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What Are Pocket Listings in Real Estate? Exploring the Pros and Cons

Have you ever heard of terms like "in-house listing" or "off-market listing"? These refer to a type of listing known as a pocket listing. But what exactly is a pocket listing? In this article, we...

Have you ever heard of terms like "in-house listing" or "off-market listing"? These refer to a type of listing known as a pocket listing. But what exactly is a pocket listing?

In this article, we will delve into the world of pocket listings, discussing who should use them and how they differ from standard listings. So, let's dive in!

What Is a Pocket Listing?

Typically, a traditional listing is posted on a Multiple Listing Service (MLS) by the listing broker. This makes the property information available to any Realtor with access to the MLS in the open market.

So, how does a pocket listing differ? Well, a pocket listing is not listed on the MLS. Instead, it remains in the "pocket" of the broker, not accessible to the public.

The broker then tries to market the property through word-of-mouth or private online networks, where they believe they can find an interested buyer. Alternatively, the seller may already have a potential buyer in mind.

A sign in front of a home that says "new listing." Image Source: Sanaulac.vn

Are Pocket Listings Legal?

Pocket listings are legal in almost every state. However, if you are a Realtor (a real estate agent associated with the National Association of Realtors), you are held to more stringent standards. Realtors cannot create pocket listings. This has made pocket listings less common among real estate agents.

There are a few ways to work around this rule. Firstly, a Realtor has one business day to list the property on the MLS after they have started marketing it publicly. This means that if you begin marketing the property on a Friday, you have the entire weekend to keep it as a pocket listing.

Additionally, if a Realtor never starts publicly marketing the property, they can keep it off the MLS. Finally, if a real estate professional is not associated with the National Association of Realtors, they can list your property as a pocket listing indefinitely.

Pros of Pocket Listings

Why would someone choose not to list their property on the MLS? Pocket listings offer several advantages in specific cases.

1. Privacy for Public Figures

One use for a pocket listing is when the property belongs to a celebrity, politician, or other public figure who wishes to keep the sale of their home private. This helps maintain their personal privacy and security while limiting visits from non-serious buyers. A pocket listing ensures that only serious home buyers have access to the property.

2. Pre-Existing Qualified Buyers

A pocket listing is also useful when the seller already has a qualified buyer in mind. If there is no need to expose the property to the general market if the seller already has a buyer willing to pay the asking price. This buyer could be a neighbor, family member, or friend who has always wanted to own the property.

A real estate agent working with a couple Image Source: Sanaulac.vn

3. Testing Pricing and Marketing Strategies

Another use for pocket listings is to test the market for a property before formally listing it on the MLS. This allows the listing agent to gauge interest and determine if the price is fair. Based on the reaction, they can adjust the price accordingly. By using a pocket listing for testing, a seller can avoid lowering the asking price or having the property listed for an extended period on the MLS. Both of these factors can be seen as negatives by buyers and agents.

4. Higher Commission Earning Potential

For real estate agents, pocket listings offer the opportunity to represent both the seller and buyer, increasing the chance of earning the full commission. While this presents challenges, such as dual agency, these can often be offset by involving another agent within the brokerage to represent the prospective buyer (while still earning a referral fee). For sellers, working with an agent who has control over more aspects of the transaction can be advantageous compared to working with a random buyer's agent and buyer.

Cons of Pocket Listings

While pocket listings may seem appealing in certain scenarios, there is one significant reason why sellers may not want to use this listing strategy.

Reduced Home Value

The primary drawback of pocket listings is that they limit the opportunity to maximize marketing and exposure for a property. This can result in sellers accepting a lower price for their home. When a property is listed privately, there is less chance of creating a bidding war. This can prevent the seller from receiving a higher offer than the original asking price.

Potential Issues for Real Estate Agents

If you are a real estate agent considering pocket listings, there are several implications to consider.

Anti-Discrimination Lawsuits

One downside to pocket listings is the potential for unintentional exclusion of certain groups of buyers. By showing the home to only specific groups without realizing it, real estate agents may inadvertently violate anti-discrimination laws. Traditional listings offer a fair chance for a greater number of buyers to purchase the home.

Impact on MLS Accuracy

Pocket listings can affect the accuracy of the MLS database. Realtors and sites like Zillow and Trulia rely on the MLS to provide up-to-date information about different markets. When information about a property is not available on the MLS, it negatively impacts data used for home valuations in the area.

To ensure accurate data and maintain transparency, the National Association of Realtors officially banned pocket listings in May 2020. Their "Clear Cooperation Policy" requires Realtors to list properties on the MLS within one business day of marketing them to the public.

Dual Agency Risks

Another potential downside, but also an opportunity, of pocket listings is the increased risk of dual agency. In this scenario, a single real estate agent represents both the buyer and seller in a transaction.

When working with a dual agent, it is important to be mindful of their obligation to get the best price for the seller. As a buyer, it may be wise to hire your own real estate agent to represent you in the transaction.

A frustrated real estate agent Image Source: Sanaulac.vn

Advantages of Pocket Listings for Buyers

If you are a buyer in the market for a new home, how do pocket listings affect you? Should you actively search for pocket listings and consider them? Here are a few reasons pocket listings can be advantageous for buyers:

1. Increased Flexibility

One major benefit of pocket listings is the flexibility they offer in terms of negotiation and terms. Sellers whose properties are not on the market tend to be more open to accommodating buyers' needs, such as extended closing dates, leasebacks, and other concessions. Pocket listings often allow for a more relaxed showing schedule, and sellers may be willing to skip home inspections and appraisals, provided the buyer and their agent sign an affidavit and liability waiver if required.

2. Potential Better Deals

Buying a property off-market, through a pocket listing, may offer more negotiating power and potentially better deals compared to properties marketed to all potential buyers. With fewer competing offers, buyers have more freedom to negotiate with the seller.

3. Reduced Competition

If you discover a pocket listing in your area before it is published on the MLS, you have a competitive advantage as a buyer. With access to information that is not widely available, you can submit an offer before others have a chance to see the property or make an offer. This reduces competition and increases your chances of securing the house.

A house for sale Image Source: Sanaulac.vn

How to Find Pocket Listings

Finding pocket listings has become more challenging in recent years due to their decline after the National Association of Realtors banned them. While there used to be dedicated websites and portal sites with pocket listings, the best way to find them now is to directly contact local real estate agents and inquire about pocket listings or upcoming listings.

Timing is key when it comes to finding pocket listings. You need to do your research and stay informed about when properties become available for sale.

Final Thoughts on Pocket Listings

In conclusion, pocket listings should generally be avoided unless you have a specific reason for wanting to keep the sale or purchase of a property private. To get the best price and sell your home quickly, professional marketing and exposure are essential.

However, for buyers who are knowledgeable about the home buying process or have the assistance of a knowledgeable real estate agent, pocket listings can present unique opportunities. The flexibility, potential for better deals, and reduced competition make pocket listings worth considering.

Now that you have a better understanding of pocket listings, you can make an informed decision whether to explore this listing strategy as a buyer or seller in the real estate market.