Why pocket listings harm buyers, sellers and agents

As competition has soared in recent years for California’s low inventory of homes for sale, the share of pocket listings has grown. Pocket listings are shared only with the seller’s agent’s chosen network, making them exclusive. In San Francisco, the share of homes sold this way increased 68% from 2010 to 2018, according to Redfin.

The lucky homebuyers who learn about a pocket listing strike gold, as they end up dealing with less or even no competition. Sellers can feel like they’re getting a better deal, too, because they do fewer showings. Agents with ties to exclusive listings gain a reputation for being well-connected, able to show their clients homes not yet available on the multiple listing service (MLS). Even better, pocket listings often give seller’s agents the opportunity to earn a double fee by representing both seller and buyer.

But are pocket listings really such a great deal?

Here are the serious drawbacks to pocket listings:

  • for sellers, their listing gets fewer views, meaning their home is more likely to sell for a lower price, with less favorable terms than if they had opened it up to all buyers;
  • for buyers, the majority of pocket listings are not available to them, resulting in a lower MLS inventory; and
  • for agents, their pocket listing is likely to sell for less, resulting in a lower fee — unless they manage to snag an unrepresented homebuyer, in which case they demand a double fee — but this is problematic on several levels.

While pocket listings may seem desirable to agents due to the possibility to generate a second fee and a quicker sale, these agents are in danger of breaking the cardinal rule: putting their individual interests above their client’s best interests. This stems from the issue of dual agency, when a broker represents opposing principals in the same transaction.

Why is dual agency problematic? Though a dual agent needs to work diligently on behalf of both clients, they are prevented from fully negotiating on behalf of either client, unable to simultaneously negotiate the highest and best price for the seller, and the lowest and best price for the buyer.

Further, homebuyers of color are disproportionately affected by pocket listings, according to Redfin, the California Association of Realtors and a 2017 study on pocket listings. The majority of pocket listings are available to White networks and buyers of color aren’t alerted to these pre-market homes. This drives down buying opportunities for people of color, furthering the homeownership gap between ethnicities.

Something of a compromise is the official “coming soon” listing, which leaves open the benefits of a pocket listing for sellers and their agents, while making the listing available to homebuyers on the MLS.

The National Association of Realtors (NAR) recently directed its members to refrain from pocket listings. Further, “coming soon” listings can be listed no earlier than one day before the full listing goes live. These changes will need to be implemented by NAR’s 800+ MLS’s by May 1, 2020.

Story provided by Carrie B. Reyes

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I work professionally as a REALTOR® in the Carson Valley area. I also serve the South and East Shores of Lake Tahoe. I love hiking and mountain biking in my spare time. I also love helping people in the real estate market. I am dependable, ethical and responsible. I have been in the real estate business since 1996.