Pocket Listing & Its Pros and ConsCASAPLORERTrusted & Transparent
What You Should Know
- A Pocket Listing is a property that is sold through a private network of a single Real Estate Broker.
- Pocket Listings are banned by the National Association of REALTORS® as of January 1st, 2020.
- Pocket Listings are usually used by sellers for enhanced privacy or to test the waters before selling on MLS.
- There is a strong association between unethical and discriminatory practices and pocket listings.
What is a Pocket Listing
A Pocket Listing, which is commonly referred to as “Off-Market Listing” or “Exclusive Listing”, is a property that can be shown and sold through a network of only one specific broker. One Pocket Listing is exclusive to only one real estate broker or a salesperson, and this listing is not made available to any other brokers in a firm or Multiple Listing Services (MLS). Since the property is being sold through a private network, the number of people who get to see the listing is very limited. Even though there is no harm in selling or buying a Pocket Listing, the practice of selling the property privately and buying such a property comes at its own cost, and this method should not be considered by everyone.
|Pocket Listing Vs. MLS Listing|
|Pocket Listing||MLS Listing|
|Less Competition||More Competition|
|May be Sold at a Discount||May be Sold at the Highest Price|
|May Involve Unethical Practices||Follows Standard Procedures|
Pocket Listing Real Estate For Sellers
Generally, sellers should want the most market exposure for their listings, but there are some cases when a seller may choose to avoid the public market for selling their property. A real estate owner may consider selling the property privately for quite a few reasons. A pocket listing provides more privacy to the owners, but at the same time, more privacy means less competition. There are certainly pros and cons to the practice of selling a property off-market, so it is important to understand in what situations an individual may want to sell their property privately.
|Use a Pocket Listing If|
|Use||Do Not Use|
|You Know a Buyer||You Want to Sell it at the Best Price|
|You Want to Test the Market||Your Property is Affordable Enough|
|You Want to Keep it Private||You Want a Transparent Transaction|
|Your Property is Unaffordable by Many|
A seller may want to use Pocket Listing for the following reasons:
- A Seller Knows a Buyer - If a buyer is an acquaintance of a seller, and the seller knows that the buyer wants to purchase the property, and the seller is happy with giving the buyer an exclusive opportunity to buy the property, then there is no need to make the listing public. In this case, the off-market listing will save time and potentially money.
- To Test the Market - It could be the case that the seller does not exactly know how much the house is worth. Listing the house “Off-market” helps the seller test the waters and understand how much the house is worth without getting too much attention to the house. If the property is overpriced and is listed on MLS, then it is likely that it will stay on market for longer than an average property, which may raise concerns from potential buyers especially if the price gets lowered after.
- For Extra Privacy - Some people, especially celebrities, tend to favor Pocket Listings because they provide privacy. If the house is sold on the market, then pretty much anyone can come and look at the property. Sometimes it so happens that the property is being sold while the owners are still living there, and people who want to keep their life private, may prefer Pocket Listing sale to conventional sale.
- The Market for the Property is Limited - There are some extraordinary properties that may not be a good fit for most homebuyers. Even though a lot of people would like to live in a house that is worth millions of dollars, there are only a few people who can afford such a property. In this case, it does not make sense to list the property on MLS because people who use MLS do not have the means to purchase this property.
On the other hand, if the seller is a regular person with a regular property, then they are better off not selling it as a Pocket Listings for the following reasons:
- Less Competition - Pocket Listings have less competition over them because a large part of the market does not get a chance to offer their price for the property. MLS provides access to a great number of people who are looking for a property right now, which means that their willingness to pay for the property may be higher than that of people who would be notified of the pocket listing. A person with an average, for the general market, house is better off using MLS to get the best price possible for their property.
- Less Exposure - Pocket Listing does not provide as much exposure to the house as a regular listing does. Time plays an important role in selling the property, and a regular house that could be sold on MLS within a few days may not be sold for months as a Pocket Listing. As a general rule of thumb, a regular property requires a proper MLS exposure to be sold within a reasonable timeframe.
- Negative Effect on Comparables - A pocket listing is likely not being sold for the best price possible because there is less competition than there would be if the property would be sold publicly. Even though the property is sold privately, the sale information is still recorded and may be used as a comparison for other properties. In this case, the pocket listing may negatively impact the prices of the comparable properties in the area.
