Last week, the National Association of Realtors’ Board of Directors overwhelmingly voted to ban a controversial practice known as “pocket listings.”
Pocket listing is a practice where the listing agent has written agreement from the owner to sell a property, but does not immediately place that property onto an open multiple listing service (MLS) as an “active” listing. Instead, that listing may show as an informal “coming soon” on the MLS, or, it could initially be excluded from it altogether. This prevents other agents outside of the listing brokerage and much of the general public from immediately knowing about or accessing the property. Thus, they would have little to no opportunity to purchase it.
Pocket listings are a way to increase the listing agent’s and their brokerage’s chances of representing both sides of the transaction; thus, earning more in commissions. According to HousingWire.com, the practice of using pocket listings has grown exponentially, particularly in several major cities throughout the country where available housing stocks are tight. In San Francisco, where NAR held their annual convention just two weeks ago, the share of homes selling via pocket listings increased 68% between 2010 and 2018.
Why Do Brokerages Leverage Pocket Listings?
Brokerages that currently operate using pocket listings offer the following argument for this type of sale. Listing agents state that no other professional has more knowledge of their own listing than themselves. They have more time, more money (i.e. – advertising), and more knowledge invested in their own listings than any other properties offered by other agencies. Sellers who have chosen listing agents who intend to initially pocket list their property are well-aware of the tactic and have entered into agreement with that brokerage knowingly.
Those sellers believe that their agent has more incentive to sell than anyone else; and, that due to this, that agent should have the opportunity to sell the listing quickly while also benefiting by representing both sides of the deal. In layman’s terms, because that agent has more “skin in the game,” they deserve the first crack at selling the listing sans competition from all other possible agents. If after a limited amount of time that sale has yet to occur, those sellers and their agent agree to place the listing onto the open market (aka – the public MLS).
Who Do Pocket Listings Negatively Affect?
Regardless… with a vote of 729-20, it became apparent that the great majority of NAR’s Board of Directors believes that the practice of pocket listing has a negative effect. On whom? Two groups. The first are the other Realtors® who are unaware or unable to show the listing before it’s placed onto the true open market. The second group are the sellers being represented by a pocket listing brokerage. This has to do with simple “supply and demand.” By limiting the number of potential buyers who are aware that a listing even exists, one shrinks the potential pool of available purchasers.
In other words, they lower the potential “demand” and that eliminates the possibility of a higher negotiated sale price. An in-house pocket listing may produce a buyer. A larger pool of interested buyers may produce several; thus, driving the purchase price higher than it otherwise may have sold for.
NAR sees the new rule change as a crucial protection for consumers. At its core, the new policy is attempting to try and level the playing field from where it is currently. The new rule will technically go into effect on Jan. 1, 2020. NAR has stated that it is delaying implementation, however, until May 1, 2020, to give adequate time for each of the more than 800 MLS service providers throughout the U.S. the chance to adequately inform their users of the change. At that point any new listings being “publicly marketed” must also be submitted to the cooperating MLS for full dissemination to all the MLS participants within 24 hours.
“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.” – Housingwire.com
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