Is That a Listing in Your Pocket or Are You Just Glad to See me?

As the real estate market has heated up, the topic of pocket listings has become a focus for many agents and brokers around the country.

“Pocket” or “off-market” listings aren’t really a new phenomenon; in every real estate market where listings are scarce, there have always been real estate agents who saw opportunities to increase their income by offering limited exposure marketing programs to sellers. Usually, these involve some form of variable commission arrangements for the sellers. In one example, the agent might offer to sell a property at a lower commission rate if the property is sold during a pre-MLS marketing period. Another might have an agent offer the seller an opportunity to allow them to market the property and represent the seller to a limited market set (in other words, the buyers that the seller can obtain from their own marketing efforts or from a smaller network of agents that are members of some “special” group.)

In the current period of economic recovery, a new wave of agents have discovered pocket listings and the conversations around them have become quite heated, as conversations centered around income often are. Add technology to the economic recovery and the conversations have become not just heated, but viral. Oddly, with the exception of David Faudman, who operates a membership organization called Top Agent Network that is designed around the concept of exclusivity based on agent production (though there is a cynical part of me that says membership is based more upon a desire to build an income stream for the creator of the program, than any real benefit to the consumer or even the agent). In the video explaining the concept, the idea of using the membership as a form of differentiation is, in my opinion, creating a difference that is an example of form without substance. The argument that a limited set of sales associates can somehow produce superior results to a broader set of sales people is just not logical. 

Anecdotally, the only consumer-based argument made for pre-MLS marketing that I’ve heard is limited to requests from high-end sellers who have privacy concerns or issues, but I have no personal knowledge or experience with that. I have had sellers who were concerned about the exposure provided by the MLS (like every other agent in the country), but like the majority of agents, I’m convinced the seller that the benefits of showcasing their property to the largest interested and qualified pool of potential purchasers was in their best interests.

There is a commercial purpose for pre-MLS marketing by larger companies, which has been formalized by a number of companies. Many multiple listing services have a time period between the execution of the listing contract and the MLS Submission which was created to allow companies to obtain photos and supporting documentation. Since most large companies sell less than 10% of their properties “in-house”, this provides them with a small window where they can promote a listing internally, increasing their profitability by retaining both sides of the real estate commission (issues of agency aside), and by securing an opportunity to sell mortgage, title, and insurance services.

This process, though dimly viewed by people outside of the company, is not a violation of any rule or regulation that I can determine, though it is arguably an exploitation of a rule in a manner not anticipated by the MLS. In some markets there are attempts to reduce or even eliminate the loophole to promote additional cooperation.

So far, I haven’t seen a spokesperson for the concept of off-MLS marketing that makes a compelling argument explaining how the concept benefits the consumer. I also haven’t seen anyone publicly make any sort of argument for the concept of off-MLS marketing except for the aforementioned membership organization, and the interpretation of others notwithstanding, I see that as less of an argument for non-MLS marketing and more or a business play to create a professional membership organization that deposit is dues into the pockets of its creator, a perfectly reasonable purpose, but not one that benefits the consumer.

In the absence of an advocate for the “pocket listing”, I think we’re forced to assume that the main purpose of creating a pocket listing is to benefit the listing agent or brokerage. The argument that the seller might receive some financial benefit is speculative and has to be weighed against the potential loss of revenue the seller might face from the lack of a larger potential audience, making it a specious argument. And that has to lead us to the conclusion that something needs to be done to increase professionalism in the industry, and to protect and benefit the consumer.

The champion of the industry and the consumer? NAR and the local MLS. Local MLSs are already reacting by reviewing the existing rules and regulations and enacting new rules to attempt to limit the loophole created by their existing rules. NAR is convening a joint workgroup consisting of members of the Professional Standards Committee and the MLS Issues and Policy Committee. They will meet and make suggestions to their respective committees to modify policy and clarify the obligations of members under the Code of Ethics. The work product of that workgroup combined with the input of the committees, the executive committee and Board of directors of NAR should create some guidelines to help maximize the exposure of property to the benefit of the consumer, or educate the consumer appropriately to allow them to make an informed decision.

Hopefully those changes will insure the continued efficiency of the marketplace, and help sellers maximize the potential of their listed property, at least until someone figures out another way to short cut the marketplace for their personal gain, at which point the process will just have to begin again.

Have a reason “pocket listings” are good for someone other than the listing agent? I would love to hear it. Just leave it in the comments below.