Pocket listings-homes sold outside multiple listing systems-have become extraordinarily popular over the past year, creating a secondary residential market place that raises questions about the value and role of the Realtor-run MLS system that has dominated residential real estate for more than a century.
Over the past three years, a number of factors, some of them resulting from the transparency big MLS-based sites have adopted to satisfy buyers, have driven thousands of sellers away from listing on multiple listing services. No good national estimate of the size of the pocket listings marketplace exists, but in several upscale communities the numbers of off-listing properties for sale run into the hundreds and the pocket-listings phenomenon clearly is still growing.
A Secondary Market for Well-connecied Agents
In Silicon Valley, the Bay area, Santa Barbara, Chicago, Dallas and elsewhere entire websites are devoted to pocket listings or networking opportunities with other agents about upcoming listings and properties. What started as a way to get the word out about future listings has turned into a secondary market of homes for sale for well-connected real estate agents. One Dallas Sotheby’s brokerage reports 30 percent of her office’s business is outside the MLS.
Most of these are luxury properties, worth more than one million. Many celebrities and wealthy owners would rather not have the prices and photos of their homes on TV shows like Access Hollywood and Web sites like Blockshopper or their local newspaper. Others want more flexibility to get the best price by keeping their homes off the MLS and test out prices without being locked in. They also want to avoid the infamous “days on market” clock that starts ticking that day a listing is posted on the MLS. Buyers, seeing that a home has been for sale for 30 or 60 days or even longer, will usually make low-ball offers. With a pocket listing, a seller and their agent can quietly test the market. They can gauge reaction to the price they’re asking and see what kind of traffic they get and how the market receives the property without the MLS clock ticking.
In Dallas, until October, wealthy sellers who didn’t want their sale prices known were able to put down “Zzzz” as the price of their homes in Tarrant County records. But “Z” sales were outlawed October 15 and practice ended and number of off-market home deals has ballooned as the number of properties available (for sale) has declined in Dallas-area neighborhoods. The trend is especially gaining steam in affluent neighborhoods in North Dallas, Highland Park and Lakewood.
There’s nothing new about pocket listings. For generations some sellers have allowed brokers to keep their listing “in their pocket” so that the broker doesn’t have to share the commission with a buyer’s agent, which is the norm for MLS transactions. The birth of online real estate listings 20 years ago made pocket listings virtually obsolete as sellers reached buyers nationwide on the big new sites like Realtor.com and Microsoft’s HomeAdvisor.
Brokers Brag Online
Once considered anti-social behavior and a sign of greed in Realtor circles, today many brokers brag online about their pocket listings and use their sites to attract wealthy buyers. Brokers have a huge vested interest in convincing sellers not to list on the MLS. One California brokerage reputedly offers clients a commission of only 3.5 percent not to list on the MLS and 5 percent if they do. At the median price today of $1,192,539 for a luxury sale, that’s a savings of $17,888 for the seller and an extra $11,925 for the brokerage over what they would have earned with a 50-50 split on the MLS.
“Up until now MLS was the only game in town to share listings easily between brokerages, but as we’ve said before, now there is the internet. Technology has changed dramatically in the past 5-10 years and some sellers realize they can get the price they want without ever going through the headaches of being on MLS (open houses, days on market, public price reductions, etc.)… Exposure is the name of the game, and if a property can be exposed via internet, email, Twitter, Facebook, LinkedIn, Instagram, Pinterest, Tumblr, a blog, a website, and so many other avenues that didn’t exist when MLS was conceived,” says Alex Clark, co-founder of PocketListings.net, a California site.
Pocket listings also are reviving pre-Internet marketing skills. “The proliferation of Hip Pocket sales is really good for Realtors, because they are back cutting deals again and doing what they do best: network. The agent can get the word out about the home using various marketing methods except the MLS – maybe even holding a small open house, doing a private broker’s tour, and stimulating word of mouth with other agents,” writes Candace Evans, publisher of Candy’s Dirt, a Dallas real estate site.
The very features that make huge MLS-based listing sites based like Realtor.com, Zillow and Trulia attractive to most consumers aew driving away wealthy sellers. Lush photos and videos, days on site clocks, prices, maps, chatty descriptions, and most of all, specific prices, are absent from the new pocket listings site. Instead, buyers get a general description and phone number.
Pocket Listings Compromise Market Reports
Another problem pocket listings cause is reduced accuracy in the market reports issued by leading organizations who rely virtually entirely on MLS data. These include NAR, Realtor.com, Zillow, Trulia, Altos Research, state and local Realtor associations and the more than 900 multiple listing services. The fact that most properties being withheld from MLSs are upper tier and concentrated in wealthier neighborhoods makes it more difficult to track market activity by price range and location, and to calculate median prices that reflect the actual market, not must listing on the MLS.
Pocket listings are legal and allowed by the NAR Code of Ethics, but their proliferation may jeopardize the level playing field for all agents and brokers that lies at the heart of the MLS system. Off-MLS properties simply are unavailable to make agents and their clients, nor do buyers agents share in the commission.
“Tremendous Disservice to our Clients”
The Cleveland Plain Dealer in November reported that a growth in homes unlisted on the MLS in Northeast Ohio is prompting real estate leaders there to speak out, concerned it’s a growing trend. The MLS is a way to share property information and compensation between real estate companies but “pocket listings” are a way for some agents to “keep a bigger piece of the pie” for themselves, says Jeff Russell of Russell Real Estate Services in North Ridgeville, Ohio.
“We see this as a tremendous disservice to our clients,” Russell says. “In my opinion, it’s limiting the exposure of listings to the market …. While it might be good for the broker, it’s not good for the consumer.”
Russell and John Lynch of Keller Williams Realty Greater Cleveland West are board members for the Northern Ohio Regional Multiple Listing Service and they say the organization is discussing “pocket listings” and whether rules need to change to reduce the number of off-market real estate deals.
“You can’t put a gun to somebody’s head to make them put their listing in the MLS,” Barbara Kohl, executive vice president of the West Penn Multi-List, a listing service covering Pittsburgh and southwestern Pennsylvania, told The Plain Dealer. “You have a right as a home owner. But what we want to make sure of is that the agent is really acquiescing to the homeowner’s wishes.”