Ask nearly any prospective home buyer in the spring or summer of 2021 about their biggest challenge and you’ll likely hear a tale of woe about the dearth of homes on the market. They’ll tell you about the homes they lost to other buyers, the outrageous cash offers they can’t compete against and, worse, the homes that sold before they even had a chance to see them.
While there are many reasons for the limited availability of homes for sale, such as homeowners delaying sales until the pandemic passes, low mortgage rates enticing homeowners to refinance and remodel rather than move, and the desire of baby boomers to age in place, many real estate experts point to another phenomenon: pocket listings.
Pocket listings, also known as office exclusives or private listings, are marketed internally within a real estate brokerage or privately between agents and potential buyers but are not publicly marketed or listed on the Multiple Listing Service (MLS) or other websites.
“We’re seeing an increase in the number of office exclusives, and I’m not a fan of them from the consumer perspective,” says David Howell, executive vice president and chief information officer of McEnearney Associates Realtors in D.C.
“The reality is that we have a dramatic shortfall of supply of homes and an overabundance of demand, so an agent or company may have more buyers to look at off-MLS properties than in a normal market.”
While that lends credence to a listing agent’s claim that they can make a quick and easy sale without public marketing, Howell points out that it doesn’t make sense to restrict buyers if you want the highest and best offer for a home.
For a brokerage, the benefit of an office exclusive is the higher probability that the sale will be handled on both ends by an agent within the same company. That way, the brokerage earns the full commission for the transaction rather than just the buyer’s agent’s fee or the listing agent’s fee. Brokerages compete for listings and for buyers in every market, and some use office exclusives as a marketing tool to entice buyers to work with their agents. Some sellers prefer an office exclusive because they are privately marketed rather than allowing anyone to see photos and the price of their home.
“The word ‘exclusive’ is used widely in real estate and other businesses as a positive word that implies special access,” says Glenn Kelman, CEO of Redfin real estate brokerage in Seattle.
“But ‘exclusive’ by definition means you’re excluding someone, which should be a negative term. It’s wrong to exclude people from knowing about a house that’s for sale. You can’t get ‘good’ exclusivity without the bad exclusivity.”
Many real estate brokers say pocket listings are harmful for buyers who don’t have access to the full market of homes for sale. In addition, sellers are less likely to receive the highest price for their property if they limit their pool of buyers, says Larry “Boomer” Foster, president of general brokerage for Long & Foster Real Estate in Chantilly, Va.
“While we encourage every seller to list their property publicly, sellers sometimes request us to keep their home off the MLS initially,” Foster says.
Foster said one party had recently asked for their home to be privately listed, and they quickly received a full-price offer. But their listing agent also asked if they would want to list it publicly to see what other offers could happen.
“The property sold for $130,000 over the listing price within a few days,” Foster said.
Maximum exposure on the open market is likely to gain the highest price and fastest sale for sellers, as well as offer access to all qualified buyers, not a select few, Foster says.
Tracking private listings
Determining the exact number of off-MLS listings is complicated simply because there’s no centralized data for homes that are sold without being publicly marketed. The MLS allows sellers to control their listings, so if they prefer a private listing they can sign a waiver with their agent to keep the home off the MLS. In many cases, agents will enter the listing on the MLS when it is under contract because MLS data is used to track sales, and agents want to receive credit for the sale as part of their sales volume.
“Anecdotally we’ve been hearing from MLS leaders and some of our members that office exclusives are increasing,” says Rene Galicia, director of MLS engagement for the National Association of Realtors (NAR). “It may be market-driven because of tight inventory. When there are limited homes for sale, our members want access to the largest pool of listings, so they’re more aware of office exclusives.”
Redfin real estate brokerage reviewed the number of homes that were listed and immediately marked as sold or “pending,” which refers to homes that are under contract but have not yet settled and transferred owners. Homes that sell in a day are more likely to have been marketed before being entered into MLS data.
Its research found that since November 2019 the number of homes sold without being marketed to the public has increased 67 percent, from 2.4 percent to 4 percent of the market. In addition, that rate has risen each month in 2021.
In the D.C. region, off-MLS listings have fluctuated in recent years, from 6.7 percent in March 2019 to 6.1 percent in March 2021 in the city; from 6.7 percent in Northern Virginia in March 2019 to 8.6 percent in March 2021 and holding steady at 6 percent in Maryland during those same months.
Using data entered into the MLS for March 1 to April 1 this year, Redfin estimates that the top-five markets with the highest likely pocket listings include Tampa (7.6 percent), D.C. (7.1 percent), Seattle (6.4 percent), Baltimore (5.8 percent) and Denver (5.6 percent).
However, the high volume of potential pocket listings could also indicate that many homes in those markets are selling within one day on the open market. Listing agents can list properties as “coming soon” while they are being prepared for the market, which means buyers and their agents are ready to make an offer immediately when the property is listed.
“The competition for buyers and sellers is so fierce right now that some brokerages say they have a ‘secret inventory’ of private listings to lure in buyers,” says Lindsay Dreyer, CEO and broker of City Chic Real Estate in D.C. “But I think that’s a little overblown. I crunched the numbers using Redfin’s methodology and found that only about 2.76 to 3.72 percent of homes were sold without being listed first on the MLS in D.C., Montgomery County and Arlington County.” (Her data compared Jan. 1 through May 1 for both 2019 and 2021, skipping 2020 due to covid disruptions.)
Discrimination in the market
Regardless of the exact numbers, some real estate brokers are concerned about the discriminatory nature of pocket listings that could exacerbate the racial gap in homeownership rates.
