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Pocket Listings: Work in Your Client’s Best Interest and Minimize Your Risk

Should you consider a pocket listing?

A pocket listing may be appropriate when your client doesn’t want others to know their home is for sale, or when a family may not want to open their house to unknown visitors for personal or security reasons.  For these sellers, the idea of only showing their home to a few pre-qualified potential buyers may give them a degree of comfort and peace. For higher-end properties, or properties owned by well-known business owners, politicians, celebrities, or others in the public eye, a listing that isn’t on the MLS for all to see may make sense.

The NAR (NAR) has reiterated that the most important step in advising a seller-client on how to market their property is to identify the client’s best interests, as defined by that client. A failure to either promote the client’s best interest or to explain the effect of a limited marketing plan can violate state real estate license laws and regulations and the REALTOR® Code of Ethics.

If your client requests a limited or pocket listing, be sure you agree with that marketing plan for the particular property and seller, and be sure your seller understands the implications.  If you suggest a pocket listing, be sure to explain your rationale for that plan and how it will work. For most sellers, a client’s “best interest’ is defined as obtaining the highest possible price with the best possible terms of sale. If you have a plan to achieve that with a pocket listing, who is to say that the client’s objective could not have been better achieved if the property was put on the MLS?

Weighing the Pros and Cons of Pocket Listings

Pocket listings offer exclusivity. The very fact that a property is not easily accessible or publicized on the MLS contributes to its rarity.  And rare properties cost more because there are very few others like them.

But when you intentionally restrict the marketing of your seller’s property to only limited networks or lists, or even to certain websites without also making it available on the MLS, you limit the property’s exposure.  You may not reach the widest range of buyers.  You potentially expose your client to the risk of selling his or her property for far less than you could have, had you listed the property on the MLS.

You also expose yourself to potential ethical violations and future litigation.

Your seller-client could pursue a lawsuit for failure to use “reasonable skill and care” and the failure of “taking no action which is adverse or detrimental” to his or her interests. Such allegations would be based on the premise that you did not seek to obtain the highest possible price for your client, because the client did not understand that the marketing of the property might not achieve the highest price.

Pocket Listings Should Be Right for the Client – and the Property

Some properties—such as probate, short sales and trust sales—are not suitable for pocket listings.  Banks will often refuse to approve a short sale that has not been on the MLS for at least 3 weeks.  Pocket listings are not suitable for trust sales because it is difficult to predict whether the involved beneficiaries will be pleased with the purchase price.  Should litigation ensue, the Courts will also be unable to determine if the property was sold for the market price.

Ultimately, whether or not you post your client’s property on the MLS is your client’s choice. Your duty is to provide as much information as possible to enable your client to make the decision that is best for him or her. Such information, includes but is not limited to:

  • Market data and information that impacts price
  • Market comparables
  • Property appraisals
  • Current and recent trends
  • Buyer behavior

You want to help your clients understand the implications of various alternatives of marketing the property, so they can knowingly determine the option that best serves their interests.

If your clients decide to go with a pocket listing, make sure they sign an opt-out form that clearly states that they fully understand the possible implications and consequences of not posting their property on the MLS.

Read the full version of this article here.

What’s your experience with pocket listings – love them or avoid them?

Read more on our ClaimPrevent® Summary: Real Estate Licensee Responsibilities When Creating New Listings

About the Author
Hila Golchet
Hila Golchet, Attorney
Manning & Kass | Ellrod, Ramirez, Trester LLP

Hila Golchet is an associate in the Los Angeles office of Manning & Kass and member of the firm’s Professional Liability and Real Estate Teams. Ms. Golchet, a West Los Angeles native, holds a certified real estate brokers license. She graduated summa cum laude from UCLA with a BA in political science and public affairs/public policy. She earned her JD degree at Southwestern Law School’s two year honors law program, where she graduated in the top 15%.

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