Encryption, inequality and ‘Zero DOM’: 6 pocket listing takeaways

Jim Dalrymple II

3 years ago

This is the final in Inman’s five-part series on pocket listings in today’s market. Click here for the first installment, here for the second, here for the third, and here for the fourth.

Pocket listings are a lightning rod.

Though the practice of withholding a listing from the broader community and only showing it to a select group of consumers has been around literally since the beginning of real estate, the last several years have seen the concept become one of the most debated in the business. On the one side, agents and (often wealthier) consumers have argued that pocket listings ensure privacy and that people should be allowed to sell their homes however they want. On the other, critics of the practice say it perpetuates segregation and hurts minority homebuyers.

The debate has prompted new industry rules, mostly notably include the Clear Cooperation Policy from the National Association of Realtors (NAR). The rule went into effect last year and was meant to crack down on the practice — though the debate rages on to this day.

In recent days, Inman dove into the history of pocket listings, the reasons they remain popular, their impacts and much more. Here are the biggest takeaways from this week’s pocket listing series:

Pocket listings are still around

Despite the Clear Cooperation Policy, the practice is still thriving.

Perhaps most notably, a controversial new study from the Broker Resource Network (BRN) found that after Clear Cooperation went into effect network members immediately recognized an unexpected shift.

“In every market reviewed across the United States, brokerages recognized double and triple digit increases in Zero Days On Market listings across firms of all sizes and business models,” the report states. In one market, the increase was a whopping 844 percent.

The report goes on to note that “the enormous increase in the number of homes selling for zero days on market indicates that there is a growth in the number of properties that are not being widely disseminated through the MLS.”

Further more, data from Redfin suggested that in November of 2019 pocket listings appeared to represent 2.4 percent of the total market.

Jonathan Miller

However, by May of 2021 — well after Clear Cooperation was in effect — that share had actually risen to 4 percent.

In some areas, pocket listings represent an even larger share of the market. For instance, Jonathan Miller — president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm — told Inman that in the second quarter of this year, pocket listings appeared to represent 21.4 percent of all homes that sold in a selection of high-priced Los Angeles-area neighborhoods.

All of which is to say, the data suggests pocket listings are getting more popular, not less.

‘Zero Days on Market’: New study highlights controversial metric

The market is driving pocket listings

One big question this raises is what is driving the popularity of pocket listings.

And the answer appears to be the market.

Russ Cofano

“I think it has to do with the fact that it has been a long-standing seller’s market, which has gotten even more seller-oriented over the last five or six years,” Russ Cofano, a long-time industry veteran currently serving as the CEO of Collabra Technology, recently told Inman.

The idea here is that when there’s a strong sellers’ market, agents are able to sell homes without casting as wide a net. The market has been strong for years now, so agents are increasingly able to market their properties to a smaller group of people.

Recent apparent increases in the popularity of pocket listings have also coincided with the explosive price appreciation that took place during the coronavirus pandemic, lending further support to the thesis that pocket listings are connected to the presence of a strong sellers’ market.

How pocket listings cast aside minority homebuyers

Agents are using loopholes

The market may be driving pocket listings, but that doesn’t explain how agents are still using them despite Clear Cooperation and other local rules that effectively ban them.

Kate Wood

But according to sociologist and Nerdwallet mortgage and housing expert Kate Wood, the continued existence of pocket listings is in part thanks to “less scrupulous agents” abusing loopholes.

“Something that I have heard from agents is that less scrupulous real estate agents will stretch [one business day rule] as far as possible by basically having client wait until the last minute on Friday to sign the contract, so the home is now officially for sale with that listing agent,” Wood said. “Then the next business day is Monday evening.”

Other practices including limiting the information released to the public, for example by publishing few photos, and playing fast and loose with office exclusive policies.

Encrypted apps enable pocket listings

While loopholes have allowed pocket listings to flourish even amid growing regulation, they aren’t solely responsible for the continue viability of the practice.

Matthew Martinez

In reality, technology is also playing a major role. For example, Matthew Martinez, a broker in the San Francisco Bay Area with Diamond Real Estate Group, told Inman in an email that he has closed nine deals so far in 2021 by networking with real estate agent and investor groups through WhatsApp and Telegram (a similar encrypted instant messaging app).

“I’ve helped form several groups of brokers, agents, investors and wholesale flippers on both WhatsApp and Telegram,” Martinez told Inman.

A number of other brokers shared similar experiences, and the takeaway is that Facebook-owned WhatsApp — which among other things enables private group chats — is a powerful tool for agents doing off-market business.

Pocket listings and minority buyers

Bryan Greene

One of the major drivers of pocket listing regulation in recent years has been a growing recognition that the practice can sideline certain buyers and agents. Case in point, National Association of Realtors (NAR) Vice President of Policy Advocacy Bryan Greene recently told Inman pocket listings “perpetuate segregation.”

“Pocket listings can limit opportunities for agents in all communities. An agent who’s resorting to a pocket listing is choosing to narrow the market,” Greene said. “Regardless of your background, it narrows your market, restricts an opportunity, it provides less transparency.”

Solutions to the pocket listing conundrum

Rene Galicia

Industry experts have indicated that there are a few different ways to tackle the issue. For example, Bright MLS Executive Vice President of Customer Advocacy Rene Galicia suggested agents themselves begin the self-examination process by asking a few important questions.

“Holding a listing for a day for no purpose certainly makes a huge difference,” he said. “Ask yourself, ‘Why am I holding it? Is this a broker decision? Is this a seller’s instruction? Whose benefit is this for?’”

Redfin Chief Economist Daryl Fairweather also said that agents could encourage consumers who have privacy concerns to place their property in a trust, which would protect their personal information.

Daryl Fairweather

“There are other ways to have that privacy,” Fairweather said. “But I think putting it on the MLS is really important so that at least everybody can see that the home is for sale.”

On the policy front, BRN’s report on homes that sell after zero days on market calls for a reevaluation of Clear Cooperation.

“When policy has the opposite outcome of what is expected, the policy and the problem need to be readdressed,” the report said.

Greene also said industry professionals need to educate consumers about the existence of and potential drawbacks of pocket listings so they can make more informed decisions.

“I think consumers would want to advocate for listing their homes to the widest possible market,” he said. “I think the more people hear about the limitations of pocket listings, more people will recognize that they may be leaving money on the table.”

‘Zero Days on Market’: New study highlights controversial metric

Email Jim Dalrymple II