The "pocket listing" strategy to sell a home comes with several benefits a select group of sellers demand.
However, because the strategy doesn't play to true supply-and-demand market forces, it can leave money on the table.
The strategy is called a "pocket listing" because the broker figuratively keeps the listing in his or her pocket and does not list the property on the multiple listing service (MLS).
The MLS is open to virtually anyone in the market - a potential audience of millions. Typically, the larger the audience, the greater the possibility a buyer will surface offering the highest possible price.
A pocket listing typically is marketed in-house or to a select group of outside brokers via email, word-of-mouth and phone calls. The listing may or may not get online exposure, open house events, or other non-mls marketing.
While a broker has a fiduciary duty to make sure a property sells for the best price, no matter how the broker lists the home, the pocket listing approach effectively undercuts that duty. By doing so, there's a distinct possibility the property won't sell for what the market will bear.
Nevertheless, the strategy is legal. Sellers are entitled to whatever listing strategy they wish, from a simple "bring me a buyer" approach to selecting the specific audience to which the property is marketed.
Pocket listing sellers typically own high-end homes worth millions and use the selling strategy for a variety of reasons.
Asking price. Financially sophisticated sellers - often celebrities of some world - want a fast, preferably cash sale at a pre-determined price. To them, it doesn't matter if the price is below fair market value.
Time on the market. When a home is listed on the MLS, how long it takes the home to sell is information that becomes part of the listing. MLS listings can generate low-ball bids, unqualified buyers and other delays that can increase those days-on-market (DOM). A home that languishes unsold too long becomes suspect. Buyers wonder why the home hasn't sold and balk.
Privacy. The media can be relentless.
Despite sellers' explicit wishes, housing market experts question the wisdom of pocket listings, especially in active, thriving, seller's markets.
Critics say without the MLS push, brokers can be motivated more by the commission than marketing. A broker who "double ends" the deal - both holds the pocket listing and finds the buyer - doesn't have to share a big-payday commission.
Sales of pocket listings also can unduly impact other home sellers looking for comparable sales.
Because a pocket listing isn't on the MLS, its sale may not be known until it's a matter of public record - or word gets out. Until then, it can't be used as a comparable sale and that could cause a like home on the market to be sold for more or less than it's truly worth.