What Is A Pocket Listing? The (Ultimate) Guide | Real Estate SkillsAug 13, 2020
Pocket listings are one of the unique and controversial methods of buying and selling real estate.
The “pocket” side of the term is metaphorical. It is essentially a listing represented by a real estate agent who is exclusively selling a property without advertising it to the general public.
Thus, they are said to be keeping the property in their pocket to maintain privacy and sell only to a limited buyer pool.
The National Association of Realtors (NAR) found that up to 30% of all listings are believed to be pocket listings in some real estate markets.
This method of selling keeps properties very low-profile, which may be a preferred method of buying and selling for some. For others, they are perceived as a disservice to the real estate market as a whole.
If you're eager to learn all about pocket listings and how to benefit from them in your business, then look no further.
Read on and enjoy What Is A Pocket Listing? The Ultimate Guide! (Use the menu below to jump to the section of your choice:)
- 1. What Is A Pocket Listing?
- 2. What Is A Hip Pocket Listing?
- 3. How Does A Pocket Listing Work?
- 4. What To Consider When Buying A Pocket Listing?
- 5. What Are Some Pocket Listing Websites?
- 6. How To Find Pocket Listings Near Me?
- 7. What Is A Pocket Listing Agreement?
- 8. Is There A Pocket Listing Ban?
- 9. What Is The MLS Pocket Listing Policy?
- 10. What Is The Difference Between A Pocket Listing Vs. MLS?
- 11. How To Market A Pocket Listing?
- 12. What Are Pocket Listing Commissions?
- 13. How To Handle A Pocket Listing?
- 14. What Are Pocket Listing Ethics?
- 15. Is There A Pocket Listing Movie?
What Is A Pocket Listing?
In real estate, a pocket listing is a property for sale by a broker that has been not entered into the multiple listing service (MLS).
Homebuyers won’t find pocket listings on any type of listing website or even through a simple for sale sign in the front yard of a house.
Rather, only the real estate listing agent hired by the property owner is able to disclose the property for sale to potential buyers through their own limited efforts.
They do so by keeping the house for sale in their metaphorical “pocket” and only share it with select parties and agents that they trust will point them in the right direction of finding interested buyers.
Whether the seller is trying to pay a reduced commission fee, maintain privacy and exclusivity, or sell to specific individuals, there are certain homeowners who prefer going this route.
After all, there is a reason this discreet way of selling a home exists, consisting of just under 10% of the national total amount of real estate listings. In some markets like Northern California, pocket listings account for as high as 30% of all listings.
Real estate brokers favor these listings because they're often able to secure both the buying and selling sides of the commissions. This prevents most "outside" agents and buyers from ever seeing these properties.
Pocket listings are under heavy scrutiny as of late, since their benefits largely favor the brokers who have them.
What Is A Hip Pocket Listing?
A hip pocket listing is simply another word for a pocket listing. The “hip” could be a reference to the metaphorical pocket that the term derives from.
However, there are many existing expressions used to refer to a pocket listing. Here are several related terms you may come across dealing with pocket listings:
- Hip pocket listings
- Quiet listings
- Off-market listings
- Exclusive listings
- Office exclusives
- Private listings
- Off-MLS listings
- Whisper Listing
- Coming soon properties/listings
So, whatever you want to call them, these names all share the same meaning of undisclosed homes for sale that by a broker are not listed in the MLS database.
How Does A Pocket Listing Work?
These are the key elements for pocket listings and how they work:
- Pocket listings happen when sellers elect to omit their listing from the MLS and public advertising.
- Sellers of pocket listings are usually looking for privacy and/or are selling to someone specific. Celebrities and high net worth individuals may fall into this category.
- Only one agent handles the listing, with limited to no collaboration from others.
- The property being sold has very low visibility since they are unlisted on the MLS.
Pocket listings function differently than traditional listings. Let's recap how regular real estate listings work.
