Buyers, sellers, investors, welcome back to another installment of Real Estate Jargon, aka, simple explanations of real estate industry terms. Today we’ll look at “pocket listing” – an often misunderstood form of agreement between a seller and their broker that is undergoing a lot of scrutiny within the real estate industry today.
When selling a property, the standard marketing approach is to distribute information about the property as widely as possible to attract as many competing offers as possible. The complete opposite would be to sell the property using a “pocket listing.”
A pocket listing is an agreement between a seller and their broker that specifies that the broker has the right to sell the property, but the property will not be placed on the Multiple Listing Service (MLS). Most often, a For Sale sign will not be displayed on the property and no public advertising will be published. A broker with a pocket listing will, instead, share information about the property with just a few pre-qualified buyers and with other brokers who may have qualified buyers interested in the type of property for sale.
So, why are pocket listings under scrutiny? A pocket listing is typically marketed in a way that is the polar opposite to what is considered the best way to market real estate. The standard approach is to use all available channels to distribute information about the property as widely and quickly as possible. As discussed above, the pocket listing is not advertised widely and is shared with only a select group of potential buyers.
Why would a seller want to do a pocket listing? Perhaps they don’t want anyone in their neighborhood to know they are selling. Maybe they want to offer the property only to a specific buyer or buyers, but want to hire a qualified broker to complete the transaction. There are many reasons and each should be considered on a case-by-case basis.
Here are a few more things to consider:
Pocket listings can be written or verbal. As mentioned above, a seller may sign a listing agreement and specify that the property is not to be broadcast on the MLS or anywhere else. A seller may also verbally inform one or more brokers that although they don’t want to formally list their property, they are open to looking at offers if any can be produced. A seller who informs brokers verbally that they are open to accepting offers may do so with as many brokers as they want, since no contract with any broker is created until an offer is accepted in writing.
Pocket listings may also be exclusive or non-exclusive. A California seller may sign a formal listing agreement, such as California Association of REALTORS® Form RLA, that gives an broker the exclusive right to find an acceptable buyer for a specific period of time, or the seller may sign an “open listing” agreement with several agents, such as CAR Form RLAN, which allows the seller to pick from offers submitted by any number of brokers.
Pocket listings have their pros and cons. If you want to keep the sale of your property private as or want to engage a broker to work with a specific buyer, a pocket listing may be a good option. However, pocket listings do not reach the same number of potential buyers as a fully listed and advertised property, thus the potential for obtaining the best possible sales price and terms are greatly reduced.
I hope you found this information helpful. If you have questions about real estate jargon or buy/sell/investment strategies, drop me a line!