Two years after the National Association of Realtors approved the Clear Cooperation Policy, pocket listings are as strong as ever. This is Inman’s first story in a five-part series.

This is the first in Inman’s five-part series on pocket listings in today’s market. Check back in the coming days for additional features touching on fair housing, data, and other issues. Tuesday: How pocket listings cast aside minority buyers.

Read Part 2 here, read Part 3 here, and read Part 4 here.

It was November 2019 when the National Association of Realtors, gathered at the time in San Francisco, threw down the gauntlet.

Amid a heated debate in the real estate industry over who should have access to which listings, the trade group’s board of directors overwhelmingly adopted what was officially called the Clear Cooperation Policy — but which many viewed as an effective ban on pocket listings, or listings that are marketed privately and sometimes never make it to a multiple listing service (MLS).

The policy imposed requirements on NAR members to submit their properties to an MLS within a day of beginning to market them. And it drew support from high profile figures such as Redfin CEO Glenn Kelman and Bright MLS.

But in the two years since NAR approved the policy, the issue hasn’t quietly faded away.

To better understand what’s going on right now, Inman reached out to a number of industry members and experts. The takeaway from these conversations is that pocket listings are in fact thriving in some areas. That means concerns also persist about discrimination and fairness in housing.

But while these issues aren’t going away any time soon, some innovators in the industry are simultaneously working on entirely new models for selling homes outside the MLS system.

It is, to put it kindly, a dynamic time for off-market real estate.

What’s going on with pocket listings now?

With two years on the books since NAR approved the Clear Cooperation Policy, the big question now is if pocket listings are still widespread. And the answer appears to be “yes.”

Jonathan Miller

That, at least, is according to Jonathan Miller, president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm. Among other things, Miller tracks pocket listings in certain markets by cross-referencing transaction records with MLS data to determine how many houses are actually marketed to the public. Miller told Inman the method isn’t a perfect measure of pocket listings, but still gives a sense of how many houses sell without ever opening up to the broader public.

Miller said that in the second quarter of 2019, pocket listings appear to have represented a whopping 25.3 percent of all home sales in the pricier parts of Los Angeles — essentially the West Side and Downtown.

A year later, in the second quarter of 2020 — which is actually when the Clear Cooperation Policy went into effect — the share of pocket listings in that same region actually rose to 27.5 percent.

Finally, in the second quarter of 2021, the share of pocket listings in the higher-priced parts of L.A. fell to 21.4 percent.

Miller doesn’t know why the share of pocket listings fell in 2021, though he speculated that it could be because of NAR’s policy or thanks to coronavirus impacts. Either way though, such listings still represented more than a fifth of home sales in parts of L.A. as recently as this spring.

It’s worth noting, of course, that the areas Miller was analyzing include Bel Air, Brentwood, Beverly Hills, Malibu and other enclaves of the very rich and famous. And Miller noted that “the more expensive the location, the higher the probability of pocket listings.”

“The higher end is where we see more of this type of activity,” he added.

But Miller also said this phenomenon is going on across the U.S. right now.

“This isn’t an L.A. thing, this is just everywhere,” Miller told Inman. “We definitely see it in New York and other markets we cover.”

Comprehensive data about the state of pocket listings in the entire U.S. is spotty. However, in May, Redfin’s Kelman argued against pocket listings and shared data with Inman showing that in November of 2019 pocket listings appeared to represent 2.4 percent of the total market.

However, by May of 2021, that share had actually risen to 4 percent — a jump of 67 percent.

Credit: Redfin

Kelman’s data — which Redfin recently told Inman was the most current it had at the time of this writing — also showed that in some markets such as Chicago, Minneapolis and Columbus, Ohio, pocket listings represent as much as 10 percent of homes being sold.

Pocket listings show up in a variety of other data as well, including figures such as days on market. Future installments of this series will dive further into other data points while exploring the prevalence of the pocket listing phenomenon.

For now though, the basic takeaway is that pocket listings remain popular and widespread today.

How did we get to this point?

In the beginning, everything was a pocket listing.

