Now that the real estate market is back on the upswing, the practice of “pocket listings” is also on the rise. The practice — created to protect the seller’s privacy — has also become a unique tool for real estate brokers to offer an exclusory cloak (and an air of mystery) to their residential listings. However, the increasing use of pocket listings has raised concerns from industry experts regarding ethical boundaries.
The term “pocket listings” points to scenarios in which real estate agents and brokers purposefully omit important sales information when entering the listing into the multiple listing services. Brokers only schedule a showing for serious buyers whom they expect to follow through with an offer and subsequent sale. Many of these buyers are affluent; thus, they are both willing and able to purchase the home quickly (and often in cash).
This practice became popular among luxury homeowners who simply didn’t want to awaken to floods of curious individuals staking out the property in hopes of having a “chat” with the seller. However, the pocket listings of today are not reserved solely for high end homes. In fact, the recent housing market rebound has created such demand that in some areas of the country, the number of potential buyers outpaces the number of homes listed for sale. In markets like these, increasingly more homes listed at moderate prices are being entered into the multiple listing service as “pocket listings.”
Walt Moloney, spokesman for the National Association of REALTORS, explained to CNN Money that their organization does not currently have an official policy related to this issue. However, some state and local level real estate boards are strongly voicing their opinions against this practice.
One example is New York’s Real Estate Board. Attorney Neil Garfinkel (who represents the NY Real Estate Board) says pocket listings are a direct violation of the Universal Co-Brokerage Agreement which, in effect, demands that real estate agents share listings. Listings can only be withheld upon seller request (and not at the urging of a strategic real estate agent).
Some highly trained expert real estate experts are concerned about the “gray area” that pocket listings tend to create, saying that some agents can (and do) receive dual commissions by acting on behalf of both the home buyer and the seller. Garfinkel says when agents place their own interests before those of the seller, their method of operation is in violation of clearly defined real estate laws.
Most prominent brokers, however, insist that the majority of pocket listings are created and dealt with in a fair and equitable manner. Still, many brokers and other real estate experts believe that creating a fully visible public listing improves the chances that the home will sell at the best possible price.
According to Alex Clark, founder of PocketListings.net, both the agent (or broker) and the home seller learn quickly if the list price is too high. Agents utilize the service to shop their pocket listings to nearby real estate professionals; when the property is priced right, the responses come in quickly. When that doesn’t happen, the agent is usually advised to simply talk to the seller about adjusting the price, then listing in the traditional way – publicly – through the MLS system.
In some instances, though, the seller may balk at the idea of going public. Those that do this are, in most cases, not motivated to sell their homes. These types of sellers utilize the pocket listing approach as a tactic for channeling their inner “Godfather.” In other words, they will only follow through when a rare buyer steps forth with an offer they simply cannot refuse.