Let’s say you want to sell your home and you hire a real estate agent to list your property. The agent will create a listing agreement between the parties - typically an "Exclusive Right To Sell" or an "Exclusive Agency" contract.
The home is then listed on the MLS and publicly advertised by every means available to that agent to generate interested buyers and ideally, multiple offers.
On the other hand, pocket listings work in a different manner.
The main distinction is that these properties are not listed on the local MLS database. Even though an agent has been commissioned to sell the property, the seller chooses not to submit the listing to the MLS or advertise it publicly, essentially keeping it "off-market."
Now, from a real estate agent’s perspective, pocket listings are very favorable towards them. Since they are put up to the task of selling the property, they are in control of the listing and how the sales commission is allocated.
The listing agent is only obligated to share a portion of the commission if they decide to work with another agent or broker to help them in finding a buyer, discretely of course.
In many cases, agents with pocket listings have a preferred buyers list or will work with agents in their own brokerage office to get the deal done. This allows them to earn both sides of the commission, putting more money in their own pockets and the pockets of their associates.
This video covers how pocket listings work in New York City:
What To Consider When Buying A Pocket Listing?
Buying a home could be one of the biggest investments an individual makes throughout their entire life. For real estate investors, closing on a house is simply business as usual.
In either case, pocket listings pose an interesting situation for homebuyers at all levels.
Here are 4 questions a real estate investor should consider when buying a pocket listing:
#1.) Who Pays The Buyers Agent's Commission?
Many buyers work under an agreement between themselves and a real estate agent, who earns a commission when they find and close on a suitable property.
You should find out if the commission offered to the buyer's agent on a pocket listing, if any, will fully compensate the buyer's agent. If it doesn’t, then who will be responsible for covering this deficit owed to the buyer's agent?
If not the seller, then the buyer will most likely be on the hook to pony up.
#2.) Is The Price Accurate?
Homes for sale as a pocket listing may be overpriced from time to time. Other times the price could present a great deal.
It is up to the home buyer to research to establish a fair market value for the home. This usually involves consulting with an agent to find real estate comps to determine a fair sales price for the home.
It's a matter of finding and analyzing data about comparable properties sold in the same neighborhood.
#3.) Who Represents The Buyer’s Interests?
To some buyers, the fact that the home is unattainable via MLS websites or other means of finding houses may already seem mysterious enough. Many times the seller's agent will want to represent the buyer's offer on the house to "double-end" the deal and earn more commission.
If the home seller’s agent is representing your offer on a pocket listing, be careful they are not manipulating conditions of the sale such as time frames, important contract contingencies, and due diligence. In this case, it is the buyer’s responsibility to figure out what types of stipulations are going into the offer contract.
As the old saying goes, caveat emptor (Latin for "Let the buyer beware")!
#4.) Can The Buyer Negotiate Successfully?
As stated earlier, buying a home can be a huge decision for an individual to make. Therefore, buyers should try to remove emotion from the transaction and focus on rational thinking.
Working with a homeowner or their agent directly could put a lot of pressure on buyers, which can interfere with their ability to negotiate from a position of strength.
The seller has something the buyer wants which is why they are initiating a potential deal with the homeowner. With low mortgage rates and limited inventory, it may be tempting to pay a higher price for a deal. As a buyer, it's important to stay strong, focused, and refrain from getting too emotionally invested in one particular deal.
What Are Some Pocket Listing Websites?
Since these listings fly under the radar, pocket listing networks have emerged as a way for buyers to look them up online as opposed to hearing about them through the Multiple Listing Service, public ads, or listing aggregators, like Zillow and Redfin.
The following are 3 websites that can be used to find pocket listings near you:
PocketDeed allows brokers to submit pocket listings to be advertised to their network of registered buyers. Buyers on this site can search for private listings across commercial and residential property types.
DRG Pocket Listings is a website used to buy and sell pocket listings in Minneapolis, Minnesota. Although it is based in one state, the city’s real estate market is growing rapidly, making DRG the most recognized pocket listing service in urban Minneapolis.
