What is a pocket listing and are they illegal?
Pocket listings almost always benefit the listing agent/broker because they do not share commission with other agent /brokers. In California this is not considered illegal or unethical in and of itself, but since the law requires an agent to put their client’s interest above their own, pocket listings warrant close scrutiny.
A pocket listing is a listing with limited exposure to the general market place. In its most extreme form, only the listing agent knows the property is for sale and markets the property only to his or her own clients. Private listing clubs of groups of agents are a form of pocket listing which also greatly limits a property’s exposure to the market place. A single agent may be working work with a half dozen active buyers at a time, a single broker several dozen, but these will never equal the thousands of cooperating brokers/agents each with a half a dozen active buyers. This is why in most cases an agent/broker other than the listing agent/broker represents the buyer if it is listed on the MLS.
A property listed on the MLS is available to every licensed member agent. The listing is not merely an advertisement. It obligates the listing broker to share the published commission with other member brokers representing buyers. This gives them the confidence and enthusiasm of knowing that if a deal is made, they will be compensated for the time, money and skill they have invested procuring and prequalifying their client. A pocket listing may limit exposure to mostly unqualified “looky loos,” resulting in a longer time on market and a lower sale price.
Once a property is listed on the MLS it is propagated to commercial web sites through a system known as Internet Data Exchanged. (IDX) Many buyers begin their home search on these sites before consulting their agent. If a property is not first listed on the MLS it may never reach this vast pool of potential buyers.
It has been said that every agent has at least one pocket listing: their own. Because of the potential conflicts of interest, a licensed agent must disclose their ownership to buyers and sellers so they may opt to be represented by another agent. Sellers need to know they may be competing with their own agent for buyers. This is especially important if the agent lives in the same or a competing development. Listing on the MLS makes this information public.
When a property is listed on the MLS buyers and sellers are free to make objective comparisons between what is available and what fair market value should be. Because they are denied this opportunity with a pocket listing, some appraisers will judge them to be “uninformed” and will not consider the listing a valid comp in their valuation of future sales.
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