Andrew Lieb

Andrew Lieb — an attorney who works on real estate cases and who also founded the real estate education institution the Lieb School — told Inman that in the early days of modern real estate in the early 20th century, most listings functioned the way pocket listings do now.

“We have to go all the way back to the very beginning before all the MLSs,” Lieb said.

In fact, the name “pocket listing” itself is a historic term.

Russ Cofano — an industry veteran currently serving as the CEO of Collabra Technology after stints at other well-known companies such as eXp World Holdings — told Inman that the term dates back to when listings were scribbled notes on cards agents held, literally, in their pockets.

Multiple listing services began changing things. According to the National Association of Realtors (NAR), the phrase “multiple listing” popped up as early as 1907. The concept became more widespread beginning in the 1920s, NAR has found, and expanded over the ensuing years and decades. Digitization took place in the final decades of the 20th century.

The digitization of the MLS system happened gradually, though Cofano said that by the time he entered the industry in the late 1980s the MLS he used was already electronic. Nevertheless, the pocket listing as both a concept and term persisted.

If the pocket listing idea is old, then, why has attention to it exploded in recent years?

Cofano suggested the answer is related to 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,” Cofano said.

The idea here is that in a seller’s market, it’s not hard to find prospective buyers. The value of an MLS is to increase exposure, but in today’s market, agents might be able to get enough offers to sell a house without needing that extra exposure.

So, a hot market arguably diminishes the need for an MLS and allows agents to sell listings even with a smaller pool. That’s not to say this approach is necessarily good or ideal — more on that below — but rather it offers an explanation as to why pocket listings have become such a hot topic at this particular moment.

In that context, pocket listings are likely to stick around as long as the current seller’s market hangs on.

“I suspect the probability of pocket listings proliferating will remain elevated as inventory continues to be in short supply,” Miller said. “That keeps the market moving quickly. It also pulls in sellers who are not necessarily willing to go all in but who are testing the waters.”

The arguments for and against pocket listings

The cons of pocket listings

Probably the biggest single criticism of pocket listings is that they exacerbate discrimination and segregation. In fact, this has been one of Kelman’s main arguments against the practice, including when he argued earlier this year that buyers excluded by pocket listings are “disproportionately people of color.”

Elizabeth Korver-Glenn

Elizabeth Korver-Glenn, an assistant professor of sociology at the University of New Mexico, has specifically studied how this kind of discrimination works in real estate. In response to an inquiry from Inman, Korver-Glenn provided a 2018 paper in which she found that “Black and Latino potential home buyers and sellers receive lower levels of competition and service and have limited access to white-controlled homes through practices like pocket listings.”

Bright MLS additionally told Inman in an email that “pocket listings, by definition, are exclusionary.”

In the coming days, Inman will dive further into issues of fair housing and discrimination, and how they’re related to pocket listings.

But those points aren’t the only arguments against pocket listings.

For instance, Bright MLS also said in its email that pocket listings can lead to “inaccurate and delayed statistical information,” which in turn impacts valuations.

“Lenders, appraisers, brokers, and others rely on MLS data to determine fair market value of properties; if data is not submitted to the MLS, then it will be difficult for those parties to ascertain [fair market value],” Bright MLS added.

Cofano also noted that pocket listings can weaken the MLS system. In a hot market, some agents may not feel too bothered by that. But Cofano noted that seller’s markets don’t last forever, and when a buyer’s market returns agents will want to have a strong multiple listing service.

“If you degrade the value of the MLS as an institution or as a critical piece of the industry, you can’t just turn it back on when the market flips,” he explained.

Cofano also said some of the more prominent arguments against pocket listings include the idea that they can potentially promote dual agency, and that they compromise agents’ role as fiduciaries.

The pros of pocket listings

While there are a number of compelling arguments against pocket listings, the issue sticks around because there are two sides to this story.

Two years ago for example, at Inman Luxury Connect, industry heavy weights Gary Gold and Mauricio Umansky — both of whom practice in the areas that Miller analyzed — both expressed skepticism about increased regulation of pocket and off-market listings.

