A pocket listing is an agreement between a real estate agent and the seller to not list the house on the Multiple Listing Service (MLS) but instead try to sell the home via his private network. The National Association of Realtors takes no official stance on pocket listings. While pocket listings aren’t a clandestine practice, they should be approached with caution.
Pocket Listings Work to Sell Your Home If…
You, as the seller, already know the buyer.
Ever since you moved in 10 years ago, your neighbor has been ogling your property. He has dreams of his parents moving in next door and finally having somewhere convenient to store the boat.
If he’s told you multiple times: when you’re ready to sell, he’s ready to buy. Why go through the process of preparing and staging and listing if you already have a suitor willing to pay your asking price?
Unless you feel you’ve underpriced your home, a situation like this is like selling your house with a head start. Just make sure you have good representation.
You want extra privacy during the sales process.
Say Kim and Kanye are selling their house in Hidden Hills. If these celebs treated their real estate listing like everyone else’s, they’d end up fielding a lot of financially unqualified and starstruck looky-loos who just want to wander their mansion and take selfies.
It’s not just the rich and famous who might want this privacy though. Think about prosecutors or judges that try tough cases, or controversial politicians who want to remain anonymous in their personal lives.
In any of these situations, a seller might opt for a pocket listing. The real estate agent handling the sale would keep the listing fairly private, only letting certain people in their network know about it. Or they might reach out to specific people they know are looking to buy a similar property to see if they’re interested.
These sellers can certainly keep a certain level of privacy while still listing on MLS. Realtors can censor certain information on a listing, as well as screen house hunters for viability before viewing.
There’s a very limited market for the home.
Take Ellen Degeneres and Portia de Rossi’s home in Montecito, California, for example. They bought the 10,500 square-foot house for $26 million. You’d imagine there aren’t crowds of people looking to spend $26 million on a house.
In fact, only 13% of houses in the U.S. are worth a million or more, according to MarketWatch. With such a limited market for houses as large and expensive as this, it’s a bit out of place on the MLS.
In Ellen’s case, the sellers didn’t put it on the MLS at all, purchasing it via pocket listing.
Pocket Listings Aren’t The Best Choice If…
Pocket listings have their purpose, but for the average home seller (not Kim/Kanye/Ellen/Portia) pocket listings present fewer pros than cons.
Pocket Listings Mean Less Exposure for Your House.
Trying to sell your house without listing it on MLS is a lot like launching a product and then doing zero advertising to get the word out about it. This is not a “build it and they will come” situation. MLS is by far the easiest and most efficient way to share that your house is for sale over the loudspeaker.
Even popular real estate sites like Zillow and Trulia aggregate their information from MLS.
Some sellers might think that not listing on MLS is better because that way their house doesn’t sit on the market. Sure, you may not rack up days on market but you won’t get your home much exposure either. If it’s not a good time to sell, wait. Don’t try selling without listing. It’s like dipping your big toe in the deep end. Commit or don’t.
Pocket Listings Bring Down House Comps.
Comps, by design, attempt to compare like-houses in the area. Though comps are the best metric for pricing your home, they’re not an exact science. Pocket listings could throw off the market value for your neighborhood.
“There is an industry-wide impact of pocket listings,” says Lesley Walker, associate counsel at the National Association of Realtors. “Many times, properties offered as pocket listings are never entered into the MLS once they are sold. This limits the available information about the market and makes it difficult for other agents, buyers, and sellers to determine values of nearby properties, and for appraisers trying to determine the current market value of a particular property.”
Pocket Listings Don’t Get the Best Price For Your Home
Say the CEO of a company is looking for a new assistant. Rather than post the position on job sites, he just asks around to see if anyone knows anybody who might be interested. While he might luck out and find a connection this way, he might also miss out on better, more qualified applicants.
This same concept rings true for pocket listings in real estate.
Because the property is not marketed widely, a seller may only get a slim number of prospects and may never approach competitive pricing for the home.
It’s also hard to ensure an accurate price if other pocket listings in your neighborhood have thrown off the numbers. If a property is a secret — as most pocket listings are — there’s no competition to drive the price up, and virtually no leverage to negotiate.
Pocket Real Estate Listings Can Result in Murky Ethics
Your Realtor just sold the largest apartment on Park Avenue and his name is plastered all over Manhattan. He has a pulse on the market and he asks you if you want to go see a place that’s so new it hasn’t even hit MLS yet. This is cool! It means your agent’s got the inside scoop and also knows exactly what you’ve been keeping an eye out for.
But proceed with caution if double representation is involved.
When your real estate agent got his license, he vowed to always keep his client’s interests first.
This means if it’s his pocket listing (as in, he’s representing the seller) he has a fiduciary responsibility to get the best price for the seller. This doesn’t translate to getting the best price for the buyer, even if he’s representing you too.
Legally, pocket listings are fair game. But ethically, they’re a complicated labyrinth. Agents have to disclose the pros and cons to the buyer, and act in the best interest of their client — something difficult, if not impossible to do, if representing both buyer and seller.
If you’re considering a pocket listing, find an agent with experience who will represent you well.