Some of the most exclusive real estate properties never hit the open market. Instead, sellers will only solicit offers from a select group of buyers through what’s known as a “pocket listing.” This practice is nothing new — it’s long been used for the selling and buying of luxury and celebrity homes. But in a super-competitive real estate market, it’s not just luxury homes that are being sold this way. Here’s what you need to know about pocket listings — and how you can find out about them if you’re in the market for a new home.
There Are Several Advantages of Pocket Listings
One of the advantages of a pocket listing in a hyperactive market, like we are experiencing currently, is that the home has less competition. Since the home is not publicly marketed, many buyers are not aware it’s for sale. In addition to not having to worry (as much) about a bidding war, the property is likely to be priced competitively, to begin with. It also gives the buyer more time to consider if the home is right for them before making an offer.
“Especially in today’s market, [which is] just flooded with buyers and limited inventory, having access to off-market listings gives house hunters a leg up on the competition,” said Michele Harrington, chief operating officer at First Team Real Estate, an independent brokerage in Southern California. “Homes are selling in days with multiple offers, so even just getting to see a house before it hits the market gives buyers extra time to decide if it’s right for them. And sometimes simply being the first to make an offer gets you the advantage you need to win a home.”
Your Agent Is the Best Resource for Accessing Pocket Listings
In this ultra-hot market, it is imperative that you work with an agent that can provide you with pocket listings. If not, you’ll simply be waiting around for properties to go live on the market. At that point, the public becomes fully aware of the new listing, and the frenzy begins. A well-connected real estate agent may be able to connect you with sellers who haven’t listed their properties publicly. The easiest way to find pocket listings is to work with the top realtors in your area. Even if the agent doesn’t know of any pocket listings, they may take the initiative to seek them out on your behalf. Though the current market is very chaotic, an agent with a good network and willing to use the good old prospecting tactics in real estate might be able to get what you need. You’d be surprised how many people might be willing to talk to you because they are thinking about downsizing, moving out of state, or any other reason.
Not All Pocket Listings Are Actually a Good Deal
Although you may be able to avoid competition by buying through a pocket listing, James McGrath, co-founder of the New York City-based real estate brokerage Yoreevo, warns that buyers should be “very wary” of pocket listings.
“To understand why you just have to put yourself in the position of the seller — why don’t they want to list it publicly?” he said. “Yes, there are ultra-wealthy and celebrity buyers who are private, but for a regular seller, it doesn’t make sense to list via a pocket listing. Any economist will say that getting in front of more buyers is only going to increase the price, so why wouldn’t a seller go that route? The answer is they’re not a serious seller. Agents with pocket listings often tell sellers it’s a good way to ‘test the market.’ That’s code for setting a high price and seeing if someone bites without racking up any days on market.”
“Another reason for a pocket listing is the seller isn’t motivated,” McGrath continued. “They don’t need to sell, they might not even want to sell, but if you offer them the right price, they will sell. In other words, if you buy a pocket listing, for one reason or the other, there is a good chance you’re overpaying.”
In fact, pocket listings were banned by the National Association of Realtors (NAR), the industry’s main trade association.
However, recently the Department of Justice (DOJ) is taking steps to remove this requirement. In August, a federal judge permanently dismissed a lawsuit challenging the National Association of Realtors’ controversial policy, in effect since last year, that attempts to curtail so-called “pocket listings.”