Increasingly popular ‘pocket listings’ are often a losing bet. Here’s why | Opinion

South Florida real estate is experiencing an incredible cycle marked by relentless demand from domestic buyers, sky-high sales prices and rock-bottom levels of inventory. In such an overheated market, I and many of my colleagues in the business of selling residential real estate have had success through the use of “pocket listings,” a tactic which allows an agent to quietly market a home on a one-to-one basis to individual buyers and colleagues, before (or without) posting it on the Multiple Listing Service. (Which is the conventional method most of us use to sell homes.)

The tactic goes by many names, such as “private,” “off-market,” “whisper,” or “exclusive” listings, but the principle is the same.

Pocket listings offer some advantages to the seller and agent in certain situations. They allow the seller to take the necessary time to prepare the absolute best “go to market” plan and the agent to perform some limited, targeted outreach before marketing the home to the masses (if that becomes necessary). This can influence pricing, time on the market and the best possible deal for seller and buyer.

Some sellers prefer this discreet, quieter and smoother process, even if it results in a less profitable sale. (They may have concerns about privacy, flexibility, cleanliness or other issues.) I recently sold a new development’s penthouse residence through this off-market strategy, as my clients were anxious to sell quickly with little fuss.

As time goes on, however, and I see more industry fascination with pocket listings, I have become convinced that they do sellers a major disservice. My reasons why are as follows:

Prospective buyers of pocket listings know that they are the only ones submitting an offer on a property, making them considerably less motivated to make their offer competitive. By limiting the pool of potential buyers so dramatically, sellers are costing themselves serious money. In another recent pocket sale I completed, we only showed it to one prospect and my client accepted their modest offer quickly. Not long after, a very similar unit in the building sold for $200,000 more; a significant amount of cash to leave on the table.

Pocket listings also have long been a gray area for the National Association of Realtors (NAR) to regulate, but the group is starting to crack down on their use. By rule, agents are now required to list a home within 24 hours of launching any mass marketing effort to comply with NAR’s Clear Cooperation policy.

This puts the selling agent of a pocket listing — and by extension, the seller — in a very difficult position. Marketing can only be conducted on a limited, one-to-one basis, but the moment that network is expanded (perhaps by sending a group email or posting on social media), we are “on the clock” and have only 24 hours to list the property on the MLS. Real estate is already a tough business, and the tiptoeing that must be done to comply with these rules makes everything much more delicate, leading to deals that can easily fall apart. Traditional listing agreements, on the other hand, have no such ambiguity and all parties must follow clear and rigid guidelines.

Work in this business long enough, and you’ll come across sellers who just want to learn their property’s market value for some measure of satisfaction, or who say they are ready to part ways with their home, but simply cannot when push comes to shove. These types of “sellers” love pocket listings because they don’t have to really commit to anything, not even a contracted commission agreement with the agent.

That just creates a bad situation for everyone involved: Busy agents like me who waste time, attention and resources on a futile non-sale; prospective buyers who fall in love with the pocket listing and pass on traditional ones (maybe even one of mine!), only to be brokenhearted and regretful of missed opportunities; and even the seller himself, who may earn a negative reputation in Miami’s close-knit agent community. With traditional listings, everything is transparent and everyone is held more accountable.

Pocket listings also have a detrimental impact on fair housing as well, which is why the NAR has rightly adjusted its rules. But these new regulations seem to have little impact on its use: According to Redfin, the number of pocket listings has increased from 2.4 percent to 4 percent from November 2019 to March 2021.

To be clear: I am not calling for banning pocket listings. There are situations in which they make sense for everyone involved, and I’m certain I will make use of them in the future. But their use should be sharply limited to exceptional, unique cases, which would be a marked reversal of the current trend.

Master Brokers Forum board member Karen Matluck is a luxury real estate consultant with Compass in Aventura, and director of sales for Matluck Group. She can be reached at +1 (305) 335-1010 and/or karen.matluck@compass.com.

This story was originally published August 15, 2021 at 6:00 AM.