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Digging Deep On Pocket Listings

A listing agreement provides an exclusive arrangement between a broker and a seller, granting the broker the right to market their property for sale. However, in a “pocket listing” scenario, the property is not listed on a multiple listing service (MLS). In general, it would seem that every real estate agent would want to advertise and promote their property on the MLS, right? What is the purpose of not posting your listing? Is it even legal to keep a listing off the MLS?

 

In this post, we'll explore why some real estate brokers choose to keep their listings “pocketed”. To gain a better understanding of pocket listings and the impact on local markets and the industry, we will look at both the positive and negative effects that they have on those markets. In addition, we will also examine what the National Association of Realtors (NAR) has to say about pocket listings.

 

Is it legal?

As of May 2020 NAR leadership terminated the practice of pocket listings, which had been practiced for some time. This was done by conducting a controversial vote at their annual conference in November 2019. When signing a listing agreement, they demand their NAR members to post a new listing within one business day.

 

NAR's move to effectively outlaw pocket listings appears to have been justified. There's no question about it, but let's explore the impact of pocket listings on local markets and the industry in general.

 

The Pros

Our first order of business is to discuss the benefits of a pocket listing. It signifies that you have exclusive control over the listing in your pocket. Keeping a contracted home off the MLS is a positive thing for our clients. These are the reasons. 

 

A real estate agent can solely target eligible purchasers by using a pocket listing to limit the property's exposure. Pocket listings are prominent in higher-end markets for this reason. A transaction closing rate of around 19% was recorded among the deals signed in the second quarter of 2020, according to Los Angeles-based The Real Deal.

 

Real estate agents opt for pocket listings because discretion is another advantage. For privacy or security reasons, property owners may prefer to keep their property out of the public market. Often in Los Angeles, even the listing itself can become a media spectacle due to the personal profile of the seller.

 

With Pocket Listings market conditions usually don’t matter. Since this listing is not being advertised to the general public it won’t be bombarded with the local market influctuations. 

 

The Cons

The NAR argued that pocket listings were banned because some Realtors were using the tactic to satisfy their own interests, rather than those of their clients. 

 

An unscrupulous realtor might enhance their chances of getting a double-sided deal by narrowing the pool of potential purchasers. Pocket listings can potentially be an easy method for well-connected listing agents to earn double their usual compensation. Obviously, this type of conduct is prohibited when the Realtor's main motive is not to provide their clients with the greatest outcome. 

 

Since Pocket Listings are not reported to the MLS when they close, they are not included in data used by area real estate agents and area appraisers when doing CMA and area appraisal, resulting in a shortage of accurate data that might impact the local real estate market.

 

If you believe this, you're correct: It might be claimed that pocket listings decrease reporting accuracy, which limits our market comprehension. We have a more difficult time providing our clients if we don't have a clear and comprehensive perspective of all sales transactions in our market. 

 

This tiny modification may not appear important to some. However, professional buyers' agents frequently utilize the list-to-sale ratio of an area as a component in setting an appropriate fair offer price, intensifying the effect of inaccurate reporting. 

 

To sum up, minority populations who are less linked to agents who possess pocket listings are left out in the cold when it comes to getting listings. Due to underrepresented minority groups' diminished access to the list, qualified purchasers in those groups may have less possibilities to purchase pocket-listed houses.

 

What The Critics Think

Many detractors of pocket listings contend that by foregoing the MLS, we are depriving our clients of a better opportunity to obtain the best and highest offer. 

 

You may decide to test the waters at a certain price point before giving your client's property full market exposure on the MLS. It is a strategic approach to get the best result for your customer.

 

A Realtor's commitment, as laid out in the NAR Code of Ethics, is not always to the highest price, but can be to the client's best interest. Our obligation is to serve our client's best interests. You, as their agent, have fulfilled your fiduciary duties if your client chooses to keep their listing private and not make it available in the MLS.

 

How Should You Manage Your Pocket Listing?

There are a few things you should do if you've decided that a pocket listing is the best solution for your client.

 

  - Make sure your communication is clear

In order to ensure a clear and explicit communication regarding the decision to delay listing their home on the MLS, you must first have a talk with the seller about that topic. Explain what the advantages, dangers, and everything in between are. 

 

To ensure we are covered, we would advise creating an amendment to the listing agreement that sets forth a “MLS live date” and specifies that the seller understands the condition. This is something you'll want to have if your local association asks why you've made a decision. There will be a paper trail that documents your intentions clearly.

 

  - Have your plan ready to execute

The second step is to accomplish everything possible before signing a listing agreement so that you have time to spend on outreach and buyer generation instead of spending time on the photo-taking part of the process. As you can see in the diagram, ideally, this period should last from Friday morning through Monday afternoon.

 

  - Choose the best tools

You must devise a plan to attract the right visitors to your site at the correct moment. It is always nice to have some pre-written templates for common communication when you're doing a pocket listing.

 

Your first introduction to this new pocket listing should be to the other agents at your office. 

 

Next you should post your Pocket Listing with us to get the maximum amount of exposure from all agencies across the US. This way not only the 10-15 agents from your local agency know about the Pocket Listing but now thousands of agents are aware and many of them have qualified buyers ready to pull the trigger. 

 

What We Think

We aim to keep an objective perspective, although we occasionally have our editorial voice heard. This is a prime opportunity. Censorship by NAR in banning pocket listings was ill-advised. Though they may work to promote the client's interests, they are indeed useful in a real estate agent's arsenal.

 

What NAR could have done is come up with better regulations and a specific set of rules to follow to be in compliance. This way if the client tried steering us in a direction we didn’t feel comfortable being in, we’d have a concrete set of rules we’d have to abide by. 

 

These challenges of data reporting and potential harm caused by pocket listings are significant. Banning this practice, however, isn't the solution to these difficulties, since it results in a further surge in whisper listings in these communities, which just serve to amplify these concerns. 

 

If we were the ones creating the regulations, we would allow Pocket Listings, but it would be a need to document the listing all throughout its life. They will also be subject to the same level of scrutiny as a regular public offering.

 

What Do You Think?

We’re curious to see what you think about Pocket Listings. Do you think they should have been banned? Have you had Pocket Listings before?

 

Don’t forget to visit the Pocket Listings page to view all available Pocket Listings. You can even post your own and get a buyer within no time!