At first glance, the term pocket listing sounds a bit obscure. Is it a sales technique? A fashion trend? A type of sports trade? In fact, it’s a real estate term. When a homeowner wants to sell their home discreetly, they may avoid publicly listing the property, and instead inform only a handful of people.
There are many reasons why you might want to create a pocket listing. Maybe you’re a celebrity, or maybe you were a victim of domestic abuse and prefer not to make your move public information.
On the other hand, pocket listings come with their own unique quirks and issues. If you’re going to sell your home via a pocket listing – or buy a pocket-listed property – you need to have an understanding of the process.
Here, we’ll discuss how a pocket listing works, the costs and benefits, and how to buy or sell on this exclusive market. Let’s take a closer look at pocket listings, and how they fit into the broader real estate landscape.
What Is A Pocket Listing?
Ordinary real estate listings are posted on the Multiple Listing Service (MLS). The MLS is a set of networked databases used by real estate agents to coordinate sales. When a property is listed on the MLS, it’s visible to real estate agents throughout the country. These agents are then free to evaluate the property, and present it to their clients.
A pocket listing is any for-sale property that’s not listed on the MLS. Instead, it can be marketed via word of mouth, listed on a private network, or only listed at a specific real estate agency. This allows the seller to limit who can see the property, and only entertain offers from certain individuals.
The term “pocket listing” is just a metaphor – it’s as if the seller’s agent is holding the property in their pocket. Other common terms include “off-MLS” and “off-market” listing.
How Do Pocket Listings Work?
For a standard real estate sale, the process is fairly straightforward. The seller contacts a real estate agent, and they sign a written agreement to list the property for sale. Typically, this property is then listed in the MLS, which all real estate agents use throughout the country. This benefits both the seller and the buyer. The seller is able to get their property in front of as many people as possible, which can help to sell at a higher price. Buyers are able to view as many properties as possible, so they can find the best choice.
On the other hand, a pocket listing is not listed in the MLS, and this has implications for the written agreement with the real estate agent. Because the property is unlisted, there’s no obligation to work with other agents. Instead, the same agent or agency will typically handle the entire transaction.
Example Of A Pocket Listing
Emily has just inherited an estate from her late father. It’s an expensive property, and she needs to sell it to pay the inheritance tax. At the same time, Emily wants her dad’s estate to stay in the family. Her cousin Dave is very well-to-do, and has inquired about buying the estate.
Because Emily has already decided on a buyer, she has no need to list the property. Instead, she reaches out to her friend, who is a real estate agent, and asks to make a pocket listing. Instead of listing the property on the MLS, the realtor instead reaches out to Dave directly, and Emily and Dave negotiate the sale.
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Why Sellers Use Pocket Listings
So, why would a seller make a pocket listing, rather than list their property on the MLS? There are a number of possible reasons, including:
You’re selling to a friend or family member
You don’t want to deal with bidding wars
You’re just testing the waters, and aren’t actually ready to sell
You’re a public figure, and don’t want people to know where you live
You are a victim of domestic abuse, and want your location to stay private
You want to market the home to a more exclusive audience
You don’t want to list price reductions on the MLS
You want to negotiate a reduced commission with your real estate agent, since they won’t have to spend as much effort selling the property
Except for some edge cases, this really comes down to two things: you either want to market your home to a limited audience, or you don’t want information about the sale to become public knowledge.
Why Do Buyers Use Pocket Listings?
As a buyer, a pocket listing presents a unique opportunity. You’re able to get a jump on the market, and make an offer before anyone else even knows the property is available. In theory, this can help you get a better price than you would on the open market, especially if the seller is in a hurry to sell.
Then again, keep in mind that you’re working with the seller’s agent, not your own. Because you don’t have your own agent, you’re negotiating directly with that agent, and their job is to get the highest possible price from potential buyers.
In other words, you’re not likely to get a better price than you would on the open market. However, you can buy a new home faster. You don’t have to deal with multiple showings or get caught in a bidding war. If you’re trying to buy an exclusive property in a hurry, buying a pocket listing is a great option.
How Pocket Listings Affect The Real Estate Market
Pocket listings don’t exist in a vacuum. They’re part of a broader real estate market, and they have a real impact on that market. Unfortunately, that impact isn’t always positive. While these types of listings can be useful to certain buyers and sellers, they can create problems for people who are buying and selling on the open market.
For one thing, because the listing prices aren’t public, it can be tough for Realtors to determine home values in a given area. Home values can become skewed across an entire neighborhood without any comparable properties (“comps”) to use as a baseline.
