a commission.
As for the pros:
While enabling privacy for celebrities and public figures has some merit, these sales are usually conducted under a name of a corporate entity, handled by the principal’s attorney or financial advisors and generally go unknown or unnoticed by the public. For instance, when Michael Jordan was playing for the Washington Bullets, a property in the general area was purchased as his residence and subsequently sold, all without public fanfare or general knowledge, because his name was not used in the transaction.
Again, generally speaking while there may be some merit for high-profile sellers wishing to prevent hundreds of buyers from traipsing through their homes as gawkers, most sellers would be happy to have such interest and it is the duty of the buyer’s agent to only show buyers properties for which they are financially qualified to buy. Most professional real estate agents have their buyers pre-qualified by a mortgage lender before going out to look at potential properties to purchase.
Commissions are always negotiable and while the seller may benefit from a flat fee commission arising from a pocket listing sale, it should be considered along with all the elements of the transaction, such as price and all other terms and conditions of the sale.
It is good marketing to begin promoting the sale of the listing as soon as possible and if a sale is procured that meets or exceeds the seller’s expectations that’s great, especially if it is done with the least inconvenience to the seller.
As to the Cons:
- It is a fact that the database of the MLS is affected by elimination of listings, however the MLS does not include 100% of all properties for sale in spite of the exclusion of pocket listings. For example, it does not generally include for sale by owner listings (FSBO). Inclusion of the pocket listing sale after settlement should be required, as this will ensure a better result for comparable sales analysis for all future sellers.
- Brokerages collecting both sides of the commission of a pocket sale is fine, as long as the sale meets or exceeds the seller’s expectations for price and all other terms and conditions of sale.
- Sellers should be desirous of allowing any buyer to see their listing, even if the agent requesting a showing is from another brokerage. Payment of commission is something that should be clearly agreed upon between the cooperating brokerages up front, as it is done if the listing is in the MLS.
Our observations and reservations:
- It may be advisable to have a formal written pocket listing agreement and a disclosure between the broker and the seller with regard to a pocket listing.
- The disclosure could provide that while the pocket listing may produce a sale that is agreeable to the seller, it will be done under conditions that do not expose their property listing to the broadest possible marketplace as would be if the listing were included in the MLS. Subsequently the seller may risk not procuring the highest sale price, conditions and terms because of this. Having the seller’s written agreement to the pocket sale, along with the seller’s acknowledgement of receiving a “broadest possible marketplace statement” disclosure on file as described here could be a sound business practice.
- It is our feeling that a seller would be well served by including their property listing in the MLS and thereby getting the broadest market exposure, making sure that any and all buyers who may express interest in purchasing their listing have a chance to compete with other buyers. This may increase the chances of the seller receiving the best and highest price, terms and condition on the sale of their property. Why would a seller want to limit their possibilities when it comes to selling what for most people is their most valuable asset.
- Most sellers probably do not have such privacy concerns as expressed in the “pros” listed above. It is probably a genuine concern for the celebrity and public figure portion of the marketplace, but that is a small percentage of the overall market. It seems disingenuous to extend that claim for the overall market.
“Pocket listings” should probably be re-named “word of mouth listings”. In this day and age of social media and electronic devices that allow us to stay connected with everything, it seems to us that “pocket listings” are an anachronism that probably have no place in the 21st century, where approximately 90% of buyers begin their search for a home online.
This article is intended as information only and should be considered as opinion only. It is NOT to be construed as legal or financial advice. Please consult with your legal and financial advisers before taking any legal or financial action when conducting a real estate transaction.