Pocket Listings are Back! What you need to know about them.

As homeowners have been seeing a rise in their home values, we are seeing more “Pocket Listings” in North Orange County. What are pocket listings? A pocket listing is a property that doesn’t come onto the MLS (Multiple Listings System) until it’s already sold – a practice that’s rarely defendable expect for privacy reasons. In fact, it’s looked down upon your local MLS which has certain rules against it.

To go into more detail, pocket listings are where an agent keeps the listings “in his/her pocket” and shows only to their buyers. One issue is that by not exposing a home to the largest possible number of buyers, the seller may miss out on a better offer. With pocket listings, the number of people who see the home is much smaller, and the offers may not be as competitive. Since the agent has a fiduciary duty to get the highest and best price for their client (seller), they should publicize the property for sale on the MLS and cooperate with other brokers/agents to get maximum expose.

Why would a real estate agent have “pocket listings”? Every listing agent lives for the opportunity to “double-end” a transaction (Total Commission) —that is, to avoid giving up half his or her commission to a buyer’s agent. At, say, a 6% listing commission on a $400,000 home that could mean earning $24,000 instead of less than $13,000. If the real estate agent doesn’t advertise to other agents in the MLS, they are not acting against the best interest of their client and may be violating their fiduciary duty to the seller.

Some real estate agents throughout will offer a myriad of reasons as to why this is a beneficial option:

1. They have a small circle of friends for whom they think your home will be perfect and you won’t be inconvenienced by ongoing showings.
2. Real buyers recognize value without the necessity of marketing.
3. You will hear real feedback from qualified buyers.
4. You’ll receive valuable information without obligation – you can choose to sell, not to sell or to rent.

After reading the list, my only question is, “Beneficial to Whom?”
The agent because they have secured a listing? Certainly not the homeowner. Below is my response to each of the bullet points above.

1. Sale price = supply and demand…Period. An open market will bring more buyers and greater demand than the sphere of a single agent or Brokerage. Forty-six percent of buyers surveyed in 2012 said that they learned of the availability of the home that they purchased via the internet.
2. What value is it to the homeowner to proceed without marketing? It may save the brokerage marketing dollars, but is that your concern when selling your home?
3. This one is a “head scratcher.” Does this mean to imply that you won’t receive qualified buyers or real feedback if your home is placed on the multiple listing system? I sure hope not. It doesn’t say much about Realtors if it does.
4. The last one makes no sense and is simply false. If you have signed an Exclusive Right To Sell listing agreement and an agent brings in a buyer that meets the terms stated in the contract, you are basically placing yourself in double jeopardy should you decide not to sell. The agent who procured the buyer may be due a commission and the potential buyer may expect you to perform as well or face litigation.

I would caution you to going with an agent that suggests doing a “Pocket Listing” since this is an unethical practice. There is no law against having pocket listings, however an agent should always comply their local MLS rules and have a client’s written instructions to approve this.

Even in a hot seller’s market which we have today, the benefits of MLS exposure are in the best interest to any seller. A listing agent desiring to have pocket listings should always be upfront about this with their clients and the disadvantages this may have to them.

To hear more about this type of listing you can check out my video below. You can also visit me on Twittier and Facebook.