What Are Pocket Listings and Are They Legal?
A pocket listing is a real estate term that refers to any property a broker or agent holds a signed contract with but that’s never advertised on a multiple listing system (MLS). Think of it as the agent keeping the property hidden in their back pocket rather than on the market.
Why might an agent do this? Doesn’t it make sense for the agent or broker to promote the property as much as possible? In reality, there are a few legitimate reasons for pocketing a listing:
- The property isn’t ready to show – There might be tenants still in the home or perhaps it needs work before it’s ready to join the market.
- Listing agreement – The seller might have entered a listing agreement to only show the home to qualified buyers.
- Exclusivity – Many times agents will show these homes only to select clients, thus increasing the exclusivity of the home.
- Not sure about selling – Sometimes a seller will be on the fence about selling, and might not want their home listed on an MLS service. If the home doesn’t sell as a pocket listing, there’s no record of the home failing to sell on an MLS.
Pocket listings are more popular in some parts of the country than others. For instance, in some parts of Califonia pocket listings are said to make up 30% of all real estate listings. However, are these listings legal? Are they as shady as some might believe? We’ll tackle both of these questions in this guide.
Are Pocket Listings Legal?
In short, yes. Pocket listings, as long as they’re done in the best interest of the client, are completely legal. Sometimes, as with the reasons above, they actually serve to sell the home more effectively.
However, according to the Realtor Code of Ethics, Realtors are required to promote and protect client interests. Pocket listings become questionable when they’re not done in the best interest of the client. Because pocket listings usually result in the agent representing both the seller and the buyer, they’ll receive a higher commission. While this isn’t a violation of the Code of Ethics or illegal, this should not be the reason an agent suggests a pocket listing.
The agent must thoroughly discuss the realities of pocket listings when suggesting this to a seller. There are many benefits being waived by not using any listing services. This needs to be the most viable option for all parties.
How Pocket Listings Affect the Market
Pocket listings don’t just affect buyers, but they affect the entire market. Because these properties are rarely entered into the MLS once they’re sold, they limit the information available about local housing prices.
Both nearby sellers and appraisers use these numbers to determine the current market value of different properties, so without this information, the entire market suffers. It’s in everyone’s interest for agents to update the MLS after each pocket listing sale to keep the database accurate.
Though many agents treat pocket listings like a dirty word, they’re not as bad as they sound. There are, in fact, many reasons why an agent and seller might prefer a pocket listing to a traditional listing.
While they’re not right for everyone, they do make sense in a number of situations. However, it’s important for realtors to take the Code of Ethics seriously when considering a pocket listing for a client. It’s easy to mislead a client in favor of a higher commission or to manipulate a sale, but this only harms the industry as a whole.
Ultimately, pocket listings can be a great tool, but only if they’re used in the right circumstance. They require ethical and professional standards, and the agent must remember his or her duty to the client’s best interest.