HomeQT is a lesser-known, paid subscription website that is used as an intermediary between the buyer and the home seller. It provides users with a pocket listing matchmaker that is meant to discreetly connect buyers and sellers for off-market transactions.
How To Find Pocket Listings Near Me?
- Networking and Word Of Mouth
- Online Pocket Listing Websites
- Broker Office Exclusives
Networking and Word of Mouth
From the buyer’s side, one option is through word of mouth by consulting with real estate brokers who are regularly involved with pocket listings.
In this case, the most important part of getting in with any type of real estate professional is being a part of their network. This is where attending conferences, utilizing social media, and engaging with your local real estate community will really pay off.
Sellers and real estate agents are very selective in terms of finding a buyer for their pocket listings, so maintaining good relationships with fellow real estate professionals may go a long way.
Make sure to let agents know that you would like them to represent your offer on any pocket listings they have.
Online Pocket Listing Websites
Another method, of course, is to use the pocket listing websites listed in the previous section to search within your desired area.
For example, let’s say you are an individual looking to buy a pocket listing in a particular city. As the buyer, you would need to search “[Your City]” as the location in which you would like to purchase a property.
DRG Pocket Listings is specifically for the real estate market in Minneapolis, Minnesota, while HomeQT and PocketDeed are available to users nationwide.
The amount of listings regularly available on any of these websites is questionable, and whether any of them will match your buying criteria is unknown. Though, it doesn't hurt to check.
Broker Office Exclusives
In every market, there are brokerages that have an abundance of pocket listings or "broker exclusives". For better or for worse, these brokerages are able to encourage sellers to go this route by emphasizing the benefits of keeping the listing "in house."
As real estate investors, we may be able to sign an exclusive buyers representation agreement, which commits us to submit offers through that broker (or one of their agents) on any of their in-house listings.
In exchange for that commitment, we get access to these "office exclusive listings" before they are made available to the public. Brokers do this because they secure both sides of the commission, although they'll take the stance that it is in the best interest of their client.
Can you see why this is a controversial topic?
What Is A Pocket Listing Agreement?
A pocket listing agreement is essentially the same contract as the common "Exclusive Right To Sell" or "Exclusive Agency" listing agreement, except that the seller elects to withhold the home listing from being submitted to the MLS.
The timeframe that the property is excluded from the MLS may be a specified number of days or last throughout the duration of the listing agreement.
Sellers may choose a pocket listing agreement for the following reasons:
- The property is being repaired and staged, but the seller will entertain offers before it's ready
- The seller doesn't want to make the property available to the general public
- The owner doesn't want to host tours of the home
- The client wants to test the market price before officially going live on the MLS
It works on the premise of exclusivity, as the homeowner may end up having the property shown to only a limited number of interested parties within their agent's own network. Real estate agents and the general public in the market aren't notified of the listing through the MLS and on listing websites.
Listing agents are utilized within a pocket listing agreement, however, they are not required to offer compensation to a cooperating broker for procuring a buyer. This gives the broker more flexibility with the commission, which usually ends up entirely in their own pockets.
Is There A Pocket Listing Ban?
Yes, the National Association of Realtors (NAR) board of directors voted to ban the controversial practice of pocket listings on November 11, 2019.
The questionable practice was banned through a 729-70 vote. While certain aspects of pocket listings are still intact, the NAR policy states, “within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants.”
Known as the "Clear Cooperation Policy," the change became effective on January 1, 2020. However, the National Association of Realtors waited until May 1 to implement it in order to provide time for the nation’s 800 plus multiple listing service (MLS) systems to adapt.
This action mainly affected competitive real estate markets such as San Francisco, New York, and Los Angeles. In San Francisco alone, the shares from home selling via pocket listings had increased by 68% from 2010 to 2018!
