The housing recovery seems to be humming along nicely, by many accounts. But the rebound depends on properties made available for sale. A little known and slightly shady practice known as “pocket listings” can skew access to those potential properties, though, as brokers collect bigger commissions by keeping properties out of public access while they handle a sale.

A recent post from BankRate calls pocket real estate listing the “hottest controversy in real estate today.” The reason? The pocket listing is a way to sell a property outside of a multiple listing service – and typically without a listing agreement. Instead, the broker and seller agree that the br4oker can offer a property for sale, but the property will be kept out of the MLS, or in the “pocket” of the broker, who then goes looking for buyers.

For some home sellers, this arrangement works very well. Since the home isn’t publicly listed, sellers have more privacy and can take care of any loose ends, knowing the property is “out there’ for sale but not accessible to anyone who sees a listing. A pocket listing also lets the buyer back out and quietly cancel the sale if circumstances change.

But critics say that selling a house via a pocket listing can be limiting. There’s less exposure to potential buyers or even other agents, and that means fewer offers to choose from or options for escalating the price in a bidding war. That’s a tradeoff some sellers will happily accept though, since a pocket listing may bring them a buyer faster. But the real beneficiary of the pocket listing may be the broker, who stands to collect the full amount on a commission rather than splitting it between the buyer and seller’s sides of the transaction.

That’s where the shady part comes in. Brokers may pressure sellers to tale a pocket listing, agree to pay a specific fee, or skip signing a listing agreement if the broker delivers a quick buyer. Sellers who agree to this kind of arrangement may end up in a holding pattern while the broker searches foe a buyer. That means they’re missing out on exposure to multiple buyers and the possibility of a higher selling price – and paying more to the broker once a buyer is found.

Though the pocket listing arrangement may seem relevant only to buyer and broker, the practice also affects the housing market in a broader way. Pocket listings are held out of the public eye, which reduces the number of available properties for purchase to the larger pool of buyers — and that includes investors following Jason Hartman’s principles. Pocket listings also put brokers in control. And because there’s no competition for price, the practice skews the picture of actual

home prices in the market – and lets brokers pocket a profit. (Top image: Flickr/PaperCat)

Background:

Geiffner, Marcie. “Should You Sell a House Under the Radar?” BankRate. BankRate.com 7 Jul 2013.

The American Monetary Association is your source for the latest on personal finance and monetary policy. Read more from our archives:

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The American Monetary Association Team