“I do believe in off-market listings,” Umansky said at one point while on stage. “I do believe in pocket listings.”

The idea is that some sellers simply want the privacy they can only get through pocket listings. This argument has gained more traction with the spread of technology such as smartphones, and many luxury homeowners simply “don’t want their property exposed,” Cofano noted.

“Why should that seller be forced into doing something they don’t want to do?” Cofano replied when asked about the arguments in favor of pocket listings.

Cofano was broadly explaining the arguments on both sides, not taking a position himself. When asked where he stands, he replied that “there are legitimate arguments on both sides of the aisle, which is what makes this a contentious issue.”

“At the end of the day, the government will probably decide,” Cofano continued, adding that he thinks regulation will ultimately decide the matter within two or three years.

The evolution of off-market listings

With potential government regulation on the way, along with NAR and various local MLS policies on the books, one thing is clear: Pocket listings are facing more and more restrictions than ever before. But that doesn’t mean off-market listings generally are disappearing. In fact, some startups are currently working to address the demand for off market real estate in ways that go beyond the traditional pocket listing.

DropOffer

Greg Burns

Greg Burns co-founded DropOffer in 2019 and the company is just now on the verge of exiting its beta stage. In a conversation with Inman, Burns — who also serves as DropOffer’s CEO — said the firm’s tag line is “turning the off-market on.”

DropOffer allows people to make offers on homes that aren’t listed. The company is geared toward agents, who with their clients can identify homes of interest. DropOffer then uses a variety of data sources to contact the homeowners and present them with an offer, usually via email or a postcard. Many will turn down the offers, but the idea is that you ultimately miss 100 percent of the shots you don’t take.

“There are over 145 million homes in the United States, and at any given time there’s less than 1 percent on the market,” Burns said. “So what we’re doing is opening up the other 99 percent to buyers.”

DropOffer also has what it calls an “Offer Sphere,” which lets homeowners effectively raise their hands and let it be known that they’d consider selling for the right price. But the company’s main business model of focusing on buyers is significant because it flips the pocket listing concept on its head; instead of sellers taking the lead, buyers and their agents go out and find properties.

“We believe we’re the opposite of pocket listings,” Burns said.

The company plans to launch initially in the Washington, D.C., area and will focus on the “mid to upper market,” Burns said.

Aalto

Aalto originally started in 2017 as an agent-focused marketplace for off-market listings. However, when NAR approved the Clear Cooperation Policy, the company had to pivot.

Nick Narodny

“It meant agents could no longer use Aalto,” founder and CEO Nick Narodny recently told Inman. “So all the tools we built for agents on the sell side we handed over to consumers. It took us a year to reposition the company for the consumer.”

Narodny described Aalto in its current form as a kind of Airbnb for home sales; in much the same way someone might list a room on the short-term rental platform, a property owner can list a home to sell on Aalto. The company describes itself as “the homeowner marketplace.”

In some ways, this makes Aalto a kind of tech-enabled spiritual successor to the for-sale-by-owner strategy. However, Narodny said that Aalto provides photography and market analysis, among other things, for consumers using the platform. The company also has a brokerage license and, if a home elicits offers, Aalto steps in at that point to represent the property owner.

Narodny said Aalto has about 120 homes in California’s Bay Area in its market place right now, and that in all of the sales the company facilitates buyers are represented by their own agents. Homeowners get to decide what commission the buyer’s agent receives, though Narodny noted that most offer the local average.

The evolution

This isn’t a comprehensive list, but the point is that there are entrepreneurs approaching the off-market concept from both sellers’ and buyers’ perspectives. They’re blending agent- and consumer-oriented platforms, and along the way forcing a major evolution in the off-market landscape.

The existence of such companies — and of pocket listings generally — also highlights the fact that there continues to be plenty of appetite for off-market experiences. And it doesn’t look like that appetite is going away soon.

“I came to this realization,” Narodny said of his company’s genesis, “that there are probably a lot more people who are open to offers out there than are willing to do what it takes to go on a multiple listing service.”

Email Jim Dalrymple II

Glenn Kelman | NAR | Redfin
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