- Unethical Practices - Pocket Listings may foster the environment for unethical practices by the real estate agents. If the agent is representing the seller in the pocket listing, the agent has the fiduciary duty to get the best possible price for the seller. For many pocket listings, one agent is representing both the seller and the buyer. Given that agents work for commission, there is an incentive for the agent to sell the house at a higher than fair price. In addition to that, by limiting the network of people who are allowed to purchase the property, there is an easy way to discriminate against certain groups, which is also unethical.
In 2021, it is still possible to sell a property as a Pocket Listing, but it has become increasingly more difficult to promote it even to a private network of people due to a recent Ban of Pocket Listings by NAR. If a seller wants to sell the property as a pocket listing, the seller needs to find an agent that has a network of potential buyers or investors who are interested in the property or find a real estate agent who is not a member of NAR. In this case, it is very important to pick the real estate agent who has great credentials and who can provide such a service professionally and ethically.
Pocket Listing Real Estate for Buyers
Buying a property could be one of the biggest investments in the life of an individual, and it is important to make sure that the process of buying the property and the property itself fits the buyer’s needs and objectives. Pocket listings may sound like an attractive option for an individual since there is usually less competition for the property, but there is also potential for unethical practices to be involved, which may come at a cost for an uninformed buyer.
|Buying a Pocket Listing|
|Less Competition (Sometimes)||Less Room for Negotiation|
|Less Information Provided|
|Unethical Practices Present|
An experienced investor may find it more beneficial to purchase pocket listings rather than the listings that are on the market, but a first-time homebuyer may not get an optimal deal for the property due to unethical practices that are often associated with pocket listings. Before trying to buy a pocket listing, it is important to weigh the pros and cons:
- Less Competition - Since the property is off-market, there are not as many people aware that the property is on sale. Because of this, the buyers have a better chance to find a good deal on the property. Even though there are not as many participants, if the property has some desirable features, there may be a bidding war between potential buyers, which may drive the price for the house much higher than it should have been originally. This may happen for luxury houses that have been built with custom features in mind.
- Less Room for Negotiation - Even though there is less competition associated with off-market properties, most of them are listed just to test the waters. The sellers may want to see how much they can get for the house before selling it on MLS. In this case, the buyer may waste a lot of time negotiating a deal that does not really exist. An inexperienced buyer may send quite a few offers before finding a property that is intended to be sold.
- Lack of Information Provided - Since the property is not listed on MLS, the owners are not required to disclose as much information as they would have to. In this case, the buyer has to visit the property and find out everything themselves. Even though the buyer should have the opportunity to inspect the house just as with a public listing, it comes at a cost that may add up if the individual keeps inspecting the properties that simply “test the waters.”
- Unethical Practices - The most dangerous downside for buyers is the fact that real estate agents want to sell the property for as much as possible. An inexperienced homebuyer may find themselves lucky enough to get an off-market property that is actually on sale. If they like it, they may consider buying it, but it could be the case that the house price announced is much higher than the fair market price of the property, and in this case, there is an incentive for the real estate agent to sell the property above the fair value, which will hurt the buyer.
Pocket Listing Ban in 2020
Historically, Pocket Listings have been involved in discriminatory practices since such a method of selling property directly excludes a large number of people from property showings. On November 11th, 2019, the National Association of REALTORS® (NAR) board of directors voted for a new policy called “Clear Cooperation Policy” that aims to ban Pocket Listings for their involvement in discriminatory practices. The policy became effective on January 1st, 2020, but the NAR waited until May 1st to enforce it to provide time for over 800 MLS national systems to adapt to new regulations. While certain aspects of Pocket Listings are still intact, the updated NAR Policy states that “within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants.” In this case, “marketing a property to the public” includes:
- Yard Signs
- Email Blasts
- Pocket Listing Facebook Groups
- Digital Marketing on Public Facing Websites
- Multi-Brokerage Listing Sharing Networks
- Brokerage Website Displays
- Any Application Available to the General Public
This policy is designed to promote equal access to information and opportunities to purchase a property. Before this policy, many brokerage firms used to hold pocket listings exclusively and were enticing buyers to hire them due to their exclusive listings that no other brokerage firm has. Currently, this kind of business model will not work because the brokerage will either not be able to market new properties or will be obligated to make the listing public on MLS.