What are Pocket Listings and How do They Work?

What are Pocket Listings and How do They Work?

Since the start of the lockdown in March 2020 caused by the global pandemic, monthly rents in San Diego have increased by 24.4%.

Many renters are starting to realize that high rent prices are no longer worth it. It makes more sense to buy and own a home.

Current homeowners are considering downsizing because of the financial situation the pandemic has left them in.

Whether you are looking to buy a home or sell your home to downsize, you need to know all of your options. Pocket listings, although uncommon, might help you find your dream home or sell your house.

Keep reading to learn about pocket listings and how they work.

What Is a Pocket Listing?

A pocket listing is an off-market listing or a listing marketed to buyers through private channels instead of on the multiple listing service (MLS). There is no social media marketing, advertising, or any type of marketing for a pocket listing.

A non-public listing is kept inside a metaphorical "pocket," hence the name.

Pocket listings don't have for sale signs and they aren't listed online. A real estate agent will work with a small number of preferred buyers or other agents to represent the pocket listing.

Not a lot of pocket listings are out there, but there are some in San Diego neighborhoods for exclusive clientele.

How Do Pocket Listings Work?

Sellers that want to keep their homes private can choose a pocket listing. This ensures that only certain people will find out that the home is for sale.

The general public won't see the home on the MLS database, which is typically used to attract all kinds of buyers to find homes for sale.

A single listing agent usually handles a pocket listing sale. The real estate agent keeps the whole commission because there's no agreement for the seller or the agent to work with other professionals in real estate.

A seller might choose a pocket listing to:

Keep their home sale relatively private
Market to an exclusive or limited clientele
Test out an asking price
Avoid bidding wars
Sell to a buyer they know
Negotiate a reduced commission with a realtor

If you already know your buyer, you don't have to put your home on the market. For example, if a friend or neighbor expresses interest in your home and provides you with a direct offer, you can take it.

Yet, you should still have real estate professionals and attorneys helping you. They can review everything before you need to sign. Real estate agents are perfect transaction coordinators.

A pocket listing can fulfill these requirements for sellers interested in keeping their listing on the down low.

Off-Market Listings Pros and Cons

A pocket listing in real estate comes with pros and cons for sellers and buyers. The positive reasons to consider pocket listings are that sellers get more privacy and buyers experience less competition over the home sale.

Some of the cons are:

Sellers may get fewer offers on the home
There's no chance of walk-ins
Buyers have less data for research
Buyers might not get the best price for the home

A lot of sellers use pocket listings to test an asking price, which is usually higher than the asking prices on the MLS. Because buyers don't know if they are paying a fair price or not, they may avoid pocket listings.

Pocket listings can give sellers an idea of how much buyers are willing to pay, but this is a small pool of buyers. This information can help when you place your home on the MLS because overpriced homes are hard to sell.

Although there is no data about undersold homes that aren't publicly marketed, it is possible that sellers won't receive the best price for their homes. Generally, more exposure leads to better prices.

Keeping listings off of the MLS limits information available about the market. This makes it difficult for buyers, sellers, and even agents to determine the value of nearby properties.

Appraisers will struggle to determine the current market value of your home as well.

If your home is in the upper pricing echelon for your market, a pocket listing can prevent unwanted media and the attention of buyers that aren't interested in making an offer.

You won't need to worry about skewing housing market data in this case.

How to Find Pocket Listings

The best way to find pocket listings is by working with a real estate agent.

The "office exclusive" rule from the National Associate of Realtors (NAR) states that a seller can ask that their listing only be marketed within the broker's firm or among the licensees and brokers affiliated with the listing brokerage.

These listings ensure seller privacy, which is often sought out by those getting a divorce or celebrity clients. Office exclusive listings that are advertised or displayed to the general public must be submitted to the MLS.

You can find off-market inventory and coming-soon properties with real estate agents at Steele San Diego Homes.

Pocket Listing Policy

Pocket listings are tricky because of Fair Housing Laws that real estate agents need to abide by. A pocket listing can be controversial because fair housing advocates say that these listings promote discrimination.

Some real estate brokerages refuse to sell pocket listings, but those that do follow policies enacted by the NAR.

Pocket listings aren't illegal, but the NAR has a policy regarding how professionals need to accommodate off-market listings when a seller requests one.

The pocket listing policy, known as the Clear Cooperation Policy, requires listing agents and brokers to submit a listing to the MLS within one day of marketing a home sale to the public. This includes any type of promotion or advertisement.

The policy also aims to curb pocket listings that are in the interest of the real estate agent alone. Real estate agents who abide by these policies have their clients' best interests in mind.

In a "by the book" pocket listing, the seller must express to the agent that they don't want their home details listed on the MLS.

The agent will file a listing with the organization and include a signed statement from the seller indicating they are refusing MLS services. It is then considered an "office exclusive" listing.

Pocket Listing Alternatives

Sellers that prioritize privacy can take a cash offer on their home from a direct buyer to avoid a pocket listing. Investors and house-buying companies often buy homes off-market to streamline the process.

However, this option typically leaves sellers with a low home sale price.

You can find buyers outside of investors and house-buying companies that want to pay cash through MLS advertising, but they are rare.

Do Pocket Listings Work?

For sellers that don't need privacy, pocket listings aren't generally a good idea. Since the home won't be marketed to the public using the MLS, there will be less interest and fewer possible buyers.

Buyers that are interested in your home might not come by your pocket listing. They will have to look through a well-connected agent, which not a lot of homebuyers do.

If buyers do become aware of a pocket listing, they will need to visit the home in person since photos aren't always available. They may wish to visit multiple times before deciding on a buying decision which can prolong the process.

Currently, San Diego is a seller's market which means there are more people looking for homes to buy than they are homes available. This could benefit sellers interested in pocket listings.

San Diego's hot housing market is starting to cool off, so this benefit might not be available for long.

If homebuyers cannot find what they are looking for on the MLS in a seller's market, they may look for alternative methods of buying a home, such as off-market listings.

However, because it is a seller's market, home prices are rising. Sellers could get a higher amount for their home when it is marketed on the MLS because more buyers will be competing for it.

The Bottom Line

Pocket listings come with many pros and cons. The biggest advantage is that it gives sellers privacy but may lead to lowball offers and undervalued sale prices.

For buyers, pocket listings mean less competition, but they are hard to find unless you work with a well-connected real estate agent.

Steele San Diego Homes has access to fair and legal off-market listings and MLS listingsfor homebuyers who want a wide pool of options.