What is a pocket listing? “Pocket Listing” is the colloquial term for any active listing that is not entered into the Multiple Listing Service (MLS). In Austin, Texas, it’s called Austin Central Texas Realty Information Service (ACTRIS). The listing agent markets the property directly to the public circumventing the MLS and keeps the listing “in his or her pocket.” Pocket listings have become a highly controversial topic as competition for homes become more heated and Austin housing inventory reaches historic lows.
Whose Interests are Best Served with Pocket Listings?
The MLS was created to provide the most thorough exposure to the largest segment of the public of the seller’s desire to sell a particular property. Exposure to the broadest number of potential buyers is one of the main reasons sellers hire a Realtor to help them sell their home. The MLS has proven to be the most efficient and effective marketing vehicle for residential real estate. Why would serious sellers, fully informed, elect to limit public knowledge that their home is offered for sale? Why would a seller choose to offer the property to a self-selected collection of buyers known only to the listing broker? In Austin’s vibrant resale market, why would a seller want to limit exposure when competition usually produces the highest sales price possible? Would you want to miss an out-of-town buyer with an urgent need to settle and get started in their new job? A buyer who is willing to pay top dollar for your home?
Pocket Listings are Good for Real Estate Agents Only
So who does this practice best serve you ask? Based upon the evidence, most people would say that it is the real estate agent who lists the home because the agent can potentially double the commission collected. Hence the term “double dipping.” Twice as much commission, fewer hours and less work can be a heady prospect for the cash-strapped or greedy agent.
What are the Risks of Pocket Listings for a Seller?
It’s not illegal for a seller to choose not to place their home on the MLS, but they have an affirmative duty to explain the risks. Disclosure should include issues such as:
- Limiting exposure may reduce the number of offers generated
- Limiting exposure may not generate the highest price possible
- Tightly constrained representation duties of a facilitator
- In-house sales commission distribution
Are Pocket Listings Ethical?
Brokers recognize that pocket listings are fraught with potential liability and, as a practical matter, are not in the best interests of the client or the public at large. REALTORS subscribe to a Code of Ethics that requires the client’s best interests are served above all others, including their own. For that reason alone, most ethical brokers will take every reasonable step to discourage pocket listings. Should for some reason, an intra-family listing or undaunted homeowner insist on a pocket listing, written disclosures and MLS exclusion forms are executed to memorialize the disclosure and risks.
Pocket Listings are Bait for Buyers
Probably about 25% of buyers we interview ask about “secret listings”. They’ve read on the internet about agents and offices that claim to have “secret listings” and they are afraid that if they don’t work with this special group of agents, they won’t find a house. We see this type of advertising most often with agents that work in a specific, competitive, geographic area with very little inventory. 99% of the time, this type of advertising is a tactic for agents who don’t know how to attract buyer clients any other way. They use fear to capitalize on a buyer’s emotions. They tell buyers these secret properties have little or no competition and they will only realize their dream of owning a home in the area if they work with them. These agents don’t actually know of any “secret properties” and these buyers end up competing with the same buyers they would have otherwise with the same group of houses.
Pocket Listings – Thinking it Through
Let’s say for example sake, one of these agents did find a seller who they enticed with a similar story – a secret group of buyers – and they got them to agree to a pocket listing. By only telling the seller half the story and promising them secret buyers no one else knows about but them, they are essentially selling them out to make double the commission for ⅛ the work. If an agent is willing to take dollars out of the sellers pocket to put more money into their pocket, imagine what they tell the seller about this group of “secret buyers”. I am sure the conversation with the seller goes something like this “we have a group of suckers that will pay more than their property is worth – all you have to do is list your home with us.” Is that the type of agent you want representing you?
What is the Best Practice for Buyers and Sellers?
Buyers and sellers should be represented by their own, exclusive agent. Agents are hired to protect and promote their client’s best interests above all interests, including their own. Don’t tie their hands and prevent them from doing the best job possible or let them take money out of your pocket and put it in their pocket. Be an informed consumer, question everything that doesn’t make sense and realize that if it sounds too good to be true, it probably is.
Buying or Selling a Home in Austin?
Are you considering buying or selling a home in Austin? Looking for a Realtor who will tell you the truth about the market and help you keep as many dollars in your pocket as possible without any games? Check out our Austin Home Buyer and Austin Home Seller page for more about who we are and how we work. Ready to interview agents? Call us at (512) 827-8323, email us at info@11OaksRealty.com or visit our Buyer Survey or Seller Survey to get started.