Insider trading is forbidden in the stock market, but the real estate industry has no such restriction. As listings become scarce, selling agents are taking advantage of conditions by promoting “pocket listings” to other agents, before the home is available to the public.
It works like this: an agent gets a listing contract signed by a home seller. The contract stipulates the marketing period, which generally begins within a few days. Ostensibly, the gap period between contract signing and MLS activation is to allow time for taking photos, entering data to the MLS system and preparing marketing materials. In the days before smartphones with built-in cameras and mobile internet connections, a processing period made sense.
Today, this time-gap enables the seller’s agent to keep the listing in his or her “pocket” for a few days. In turn, this allows them to promote the property via word-of-mouth to his or her own buyers. This gives the listing agent an immediate opportunity to double-dip the commission and collect both the buyer and seller side of the transaction.
If none of the listing agent’s own clients suit the property, the agent then announces it to other agents within the same brokerage. This is an effort to keep both the buyer and seller side of the transaction under the same company roof. This keeps the entire sales commission in-house, and still provides the listing agent with a bigger share of the commission.
If no in-house clients want the property, the listing agent might choose to selectively share it with agents and brokers from other companies. Sometimes done under the guise of a “broker preview” or “coming soon” promotion.
At this point, the property still isn’t on the public version of the MLS, and the listing agent is just hoping to obtain a fast offer without doing any real work. While the commission split is usually standard in this scenario, the listing agent stands to make money without incurring any of the marketing expenses. No sign in the yard, no pamphlets in a box, no online distribution to real estate websites.
This is a tremendous disservice to home sellers, as they have received virtually none of the marketing services they were promised. By selling the home without public exposure, the agent has reduced the buyer pool, and thereby reduced the number of offers, and potentially sold the home for much less than it would have received with healthy buyer competition!
It’s also a great disservice to home buyers, because in most cases they never find out the pocket listing existed, unless it’s published after-the-fact to the public version of the MLS, with an immediate “accepted offer” tag.
If a buyer is working with a dual agent, and told about a “broker preview” or “coming soon” listing, they’re often pressured to respond immediately to these top-secret pocket listings. They may be pressured to put in an offer sight unseen, having only the listing agent’s info to go on! Buyers who make offers in these situations are taking big risks.
Pocket listings are all about a fast sale and easy commission money, benefitting only the listing agent. This is just another example of how the practice of dual agency – the supposed representation of both a home buyer and a seller – is unfair to each party!
Why is the practice of pocket listings allowed by the real estate industry? We’ll answer that in our next blog post! In the meantime, be sure to use an Exclusive Buyer Agent when you begin your home buying journey! Your EBA can show you any home on the market, including For Sale by Owner and new construction homes for sale by builders! Find an Exclusive Buyer Agent in your area today!