[Editor’s Note: I’m glad to report that, effective next year, the National Association of Realtors is tightening the rules on so-called pocket listings. I first criticized the practice on this blog more than eight years ago(!) — the post below originally appeared May 18, 2011. Please note that the views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.].
“Pocket Listings”: Good for Agents, Bad for Clients, or,
“Shhh! Don’t Tell Anyone My House is for Sale”
“Listing agent will not also represent Buyer.”
—Clause added to every listing contract I sign.
If your Realtor will agree to the foregoing clause ” as I do on every listing I’ve ever handled ” you don’t need to worry about a “pocket listing.”
That’s because the Realtor has forsworn also trying to represent the Buyer in the transaction ” and collecting both sides of the commission (also called “hogging”).
The latter practice ” called “single agent dual agency” ” constitutes an inherent conflict of interest that, in my opinion, is impossible to expunge no matter how explicitly it’s disclosed (which is how Realtors get away with doing it).
Serving Two Masters
So what’s a “pocket listing?”
Instead of exposing the client’s home to the market (and broadest possible range of Buyers), the Realtor instead quietly solicits interest within their own clientele (and their Broker’s).
Such a strategy is invariably peddled to the client/homeowner as offering greater privacy, discretion, and ability to pre-screen prospective Buyers.
The catch is, all those goals can easily be accomplished through other means that don’t limit the home’s market exposure.
So, the showing instructions can require that all prospective Buyers are financially pre-qualified and vetted by the listing agent; showings must be arranged well in advance and done exclusively with the listing agent present; etc., etc.
Economics 101 says that price is determined by supply and demand; if you artificially limit demand . . . you hurt the price.
Problem #2: exactly what is any unique home worth, anyways?
Answer: whatever a Buyer and Seller ” acting at arm’s length and without duress ” agree it’s worth.
In every deal I’ve ever been involved in, that number is arrived at by negotiation.
When the Realtor is representing both parties to the transaction . . . they’re arguably representing neither.
Which all begs the question: so whose agenda is served by a pocket listing?
Answer: not the client’s.
P.S.: In Minnesota, the Multiple Listing Service has rules specifically aimed at thwarting pocket listings.
Unfortunately, the reality is that Realtors who want to quietly solicit their own Buyers ” without exposing the home to the market and other agent’s and brokers’ clients ” can easily do that.