In a nutshell, pocket listings are banned as they once were. Though, if a seller refuses to have their property submitted to the MLS, as long as agents do not advertise listings to the public or other brokerages, they are still allowed to keep their listings as "office exclusives."
What Is The MLS Pocket Listing Policy?
The MLS pocket listing policy, or NAR pocket listing policy, interchangeably refers to the new MLS Clear Cooperation Policy adopted by the National Association of Realtors (NAR).
According to the Clear Cooperation Policy, a broker must submit a listing to the MLS within one day from marketing the property to the general public, including:
- Yard Signs
- Email Blasts
- Pocket Listing Facebook Groups
- Digital Marketing on Public Facing Websites
- Multi-Brokerage Listing Sharing Networks
- Brokerage Website Displays (IDX and VOW)
- Any Application Available to the General Public
This change is meant to promote equal access to information and opportunity. Pocket listings have historically resulted in discriminatory practices.
Prior to this ban, many brokerages thrived from this lucrative model since exclusivity was the currency of many top brokers. They entice clients to work with them because they have listings that nobody else has.
They'd market and sell these properties within their own privileged networks, preventing the majority of buyers and agents from having a shot at offering on these deals. Unfortunately, many of these "outside" buyers are members of minorities who are left with fewer housing opportunities.
While this has outraged many in the industry and may seem like a complete ban against pocket listings, there is a loophole for those brokerages to market exclusive listings within their own offices.
Since these changes are recent, check with your regional MLS for the latest on the adoption of these national policies.
What Is The Difference Between A Pocket Listing Vs. MLS?
There is a big difference between selling your home through the multiple listing service (MLS) and pocket listings.
As you know by now, pocket listing homes are not listed on the MLS, thus they will not gain maximum exposure. As a result, they may not sell for top dollar.
With that said, here are the key differences between a pocket listing vs MLS:
- Private network marketing
- The seller or agent may have buyers lined up
- Privacy is maintained during the sales process
- The market is very limited, often a better fit for luxury homes
- No public advertising means less exposure
- Minimal chance of bidding wars
- Less competition means not getting the best price for your home
On the other hand:
- Public listing network
- The market of buyers and sellers is large
- More common for median-priced houses
- The easiest and most efficient way of sharing your property
- Gains exposure through MLS aggregator sites like Trulia and Redfin
- Finding a buyer isn’t as difficult
This 4-minute video explains more about the MLS:
How To Market A Pocket Listing?
There are many creative ideas that can be implemented when conducting real estate marketing. Some ideas may require the home seller to have a database or a hefty marketing budget.
Since you are selling your house privately as a pocket listing, however, finding potential buyers must be done on your own. Naturally, this will push you to do more marketing.
Accordingly, here are 4 ideas for marketing a pocket listing:
#1.) Email Marketing
You must have an email database of potential buyers who are searching to buy in your area. It is also possible to ask your client if they have any business contacts or acquaintances who you can email the listing details to.
The bottom line is to contact as many people as you can and connect with all the individuals who are interested in moving to your area.
Under the new NAR pocket listing policy, email blasts are considered marketing to the public so be sure you have a pre-existing relationship with people on your email list.
#2.) Direct Mail
This method consists of delivering tangible marketing items such as flyers to individual mail carrier routes. Sequentially, it will help you target people around your listing which will lead to the word being spread to other individuals within your target audience.
Direct mail results in a great way to gain leverage on your pocket listing since it reaches out to numerous individuals.
In addition, here is a quick 3-minute video about the benefits of using direct mail:
#3.) Local Magazines
Creating an ad in a local magazine works perfectly for attracting leads and keeping it exclusive to the area of your property.
Since it is very common for affluent individuals to sell their home as a pocket listing, it may be a good idea to negotiate for an advertisement in a high-end magazine company.
While you may not post the pocket listings specifics, if you position your ad creatively, you are bound to get some interest.
#4.) Contact Local Human Relations Directors
Finally, this last idea is an old-fashioned way of getting your pocket listing out there.
