Market Wise Q&A column in San Jose Mercury News: The Train-Wreck of "Pocket Listings"
Q: We have been losing out on buying a home through multiple bidding. Now, we recently learned that many sellers’ agents are withholding their listings in order to sell the property themselves. In such low inventory conditions, my wife and I are perplexed why any seller would want to withhold their property from the open market. If the seller’s agent is hiding the listings from us and other prospective buyers, how is that good for the seller?
A: It’s not. It is not a coincidence that low housing inventory conditions result in agents instigating “pocket listings.” There’s legitimate reasons for keeping a listing headed toward a private sale such as an ill family member, a pricey estate, a famous owner, etc. Are those rare circumstances why private “in-house” sales spike during times when firms and their agents see fewer paychecks? Not on your life. These cyclical waves of agents selling their own listings can only be what I refer to as “agent driven.” It is hard for one to image that a seller, in a seller’s market no less, decides on not exposing the property to the Multiple Listing Service, (MLS), as well as popular World Wide Web reality sites.
It is hard to envision that a well-informed seller would choose to have his or her agent also represented the buyer. Any “pocket listing” will be a dual-agency transaction by its natural; the same agent is representing the buyer and the seller. Although perfectly legal in California, dual-agency “pocket-listings” can result in two trains slowly headed toward one another. Real estate attorneys admit it’s difficult to defend a dual-agent and/or seller against a remorseful or disgruntled buyer. On the other hand, real estate attorneys easily can represent a disgruntled “pocket-listing” sellers when it’s learned they “could have gotten more.”
In California, “The broker must place himself in the position of the principal and ask himself the type of information required for the principal to make a well-informed decision.” It is hard to conceive these “pocket listing” agents not exposing their own home to the 21,000 members of our MLS who subsequently generate the over-bidding process. The California agent also has a duty to “counsel and advise the principal of the propriety and ramification of the decision.” It is unlikely “pocket-listing” dual agents informed their sellers that unhappy buyers file 80 to 90 percent of the claims in California. Otherwise, sellers would insulate themselves by insisting the buyers “get their own agent.” Likewise, if “pocket-listing” sellers were enlightened on maximizing net proceeds, most would surely elect to build a road using tools that generate more than one offer.
Contact Pat Kapowich, The Santa Clara County Association of Realtors President's Choice Award Winner for 2013 at (408) 245-7700 and/or Pat@SiliconValleyBroker.com