“Study after study shows that pocket listings disproportionately exclude people of color,” Kelman says. “In 2018 I talked with Elizabeth Korver-Glenn, who has done extensive research on discrimination in the housing market. She told me that the most effective way to close the race gap in homeownership would be to ban pocket listings.”
Korver-Glenn’s research found that real estate agents’ clients and connections typically reflect their ethnicity and background, which means exclusively marketing to their network naturally creates racial barriers in the housing market.
“We have to ask sellers to be part of supporting the Fair Housing Act,” Kelman says. “If someone said to me that they only want to sell their home to someone they know and trust, I would say no. We’re selling homes that can change someone’s life and help them build generational wealth. We have to live up to that consequential responsibility.”
One reason many real estate brokers believe that private listings are proliferating is the implementation of the Clear Cooperation Policy enacted by NAR in November 2019. That policy requires members of each MLS to list their property on the MLS within one business day after it has been publicly marketed, which refers to advertising through websites, social media, yard signs and email blasts vs. privately sharing information with agents and potential buyers.
The Clear Cooperation Policy was meant to limit off-MLS marketing, and as of Dec. 1, 2019, Bright MLS — one of more than 500 MLS systems around the country — began to fine brokers and agents who don’t list a home for sale on the MLS within three business days after it is publicly marketed. The fines for noncompliance are $5,000 for the first infraction, $7,500 for the second and $10,000 for the third instance.
But the policy gives sellers the option to keep their homes off the MLS, and no fines are imposed under those circumstances as long as the agents are following the rules and sticking to private, personal marketing.
“Historically, office exclusives have been used as marketing tools for extremely high-end homes or celebrity sellers who didn’t want to expose their homes to the general public,” Foster says.
“But some companies were marketing a large percentage of their listings only on their own websites, which meant buyers wouldn’t see those listings anyplace else, yet their clients could see everyone else’s listings. That’s like showing up to the potluck dinner with just a fork.”
Foster says that the Clear Cooperation Policy was meant to stop that practice, but that office exclusives are a loophole that allows companies to continue to keep some properties marketed internally.
“The Clear Cooperation Policy almost incentivizes brokerages to do office exclusives since they can’t market privately any other way,” Dreyer says. “It used to be that agents could market privately to everyone and just not put a property on the MLS. But now you’re only allowed to do one-on-one marketing off the MLS as an office exclusive.”
Bright MLS was one of the first to implement an off-MLS policy.
“When we’re alerted to a property that’s being marketed off the MLS, we ask if the agent has a waiver from the sellers,” says Brian Donnellan, president and CEO of Bright MLS in Rockville, Md. “If so, that qualifies as an office exclusive. If not, the agent needs to list it on the MLS or take down their public marketing.”
Buyers may also see properties listed as “coming soon,” which is allowed as a way for agents to let potential buyers know a property will be listed for sale but is not yet being shown. Typically, the sellers in this case are finishing their presale prep, Donnellan says.
Office exclusives have been specifically allowed for decades, Galicia says, as part of antitrust compliance by NAR. Sellers must sign a waiver if they choose an office exclusive that states they have been counseled and understand their chosen option.
“There’s a difference between a seller with legitimate concerns such as privacy or legal issues such as a restraining order against someone or someone going through bankruptcy choosing to keep their home off the public market versus noncooperation by a brokerage,” Galicia says.
While buyers and sellers are affected by private exclusive listings, the topic is primarily debated by industry insiders rather than consumers.
“Because buyer demand is high, the ‘off-market’ narrative has become a marketing tool for many of the big brokerage firms in the D.C. area to get buyer clients,” Dreyer says. “These brokerages have a huge incentive to double-end deals with double commissions. The buyers and sellers don’t benefit from office exclusives.”
While small brokerages such as Dreyer’s City Chic and the largest brokerage in the D.C. region, Long & Foster Real Estate, can provide private exclusives to sellers who want them, both actively encourage homeowners to fully market their properties to the public.
Private exclusives are not necessarily a problem as long as the sellers understand the potential financial consequences of limiting their marketing, Howell says.
“The real problem is when companies have a strategy to intentionally withhold a significant percent of their listings from the MLS,” Howell says. “That ultimately benefits the company, not sellers and not buyers.”
Consumers benefit from the intense competition and cooperation that exist in the real estate industry and a strategy of private exclusive listings disrupts that cooperation, Howell says.
“Compass real estate has been the most aggressive promoter of exclusive listings, through its Compass Private Exclusives program,” says Brian Boero, CEO of 1000watt, a branding and strategy firm focused on real estate. “This effort has forced some of their competitors to roll out similar programs, but no company approaches Compass’s effort to promote this concept.”
While Compass declined to comment for this story, the brokerage’s website includes a page dedicated to private exclusives with a list of reasons why a seller might consider a private exclusive, such as a new job or relocation, a family change such as a marriage or divorce, evolving financial circumstances, health issues, valuable belongings such as art or furniture, and opposition to holding open houses.
Not always in their best interest
NAR’s Clear Cooperation Policy bans agents from sharing pocket listings in private Facebook groups or email lists, but it doesn’t entirely prohibit the practice of office exclusive listings.
“Sellers need to understand the consequences of choosing an office exclusive and that the agent’s recommendation may not always be in their best interest,” Foster says.
Foster also thinks stronger enforcement by Bright MLS and other MLS systems on companies that violate the Clear Cooperation Policy could help reduce the use of office exclusives.
Options are available that could preserve the privacy some sellers want while allowing a property to be fully marketed to all buyers, Kelman says. For example, he says, not every house has to be posted with photos or with a price, or you can limit visibility to just agents rather than all buyers.
“The crux of the issue is that this low-inventory market means competition is getting nasty between real estate brokerages,” Kelman says. “The simplest solution is to make sure everyone can see every house that’s for sale.”