A Pocket Listing is when a real estate broker persuades a seller to keep their house off the MLS (Multiple Listing Service) for a certain period of time and only make the property available to other agents in their firm. They are intentionally excluding 70% or more of the most qualified buyers in the marketplace. In a hot real estate market, this may sound like a viable option to avoid the inconvenience of multiple housing showings, but it is not. The irresitable urge for brokers to collect a double commission is what drives this misleading and harmful practice. It is very important for sellers to sort through the misleading spin of this anti-consumer practice and avoid it and anyone who recommends it (with the exception of the ultra rich and celebrities who desire extreme privacy).
Pocket listings may be legal if brokers make a full disclosure of all the negative ramifications (and viable alternatives) of pocket listings, and obtain their clients’ informed consent. However, sellers should almost never give their consent, and most who do are not giving their “informed consent.” If sellers were to receive a full disclosure about pocket listings, few would ever agree to the practice.
The so called “conveniences” of a pocket listing are imagined. Even a seller who is willing to reduce the demand and selling price of their house in exchange for less showings, isn’t getting what they bargained for. In today’s marketplace it is easy for a broker to only open the house to qualified buyers at specific times. Same number of showings, higher quality buyers from firms all over town and a bidding war that secures a much higher price from the best possible buyer. The only difference? The broker does not collect a double commission.
No such thing as “test marketing” your house. Many Realtors persuade sellers to keep house off the market for a short time in order to test market it among in-house Realtors. The so-called benefit is that you will get important feedback about pricing and any showing issues. Do not fall for this scam. Realtors know that the most likely time to sell a house is in the first two weeks it is on the market. They are counting on the house selling during this so-called test market time period. Not only are you giving up the most important two weeks of your listing, you are also forfeiting an incredible amount of market exposure and demand for your house.
Another important fact about pocket listings is that they always result in dual agency. The term is a misnomer in that dual agency is really no agency at all. In a dual agency relationship, the broker is prohibited from negotiating price or terms for either party. It is risky for consumers to lose their representation when they need it most. However, dual agency translates into a double commission for brokers and much market manipulation occurs to improve the chances of this risky relationship.
On a $400,000 house, a pocket listing could easily amount to an extra $12,000 in brokerage fees. Although it is very profitable for the broker, it is the opposite for the seller. There never will be an economic theory that proclaims that reducing demand will increase the price. It does not work that way in economics and it certainly does not work that way in residential real estate. Reducing market exposure and demand will have four very real impacts on the transaction – 1. It will take longer to the sell the house; 2. It will cause the house to sell for less money; 3. The broker will receive twice as much money in commissions; 4. The broker will have to spend zero dollars in marketing and advertising costs.
Pocket listings also have a very real impact on their communities in that pocket listings sell for less than fair market value and negatively impact house values.