In April, as the frenzied real estate market approached a fever pitch, Bridget Medina jumped into the fray. In doing so, she had a distinct advantage over other buyers in the market for a family home in the suburbs of New Jersey: a broker was showing her houses that had not been publicly listed.
Pocket listings, the practice of brokers selling a home through private networks rather than on the open market, have skyrocketed during the pandemic. One analysis from Redfin put the increase at 67 percent, and in some markets, it’s estimated that as many as 20 percent of all listings are now available only to buyers with the connections to hear about them in the first place.
Brokers and buyers alike credit these secret listings with offering a leg up in a lopsided market where demand far outstrips supply. But detractors say they aggravate inequalities in a housing market already plagued by racial and socioeconomic disparity.
Pocket listings have become so commonplace that in November 2019, the National Association of Realtors prohibited the practice for its 1.5 million members, who represent about three quarters of active real estate agents in the United States. But violators must be reported by their peers, and are generally subject to only small fines.
Ms. Medina and her husband, Rudy, found their four-bedroom house in Bloomfield, N.J., after bidding on a similar property on the same block. They were outbid, but the owner tipped her broker off to a neighbor who was also getting ready to sell.
“He called my Realtor and said, ‘I like Bridget and Rudy, and their kids are so cute. They’d fit in so well in this neighborhood, and I think my neighbor down the street is selling her house,’” she said. “He gave her their number.”
A few days later, Ms. Medina and her family were back in Bloomfield, sitting around the dining room table of that neighbor’s house. They made an offer the same day, and moved in six weeks later.
The national association now requires its member brokers to publish all properties on its multiple listing service (MLS) within 24 hours of publicly marketing them in any way. But loopholes abound. The association does not enforce the ban — they leave it to local broker organizations to identify offenders and set penalties. And agents are still permitted to circulate listings privately within their own brokerage, or market properties as “coming soon.”
“Since the pandemic, real estate professionals have found ways around the policy,” said Matt Lavinder, president of New Again Houses, a home-flipping company. Brokers are using WhatsApp, Discord and Telegram chats to privately share listings as well, he said. “This has become a secondary market.”
Pocket listings exist in a gray space between legal and illegal, said Andrew M. Lieb, an attorney and the founder of the Lieb School, a licensed New York State real estate school. The U.S. Department of Justice has argued that the practice could violate antitrust laws. They are also potentially discriminatory.
“It could be argued that they violate the Fair Housing Act,” Mr. Lieb said, because they could contribute to disparate impact discrimination, a phenomenon in which a seemingly neutral policy is disproportionately unfair to one specific group. While no such case has yet to be brought to court, there is precedent: The National Fair Housing Alliance sued Redfin in October 2020 for setting minimum price requirements on the homes it lists, a practice the alliance alleges discriminates against minority communities. According to Morgan Williams, the alliance’s general counsel, both parties have agreed to stay further litigation pending active settlement negotiations. In the meantime, Redfin has yet to change its minimum-price policy.
“By analogy, this is the same concept,” Mr. Lieb said.
However, Glenn Kelman, the chief executive of Redfin, has been a vocal detractor of pocket listings, referring to them as “a relic from the real estate industry’s old history of perpetuating segregation” in a May 2021 opinion piece in Inman, a trade publication. And the national association’s loophole that allows for brokerage-exclusive listings, he said, has unintentionally created monopolies among bigger brokerages.
Not all brokers agree that pocket listings represent unfair competition or are damaging to minority groups.
“I let all my agents know that as long as you’re not advertising the property to the public, you’re good to go,” said Sharelle Rosado, a broker in Tampa. At her brokerage Allure Realty, she said the use of pocket listings has increased 40 percent since the start of the pandemic. She leans on connections with both sellers and developers to build her pipeline of potential off-market sales. They are particularly helpful, she said, when working with high-income buyers looking for homes in the $10 million range, where inventory has always been tight.
“A lot of people are not for pocket listings, but it helps our clients, and it’s beneficial to both sides,” she said. “And I don’t have to split the commission.”
Pocket listings can appeal to sellers because they allow for home transactions without multiple showings, and the specter of strangers marching through their rooms. Many brokers tell their clients that pocket listing a home is a good way to test the market before officially setting its price.
For Stacey A. Giulianti, whose job as chief legal officer of an insurance company required a recent move from Maine to Florida, the practice had appeal.
“I told my agent, I want to sell, but I really want to see what I can get for it,” he said of his three-bedroom colonial in Cumberland, Maine, which he sold as a pocket listing for $1.75 million in May. “I didn’t want people tracking through my house.”
For buyers, however, pocket listings can eliminate checks on price inflation that the open market would instill.
John Boese, 46, runs an internet start-up in Los Angeles. He has been searching for a home for his mother in nearby Simi Valley for several months, but grew suspicious after a real estate agent repeatedly steered him toward off-market homes that felt overpriced.
“He kept telling me, ‘I’ve found this amazing house that’s not on the market yet, and you should get it now, because in two days it will be on the market at 20 percent more,” Mr. Boese said.
The agent was also listing the homes as “coming soon” on sites like Zillow, then removing them for a week and doing it again.
“He was telling everyone it was a pocket listing,” Mr. Boese said. “And pricing the homes much higher than they were worth in hopes of getting someone to bite on an unfair price.”
The influx of property technology companies — which allow people to digitally browse, sell, research and invest in homes — have flooded the market and pushed buyers to increasingly shop for real estate online. Proptech is also credited with ramping up demand for pocket listings — for brokers, they offer a competitive advantage.
Dozens of high-end brokerages, including Long & Foster and Bespoke, now offer buyers online access to curated, private databases of off-market homes. Aalto, a San Francisco-area marketplace, removes the middleman on pocket listings by connecting buyers directly with sellers, and DropOffer, a public online portal allowing buyers and their brokers to submit offers on homes that are not officially on the market, will launch in October.
“Any successful agent has utilized the off-market, but in the past it was a manual process,” said Greg Burns, a DropOffer co-founder. “The struggle has always been inventory.”
But even with the egalitarian influence of the internet, pocket listings are still, in their essence, all about insider knowledge.
And prohibitions on them will remain feeble, said Mr. Lieb, the real estate attorney, as long as the onus is on brokers to police their own colleagues. The past year’s spike in closed-circle real estate transactions could have long-term ramifications.
“There are secondary and tertiary effects, for generations to come,” he said. “A pocket listing is only going to allow people that are in the in-crowd to be living there. And you have to look that way and talk that way to get there.”
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