What Is a Pocket Listing?
A pocket listing is a real estate sale offer that is handled by a single broker or salesperson and not made available to multiple listing service (MLS) members or even colleagues in the same office. A pocket listing is an off-market listing or exclusive listing, meaning it is not sold to the general public.
Pocket listings can help sellers who insist on privacy and brokers with extensive connections in the community. Even if no sale is made, a pocket listing helps the seller gauge the home's market value before eventually listing it on an MLS. However, the exclusivity of pocket listings can lead to fewer or lower offers, preventing a bidding war and maximizing the selling price.
Key Takeaways
- A pocket listing is an exclusive, off-market sale of a home or property not listed on a multiple listing service (MLS) for the general public.
- A single real estate agent handles a pocket listing, offering privacy to the buyer and seller.
- A pocket listing creates exclusivity, allowing the seller to concentrate on serious buyers.
- Buyers have fewer competitors with pocket listings, and the seller could receive fewer offers or lower bids.
- A pocket listing helps the seller gauge the property's market value before selling it via an MLS as newly listed versus an unsold property.
How a Pocket Listing Works
When a real estate agent is hired to list and sell a property, a contract is signed between the seller and the agent and the agent's company. Usually, the property is listed in the multiple listing service (MLS), the database of properties for sale that all brokers use. This is done so that real estate agents and brokers can cooperate with other agents and brokers and share a portion of the total commission paid by the seller.
However, with a pocket listing, a property will not be listed in the MLS, and there is no agreement to work with other real estate professionals.
The pocket listing is used mainly by owners of very high-end or unusual properties who want only serious and qualified buyers to show up. The owners may be celebrities or politicians. The list of potential buyers is small, and the agent is well-connected.
At a less lofty level, the owners may choose a pocket listing to test the waters and see what price the property might bring. If no sale is made during the contract term, they can always open it up to an MLS listing.
It's important to note that some types of pocket listings are considered ethically dubious because a single agent is representing both the buyer and the seller. For this reason, some types of pocket listings are banned by the National Association of Realtors (NAR) or restricted by state laws. The sale may be handled by investment brokers rather than real estate brokers.
Advantages and Disadvantages of a Pocket Listing
Pocket listings have pros and cons for the agent and seller.
Pros
Agent gets paid the whole commission
Privacy for both seller and buyer
Seller can test the market to create a selling price before listing on the MLS
Less time on the MLS, making it appear as a new listing versus an older, overpriced property
Cons
Only one agent is trying to sell the property
Fewer offers or low offers
Less chances of multiple offers and a bidding war
No walk-in traffic due to no lawn sign or advertising
Advantages of a Pocket Listing
A pocket listing may offer a considerable advantage to the real estate agent charged with selling the property.
- Agent has exclusive listing: Since the agent has the listing exclusively, they can earn the full commission. The listing agent is under no obligation to share the commission with another broker or agent unless they choose to bring in help in finding a buyer.
- Test the market: A pocket listing can help determine a property's price by testing the market at a higher price. If the offers fall short, the seller can list the home on the MLS.
- Less time on the market via MLS: If the seller changes from a pocket listing to one listed on the MLS, the property will appear as a new listing. This prevents the property from being viewed as being on the market for too long or an older listing at an unreasonably high price.
- Privacy for the buyer and seller: The private listing can help the seller avoid unnecessary foot traffic from unlikely buyers and concentrate on serious prospective buyers. On the other hand, the buyer has less competition.
Disadvantages of a Pocket Listing
Although many advantages exist, below are a few of the disadvantages of pocket listings.
- Lower participation in sales efforts: Fewer people are involved in selling a property when the realtor acts as a solo agent, emphasizing more on the realtor's effectiveness unless they believe interested parties exist or have a buyer lined up already.
- Less marketing or word of mouth: By keeping the sale hush-hush with no listing or lawn sign, the word is unlikely to spread beyond the realtor's contact list, resulting in fewer prospective buyers seeing the property.
- Fewer offers or low offers: A pocket listing might lead to the seller meeting only a few interested buyers, leading to fewer or lower offers. However, this might be advantageous to the buyer.
- No bidding war: Pocket listings reduce the chances of multiple offers and a bidding war over the property, leading to the opportunity cost of selling the property at a below-market price.
Example of a Pocket Listing
Sadie is interested in selling her estate, which is worth a substantial amount of money. Sadie already has a family member, her cousin Nick, who has expressed serious interest in purchasing the home.
Because Sadie already has a buyer lined up, she contacts the real estate agent she has used in the past with an offer of a pocket listing. As a result, the property does not get put on the MLS, making it an exclusive listing.
Why don't Sadie and Nick get together and make the deal? Realtors do more than show property. They also prepare the legally required documents that must accompany a property transaction. Also, even family members need professional assistance in negotiating the details of a property sale.
Why Would I Try to Sell My House Via a Pocket Listing?
If you are a celebrity, a politician, or a wealthy individual with a massive estate, a pocket listing prevents hordes of sightseers from touring your house. Instead, you can hire a real estate agent with a solid list of contacts who can identify the buyers most interested in your property.
Why Would I Not Want to Sell My House Via a Pocket Listing?
Pocket listings are "off-market" listings, meaning there's no lawn sign, no MLS listing, and marketing is done through private channels or word of mouth.
A pocket listing can help very high-end and unusual properties when only a handful of prospective buyers exist. It may also work for people who have already identified a likely buyer or those looking to test the market for their property. If the property fails to sell at the original asking price, the seller can move to an MLS listing at a more realistic price.
Are Pocket Listings Banned?
Pocket listings are legal throughout the U.S. However, the National Association of Realtors (NAR), the trade association, effectively banned pocket listings in 2020 by requiring that all listings be added to the multiple listing service (MLS) within one day of the contract signing.
For this reason, pocket listings may be handled by investment brokers rather than real estate agents. Pocket listings can look dubious because only one person is representing both the buyer and the seller. They may invite discriminatory practices by limiting knowledge of the listing.
The Bottom Line
Typically, a single broker or agent handles a pocket listing, offering privacy to the buyer and seller. A pocket listing creates exclusivity, preventing too many from walking through to view the home and concentrating on serious buyers.
However, since the buyer has fewer competitors, the seller might receive fewer offers or lower bids. Even if no sale is made via a pocket listing, the seller has gauged the market demand at a particular selling price. The seller can then list on an MLS, where it appears as a newly marketed home versus an older, unsold listing.
