Pocket Listings: Real Estate’s Dark Web

In the 1800’s, real estate agents trying to sell property held physical gatherings, sharing information about real estate in return for commissions and discussing “wants and needs.” Today, real estate professionals desiring to sell property, known as a “listing agent,” utilize an arsenal of tools. A good listing agent will counsel a seller who is willing to listen by: analyzing comparable property prices; realistically pricing the property for sale; developing comprehensive marketing plans; and discussing staging, improving, decluttering, photographing, videoing, and showing the property. In order to attract the most amount of buyers, listing agents typically publicize the property for sale by “listing” it in a Multiple Listing Service (the “MLS”) the official directory for all properties and land for sale. There are over 800 MLS in the US.

Pocket Listings however, also known as whisper or off-market listings, are where the property is marketed for sale but not publicly on the MLS. It may sound counter-intuitive to a seller, but there are pluses and minuses.

Seller Advantages: Test the waters with a “Coming Soon,” without going live on the MLS publicizing how many “days on market” it sat stale. The longer a property sits, the less a buyer will offer, and the more it looks like damaged goods. Help determine a realistic price and avoid being listed too long at an unreasonably high price. Sellers/landlords, may want secrecy and not want tenants or certain competitors to know the property is for sale, or may not want to sell to certain competitors. Seller already has a potential buyer but wants to seek higher bids without losing their potential buyer. The allure and mystique of a prestigious exclusive private sale. Developers who have design renderings but an unfinished project can start to market early. No for sale sign, open houses, or broker tours. If there is only one real estate agent, the commission paid may be slightly lower.

Seller Disadvantages: Only one solo agent trying to sell the property, so more leg-work. Unlikely to generate multiple offers, thus no bidding wars, and less competition. Less visibility, marketing is inefficient word-of-mouth, blasted only to inner circles and internally within the brokerage, and no walk in traffic generated by lawn signs. Good if someone has a buyer right at that moment otherwise, out-of-site-out-of-mind. Implications of fair housing violations and discrimination against minorities. “Coming soon” notices have been criticized for, while not “officially sharing the listing, as conflictingly encouraging a real estate agent to seek a double-sided commission.

Other hiding places: The internet changed the landscape for member only access to MLS and now websites like ThePLSZillowZenlist, and Hidden Listings are examples of places buyers can find off-market houses including For-Sale-By-Owners (phonetically known in the industry as / ‘Fizz-Bows’).

National Association of Realtors. To combat a chronic lack of inventory, encourage consumer fairness, and foster a level playing field, in November, the NAR voted 729-70 to restrict realtors who are members of a MLS, from participating in pocket listings by requiring they be listed on the MLS within one (1) business day of being marketed to the public. New MLS Statement 8.0, NAR Handbook on Multiple Listing Policy reads:

“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. Public marketing includes, but is not limited to, flyers displayed in windows yard signs, digital marketing on public-facing websites, brokerage website displays, digital communications marketing (email blasts), multi-brokerage listing sharing networks, and applications available to the general public.”

The policy becomes effective January 1, 2020 and implementation by each local MLS is required by May 1, 2020 to allow for technology changes and education. NAR’s website also provides answers to questions regarding the new rule’s interpretation and exclusions which are not readily apparent.

Loopholes.   First, the new rule does not apply to commercial properties.  Secondly, on its surface the new rule effectively eliminates pocket listings, but agents are still able to market the property within their brokerage before it comes on the market, which is a big advantage to the big brokerage houses over the boutique firms.  If office exclusive listings are displayed or advertised to the general public, however, those listings must also be submitted to the MLS for cooperation.

Section 1.3 Exempt Listings

If the seller refuses to permit the listing to be disseminated by the service, the participant may then take the listing (office exclusive) and such listing shall be filed with the service but not disseminated to the participants. Filing of the listing should be accompanied by certification signed by the seller that he does not desire the listing to be disseminated by the service.

Seller’s choice. Some believe it should be a seller’s choice on how they want to market their property, and use of the MLS should not be forced upon anyone. It must be selfishly noted that, the NAR has its own self-serving interest to push as many people to use the MLS as possible, in order to increase the network’s value.

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author Randy Gilbert, J.D. is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®