Another potential issue is legal compliance. Federal housing laws require homes to be available regardless of race, religion, and other protected classes. Without making a public listing, a real estate agent risks running afoul of the law – even by accident. This isn’t an issue if you’re selling to a friend or relative, but it can be problematic for other types of pocket listings.
Advantages Of Pocket Listings
Pocket listings can be beneficial for sellers, buyers, and real estate agents. For sellers, you get the benefit of privacy and relative anonymity. You also get the opportunity to test the waters. By collecting a few private offers, you get a good idea of your home’s open market value without having to list it on the MLS first.
For buyers, you get access to properties you might not otherwise be able to purchase. You can also make an offer before other buyers, avoid a bidding war, and close the deal sooner.
From the agent’s perspective, there are a couple of benefits. To begin with, the sale is relatively easy. You don’t have to do all kinds of promotional activity, or go through dozens of showings. But there’s also the matter of commission. In a traditional real estate transaction, the seller’s agent and the buyer’s agent each take a commission. In a pocket listing, the same agent is able to collect both commissions.
Disadvantages Of Pocket Listings
With all of that being said, there are some distinct disadvantages to pocket listings. For the agent, there’s an element of risk. There’s not a lot of effort involved if you have ready buyers. But if you don’t, you have to quietly scope out prospective buyers, or work with another agent to see if they have any buyers. Otherwise, you’ll have a hard time selling the property.
As a seller, you run the same risk. Unless you’ve already lined up a potential buyer, you might have to wait a while for your agent to find one.
As a buyer, you don’t get information on past listing prices, as you would with an MLS-listed property. This means that if you’re not careful, you could end up overpaying.
Pocket Listing Restrictions
Whether or not you can make a pocket listing will depend largely on what kind of real estate agent you’re dealing with. In 2020, the National Association of Realtors (NAR), established a rule that any property must be listed on the MLS within one business day of it going on the market. This is part of their Clear Cooperation policy, which is designed to make real estate transactions more efficient and transparent.
Real estate agents who are members of the NAR are known as Realtors, and make up a large percentage of agents. So if you’re dealing with a realtor, you won’t be able to make a pocket sale. In fact, the Realtor could be fined, or even kicked out of the NAR, for participating in a pocket sale.
How To Find Pocket Listings
So, how do you find pocket listings as you’re a buyer? Here are a few simple steps:
Work With A Real Estate Agent
Contact Homeowners Directly
Find Real Estate Auctions
1. Work With A Real Estate Agent
The first thing you need to do is reach out to a real estate agent who is not a realtor. Then, you can simply inquire about any pocket listings. There’s no guarantee that a property will be available, or at least available to you. But it’s worth a shot.
Your other option is to go to a Realtor and inquire about office exclusive listings. These are exceptions to the NAR’s Clear Cooperation policy, where a property is listed only within a specific office. If you already know the general area where you want to buy, an office exclusive can be the perfect solution.
2. Search Online
Another way to find a pocket listing is to look for private sales. Look on websites like Craigslist, or even in your local newspaper. Many sellers these days aren’t using an agent, and are looking to deal one-on-one. Oftentimes, the process will be more efficient than buying through a traditional agent. That said, you’ll still want to have an agent or lawyer look over any documents before you sign them.
3. Contact Homeowners Directly
If you already know where you want to buy, why not go directly to the homeowners? It’s probably not wise to knock on people’s doors asking to buy their house. But it’s easy enough to send out a mailer, or put a note on a public bulletin board or social media group.
4. Find Real Estate Auctions
Real estate auctions are another alternative channel where homes won’t appear on the MLS. A real estate agent can help you find them, or you can simply inquire with your local government.
Be aware that there are some issues with this method. You won’t be able to view the house or have it inspected before you buy. You also won’t be able to take out a mortgage, so you’ll have to pay cash.
Pocket listings, by their very nature, can be difficult to find. But there’s an old saying that if three people involved in a secret, it’s not a secret. So put out some feelers! Maybe someone has a friend who is making a pocket listing, or maybe your contractor knows a prospective seller. You never know how you might find your new future home.
Pocket listings have their own advantages and disadvantages. For sellers, they present a discreet way to sell your home. For buyers, they’re a way to close a deal quickly, without the hassle of dealing with a bidding war. By networking, shopping around, and working with the right agent, you can complete your pocket listing transaction quickly and painlessly.
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