Contacting local HR directors at large companies, hospitals, or a public university. They may know of employees who are transferring into the area.
By creating a relationship with the HR director, you may be able to have them relay your exclusive listing to a handful of people who are searching for homes in your area.
The key takeaway amongst these methods of marketing a pocket listing is the concept of spreading information from one source to another.
Whether it’s through word of mouth or advertising your services via a magazine, successful, yet discrete marketing might produce exceptional results for your client's pocket listing.
What Are Pocket Listing Commissions?
A pocket listing commission is a fee paid to a real estate broker when a home is sold through a real estate salesperson as an off-market listing.
In general, homeowners may be able to negotiate a lower commission owed to their listing agent if the home is sold off-market since they won't be holding open houses, fielding calls, and dealing with the general public.
As we discussed, many times pocket listing commissions end up going to the listing agent in entirety. However, if the listing agent sells the property to a buyer that another agent sourced, they should offer a commission split with that selling agent.
The most important factor to keep in mind is that real estate agents are to communicate the commission structure with their clients. This will ensure that all practices within the transaction are done legally.
How To Handle A Pocket Listing?
According to the National Association of Realtors, there is a code of ethics specifically for legally handling pocket listings most appropriately.
One of the rules states that selling a pocket listing must promote and protect the best interest of the client. As a real estate agent or broker, you must be careful when keeping listings off the MLS for reasons that are not in the best interest of the client.
Another rule claims that it is acceptable to cooperate with other real estate brokers unless cooperation is not in the client’s best interest.
For example, when recommending a property to a client, one must ensure that they fully discuss the pros and cons of listing the property through the MLS. The same goes for any type of listing, and pocket listings are no stranger to this.
Overall, the main concern is to conduct business ethically and lookout for the best interest of potential buyers.
What Are Pocket Listing Ethics?
In most business practices, the individuals within a certain deal are to follow policies, avoid controversial subjects, and generally be as ethical as possible.
Pocket listing ethics are no different, however, some may refer to this practice as ethically ambiguous and sometimes even controversial.
The ethics within pocket listings mainly target real estate agents. Through this practice, agents and their brokerage often find themselves benefiting from huge financial success.
Why is that?
Well, to start, real estate agents can utilize pocket listings to gain a competitive edge. Some agents may even find an opportunity for a higher commission split with their brokerage. Practices like these are unethical and lead to the detriment of their sellers.
At the end of the day, pocket listing ethics consist mainly of the real estate agent acting upon the best interest of their client.
They may do so by thoroughly discussing the pros and cons of pocket listings with their client and by overall developing and maintaining a high level of trust towards the general public.
Real estate professionals should abide by the ethical practices of pocket listings to maintain a solid reputation as well as to avoid lawsuits.
Is There A Pocket Listing Movie?
Yes, “Pocket Listing” is an American black comedy crime thriller film directed by Conor Allyn and released in 2016.
As the title suggests, it is based around a former real estate broker in Los Angeles who is given a commission to discretely sell the main protagonist’s property in Malibu.
Though the Pocket Listing Movie is still on our watchlist, we do get a kick out of its tagline: "In Los Angeles, A Hot Property Is A Killer Deal."
Final Thoughts On Pocket Listings
All in all, pocket listings are truly a unique way of either buying or selling real estate, though they aren't meant for everyone.
While this method is often justified as a means of home buying and selling amongst celebrities and rich people trying to maintain privacy, brokers have taken advantage of the exclusive nature of keeping listings in their pockets.
While many pocket listings are luxury properties sold at very high price points, most are average-priced homes that never make it to the general marketplace.
For this reason, the restrictions around pocket listings will encourage a level-playing field and inclusion for buyers at all levels. Since it's a continuously changing landscape, we will certainly be paying attention to how this situation shakes out over time.
With the many ups and downs associated with pocket listings, we hope everything listed in this Ultimate Guide will help you discover if they are right for you.
Thank you for reading!