For YEARS this subject has been a point of irritation for me. First, let me explain what a “pocket listing” is and the history or original purpose and then I am sure you will see where I am going with the discussion. A “pocket listing” is a listing that a real estate agent keeps in their “pocket”…. meaning they do not offer the listing for sale in the Multiple Listing Service (MLS). Historically, this type of service was saved for very expensive properties owned by celebrities, politicians, etc. due to privacy concerns. Typically, the agent would work through a network or other agents and use alternative marketing means to try and find a buyer without exposing the seller or property to the entire world.
However, over the last few years, real estate agents have been turning to the “pocket listing” strategy for other reasons. Typically, these agents will offer the seller a reduction in commission for giving the agent the opportunity to market outside of the MLS and try to find a buyer without another agent. For example, if the agent charges a 6% commission, he/she may offer to reduce the commission to 3.5%. Initially, this sounds like a win/win for both parties. The seller saves money and the agent makes extra money on the commission. The problem is that many agents are not looking out of the best interest of the seller. Rather, they are interested in the chance to make more money. Some will argue that there is no harm in the agent making a little extra since the seller is actually saving money on the commission by doing so. This is not necessarily true.
It should be the agent’s top concern to get the seller the best price and terms. By exposing the property to the greatest amount of people you are creating competition among buyers and often times multiple offers. These offers will compete, giving the seller the BEST opportunity for the most favorable price and terms. Limited exposure will lead to limited results. Further, buyers are growing frustrated with having to try and find where these pocket listings are. The entire idea of the MLS is to bring buyers and sellers together for mutual benefit. The only one winning in this situation is the “pocket listing” agent that happens to earn the extra commission.
These type of listings are not “illegal” but they are definitely frowned upon in the industry. So much so, that the National Association of Realtors as well as local boards are having ongoing discussions regarding how they are handled. The first point of concern is how are these listing agreements coming about? IF the seller is made aware and agrees to the “pocket listing” then the agent is doing things above board. However, the question remains…. has the seller been “sold” that the “pocket listing” is in their best interest? Is the seller aware of both sides or just what is being presented to them?
Another major concern is that of skewed MLS data. For example, if a seller insists on wanting to sell for $30,000 more than what the agent thinks the property will sell for, they may do a pocket listing. The reason being, all agents are aware of what is considered the “golden market” time. This is typically 60-90 active days on market. After this time frame listing get “stale” and looked over by buyers. So, to avoid becoming stale, the agent doesn’t market the home at the desired price in the MLS but “tests” the market through a pocket listing. At some point the seller decides to drop the price and the agent puts the listing in the MLS. The agent may have done a “pocket listing” agreement contract for 30-60 days. When that contract expires, they do a new listing contract to market on the MLS. This gives the impression that the listing has been on the market less days than it actually has. Economists and large tracking firms depend on the MLS data to provide a picture of market conditions around the U.S. Skewed information doesn’t give a clear picture, making it frustrating for everyone. It is an argument of immediate individual greed versus the long term common good.
So, I promised to tell you when a “pocket listing” is in the best interest of a seller. The answer is RARELY. If you are looking to sell and have a very sick family member (as in bed ridden, terminal, etc.) then a “pocket listing” MAY be the answer, but I would have other suggestions first. Another situation for entertaining a pocket listing may be if you were a high profile executive and did not want your company knowing that you were planning a move… but again I would argue that others means are better suited to the situation. Finally, if you wanted to “test the market” to see if you could get a very specific asking price or terms, try a pocket listing…. However, I would again argue that if you have a specific price in mind or terms, you are better off exposing the property to as many people as possible.
The bottom line…… doing a “pocket listing” sounds like a winning situation for the seller. However, if you are being asked to do a pocket listing by an agent, you should be aware of not only your own motivations but the underlying motivations of the agent presenting the option of a pocket listing as well.