By now pocket listings are a concept most real estate professionals are familiar with, and in some circles they have become something of a dirty word. Low inventory has created a surge in pocket listings, especially in markets such as Northern California, where as much as 30 percent of all listings are believed to be pocket listings.
A pocket listing, off-MLS, or “office exclusive” listing as it is sometimes called, generally refers to a listing in which an agent has a listing agreement and the seller does not authorize the placement of the listing on the MLS. Instead, the agent markets the property through informal networks or new online platforms such as Pocket Deed.
Suggesting a pocket listing to your client:
The Realtor Code of Ethics requires Realtors to “promote and protect the interest of the client.” State laws generally dictate that real estate agents owe a fiduciary duty to their clients, meaning real estate professionals must place their clients’ interests above their own.
All this being said, legal risk concerning pocket listings arises when agents or brokers keep listings off the MLS for reasons that are not in the best interest of the client. For example, unlike MLS listings, pocket listings are more likely to result in the agent representing the seller and the buyer, and the outcome would be a higher commission for the agent. This in itself is not illegal or unethical, but if the prospect of a double commission is the reason an agent suggests a pocket listing to the client, then this could violate the Code of Ethics, MLS rules, and laws in some states. In another example, assume brokerages in a high-end market have numerous pocket listings, which creates an aura of exclusivity for their business and attracts high-end clients. This also is not illegal or unethical by itself. Yet if the listings are kept off the MLS in order to boost the brokerage’s reputation, not to benefit the seller-clients, the result can be a violation.
Therefore, prior to recommending and entering into a pocket listing, real estate agents must always ensure that they are doing so because of the anticipated benefits for the seller and not because of any benefit the agent or brokerage might receive.
When an agent recommends a pocket listing to a client, it is crucial that he or she thoroughly discuss with the seller the pros and cons of listing a property through the MLS. The agent should go one step further and be sure that the seller understands the benefits being waived by not including the property on the MLS. Yet, there are situations where pocket listings may be appropriate. One example is a seller with privacy concerns. High-profile individuals or celebrities may not want the general public to know they are selling their property. Another situation is when a seller may not want a lot of people coming through the property. In these scenarios, a pocket listing may make sense to protect and maintain the client’s privacy.