Pocket Listings

by Mr. Cheap

In real estate there are listing which can be called “pocket listings“, “in pocket listings”, or “exclusive listings”.  In each case the idea is the same, an agent *DOESN’T* advertise the property in order not to share the commission with another agent (by representing both the buyer and seller) or to only share the commission with agents they have a special relationship with.  The most significant feature of such listings is that they will be kept off of MLS.

Of course, this is helpful to the agent, but the benefit is at the seller’s expense.  By not having the maximum number of potential buyers be aware of the property they are lowering the sale price (supply and demand).  Why any rationale seller would agree to this is beyond me, and I can only assume the agents manage to trick them into believing it’s in the seller’s best interest.

Some agents will try to hustle and take advantage of the period where a listing is forced to be a pocket listing, between when they sign with the seller and when it goes live on MLS.  There’s certainly nothing wrong with this, but it can draw them into ethical compromises if they’re sprinting after the double-commission.  In this situation they should DEFINITELY make it clear to the sellers that the property hasn’t had much exposure (and they don’t need to jump at any offers).  They also shouldn’t stretch out the period between when they get the listing and it’s up on MLS.

This happened to me, from the other side, recently.  I’d been talking to a number of agents (I told them all I was working with other agents and didn’t sign a buyer’s agreement with any of them), and one of them contacted me to show me a property that met my criteria.  I went to see it with her (she was seeing it for the first time to prepare the listing).  After the viewing, we were chatting in the parking lot, and she did her best to get me to put an offer in.  She even showed me e-mail correspondences between her and the seller to prove to me what his thinking about price was.  I would be amazed if this isn’t illegal (since she is betraying private communication with the seller, to whom she has a fiduciary duty).

I was prepared to make an offer, and later that night she left a message for me, in a pretend panic, claiming that she had SOMEHOW convinced her seller to accept my offer, but that ANOTHER buyer had appeared, with the exact same offer I was making (it hadn’t hit MLS at this point) and that I needed to rush over to her house to sign the paperwork ASAP.  I knew she was playing games with me, and told her I was prepared to move forward with an offer, but that I needed due diligence (for her to provide me with comps of the previous sales she told me about which I had used to set the value of the offer) and that I wouldn’t get into a bidding war with the other buyer.  At this point she said “maybe we should just forget about the offer then” and that was the last time I heard from her.

John Reed has written that the practice was illegal when he was an agent in New Jersey years ago.  In Canada I think it is legal (I assume it is, since a lawyer writes about doing it in Ontario), but even if it’s legal I find it terribly unethical.  Some agents discuss the practice here, and thankfully they almost all seem to weigh in against it.

This post was featured in the Consumer Focused Carnival of Real Estate.

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