‘Pocket Listings’ on the Rise, Causing Controversy

‘Pocket Listings’ on the Rise, Causing Controversy

As the real estate market continues to heat up around the country, some homebuyers are operating with a distinct advantage over the competition: They are buying properties that are not officially for sale. While most buyers are making multiple offers before having one acceptance, some are able to make just one offer and have it accepted because the house in which they are interested is not publicly listed.

These “pocket listings” are not on the market and are sold through private networkers rather than on the open market. The volume of pocket listings has skyrocketed during the pandemic as sellers become reticent about public showings. In fact, Redfin estimates pocket listings have risen 67 percent since March 2020.

While pocket listings are a great way to get a “leg up” on the market, some critics complain that the listings “aggravate inequalities” in already largely unaffordable housing markets. Even before the pandemic, the National Association of Realtors (NAR) had prohibited its members from practicing the strategy and required all 1.5 million members to report peers engaging in it.

Buyers say the prohibition is unfair because they work hard to develop relationships with people who are not yet ready to put their homes on the market or who do not want to publicly list their homes. Sellers also protest that they should not have to list their properties publicly if they do not want to.

Agents have reacted by finding ways to get around the prohibition, including labeling listings “coming soon” or privately circulating information on the properties within their brokerages.

Some attorneys argue that pocket listings violate the Fair Housing Act or that they violate antitrust laws. Some iBuyer CEOs, like Redfin’s Glenn Kelman, also dislike pocket listings. Kelman has called pocket listings “relics from the real estate industry’s old history of perpetuating segregation.”

Many brokers disagree, saying they are better able to serve their clients if they are able to identify properties that are less likely to come with a bidding war. “A lot of people are not for pocket listings, but it helps our clients and it’s beneficial to both sides,” explained one Tampa broker. She added, “And I don’t have to split the commission.”

Sellers also use pocket listings to “test” the market and see how much they might be able to get for a property. Real estate investors may also benefit from investment firms that have connections that enable the firm to acquire off-market properties under market value.

At present, pocket listings are not illegal and are not considered in violation of antitrust laws or Fair Housing laws.