Pocket listings truly are one of the most fascinating anthropological developments in recent real estate culture. Sure, other iterations of the phenomenon existed well before the term pocket listing entered the vernacular. But with the new term comes all sorts of associated meanings and implications.
Pocket listings work by manufacturing a sense of exclusivity. The presumption is that the listing must be something special. Something so grand, such a unique opportunity that only a fool would place it in front of the masses on the multiple listing service (MLS). No, the rabble likely couldn’t afford it anyway, and you, dear client with this exclusive offering, you are special and unique in kind. You are the only one worthy of even considering such a rare, virginal beauty to take as your own.
If your B.S. meter hasn’t gone off yet, than you might be fit for a pocket listing.
In fact, it appears that many in today’s real estate market are using the alternative method for buying and selling real estate. Some Northern California markets saw a double digit increase in pocket listings from 2012 to Q1 2013. The total number of homes sold without being listed in the MLS jumped from just 15% in 2012 to 26% in 2013, according to MLSlistings Inc.
Real estate data firm CoreLogic recently conducted a survey of four unidentified U.S. counties. 266,804 homes changed hands in 2013, but only 174,762, or 66%, of those homes appeared on the MLS.
But is a pocket listing a breach of the seller’s agent’s fiduciary duty to the seller? The seller’s agent owes the seller a duty of care to make the best possible effort and attain the highest possible price for their property. A pocket listing immediately denies access to the largest audience of prospective buyers. In fact, it becomes impossible for a seller’s agent to justify they have met their duty of care when using a pocket listing since they failed to open the property to as many potential buyers as possible. [Calif. Civil Code § 2079.16]
Any buyer’s agent who represents a client in a deal for a pocket listing is likewise on shaky ethical ground. How is a buyer’s agent able to argue they fought for the best possible sales price when the property presents itself as an exception to the comparable properties for sale on the MLS? By virtue of keeping the property off the MLS, both seller’s agent’s and buyer’s agents are operating in a sales environment cloaked in secrecy. And secrecy between client and fiduciary runs directly counter to the agents’ duty for full disclosure and fair dealing with all parties involved.
To be clear, first tuesday has never been an advocate of the status quo in the real estate market. There are many downsides to blindly listing your properties on the MLS, becoming beholden to the web of bureaucratic ego satisfaction that comes along with playing by the local MLS’s rules. And some form of exclusive listing may be permissible if the aforementioned pricing and advertising factors are fully disclosed (discussed) with all parties involved. This often the case among professionals brokering deals among one another.
Unfortunately, these backdoor deals are too often quietly shopped around to average end-user buyers, who may not have the expertise to understand the competitive advantage they lack in such a situation.