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Pocket Listings: Do the Risks Outweigh the Benefits?

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By Fredric W. Trester

pocket_listing_300x450A pocket listing is one which is held by the listing agent, and not advertised through public channels such as the MLS. While they are more frequently found in commercial transactions (some brokerages specifically advertise for principals only on Loopnet or other commercial sites), they are becoming more common in residential transactions.

Pockets are often marketed through word of mouth, direct mail, or on the broker’s own websites. Why would a seller agree to a pocket listing, when it obviously does not expose the property to the universe of buyers? Explanations include sellers who do not wish to have unqualified buyers come through their homes, clients who are wealthy and/or celebrities, or sellers who wish to keep the sale confidential.

MLS rules require that listings be placed in the MLS (see Model MLS Rule 7.5 requiring submission within two days). These MLS rules allow pocket listings, but only when a certification signed by the seller is submitted. Many Associations of REALTORS® provide forms such as the “Seller Instruction to Include Listing” put out by the California Association of REALTORS®.

The Risks of Pocket Listings

1. Breach of Fiduciary Duty Resulting in Under Pricing as to the Seller and Overpricing as to the Buyer.

The following real life examples demonstrate this risk. In one case an elderly widow advised her agent she did not want the property advertised in the MLS. The agent brought in an investor with whom she had worked before. After the sale, the seller’s children claimed the property was $300,000 underpriced and sued the agent. Hurting her defense, the agent failed to keep her comps which she gave to the seller.

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