This is the second in Inman’s five-part series on pocket listings in today’s market. Check back in the coming days for additional features and click here for the first installment of the series. Wednesday: An explosive new survey reveals an unprecedented increase in listings selling with zero days on market.
In 2020, the real estate industry faced a decades-in-the-making reckoning as the nation mourned the tragic murder of George Floyd by a Minneapolis police officer. Real estate leaders, institutions and professionals began examining the practices that kept the dream of homeownership out of reach for millions of minority homebuyers, who still battled the long-standing impact of segregation, redlining and subprime lending.
In response, brokerages released statements decrying discrimination, launched diversity initiatives to create more broker-owners of color, pointed out the need for systemic solutions, such as a more holistic credit system and tougher fair housing enforcement, and cracked down on agents who blatantly violated their charge to serve consumers, no matter their identity.
However, in the quest to squash those obvious acts of racism and discrimination, the more silent ways minority homebuyers are disenfranchised continue to fly under the radar. One example? Pocket listings.
How de-facto segregation plays into pocket listings
“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,” National Association of Realtors Vice President of Policy Advocacy Bryan Greene told Inman. “Regardless of your background, it narrows your market, restricts an opportunity, it provides less transparency.”
“Lastly, it can perpetuate segregation because America is very segregated as it is, and our social networks tend to reflect that,” he added.
Greene said he doubts agents who utilize pocket listings, which is the practice of waiting to list a property on a multiple listing service (MLS) or not publicly listing it at all, purposely do it discriminate against homebuyers of color. However, the simple fact that the nation (72 percent) and the real estate industry (78 percent) are majority white and three-quarters of white Americans don’t have a racially diverse network, means that pocket listings are more times than not, disproportionately hurting minority homebuyers.
“There have been some studies done, and it appears that the networks of white agents can be much more homogeneous than the networks of agents of color,” he explained. “Agents of color, who are minorities [in the industry], are trying to reach the widest possible market because it’s a numbers game — it’s just a function of being a person of color in this country. It benefits you to have multiracial associations because it helps to have opportunities among the mainstream population.”
University of New Mexico Assistant Professor of Sociology Elizabeth Korver-Glenn’s 2018 landmark study about pocket listings backs up Greene and other fair housing advocates’ assertion about the inherent discrimination baked into the practice.
Over the course of a year, Korver-Glenn closely researched 10 real estate agents in Houston and conducted another 49 in-depth interviews with real estate agents, homebuyers and homesellers in the area. Throughout the course of her research, Korver-Glenn discovered a highly fragmented professional landscape that kept minority real estate agents on the fringes, as white professionals tended to primarily network with each other.
That landscape paired with exclusionary practices led to homebuyers of color losing out on potential listings, she said.
“White consumers receive higher levels of competition and customer service, and disproportionate, exclusive access to housing,” the study read. “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.”
“White [real estate agents]—who have homogeneous, white networks—do not need to steer their clients to maintain social and economic advantages,” it added. “Instead, the new inequality can happen as white [real estate agents] cultivate primarily white pools of housing consumers. Whether intentionally or unintentionally, this practice results in virtually self-perpetuating social closure.”
The rise of pocket listings
Although NAR effectively banned pocket listings through the Clear Cooperation Policy, which requires agents to place a listing on the MLS within one day of marketing it to the public, the share of pocket listings nationwide has nearly doubled from approximately 2.4 percent in November 2019 to 4.0 percent in March 2021, according to Redfin.
Redfin Chief Economist Daryl Fairweather said Redfin’s pocket listing study solely focused on pocket listings that never made it to the MLS, which means the actual share of pocket listings could be higher.
“Markets like Kansas City, Columbus and Minneapolis had 10 percent of sales pocket listed and in Chicago, it was 15 percent,” she said. “And the price point for pocket listings runs the gamut. It’s not limited to the high end — it’s pretty well distributed across the different price quartiles.”
Sociologist and Nerdwallet Mortgage and Housing Expert Kate Wood said the growing share of pocket listings, despite NAR and MLS regulations, partially comes from “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,” she said. “Then the next business day is Monday evening.”
“So they’ve got 72 hours now that that home is under contract and they’re allowed to show it, but they don’t have to list on the MLS,” she added. “That gives them this fairly big window of the weekend which is when a lot of people will see homes, anyway.”
Furthermore, she said, when those “less scrupulous” agents actually place their listings on the MLS, there will be a limited number of photos and information as they’re likely already fielding offers from buyers. “It’s really just being put on the MLS for the sake of show, just to say, ‘In good faith, I did this,'” she added. “But in reality, the home has already more or less been sold.”
She continued, “This is really allowing sellers to enter a market where sellers already have the upper hand, to get all of the hand because they can choose who to show their home to.”
Beyond some agents trying to game the system, Bright MLS Executive Vice President of Customer Advocacy Rene Galicia said another issue comes from agents who are following the rules but fail to be more exacting about when to take advantage of the options Bright MLS or other MLSs provide.
“There’s a legitimate use case scenario for pocket listings, under existing policies,” Galicia said in reference to Bright’s three-business-day deadline and office exclusive option. “Office exclusives in particular came about as an exception to the general rule. The general rule, of course, being that all listings have to be filed and shared cooperatively with the service.”
“The office exclusive policy allows listing brokers to be responsive to their clients that have privacy or safety concerns, and certainly that makes sense,” he added. “If you’re the subject of a protection order or you’re going through some sort of litigation or a sensitive transaction where you have some privacy or safety concerns, the seller should have an avenue to direct an office exclusive.”
Galicia said listing agents may also need to bide time while sellers do repairs, which he said is another legitimate reason to use pocket listings. “Those scenarios are real, but they’re likely far and few between,” he said in reference to the temptation to overly rely on pocket listing provisions. “We’ve adopted other mechanisms to still allow for that cooperative sharing, such as the adoption of ‘coming soon’ statuses help provide phased listing exposure that’s sometimes needed.”
The real-life impact of pocket listings on minority homebuyers
For those agents who doubt what harm could be done to a minority homebuyer by taking advantage of provisions that allow you to wait one, three or however many business days your MLS allows to publicly list a home, Fairweather said it exacerbates the struggles minority buyers already face in a fast-paced market where homes are snapped up in an instant.
“Right now 33 percent of homes have an offer accepted just one week of hitting the market, so a couple of days makes a big difference because the market is moving so quickly,” she said. “There’s a rule of thumb in real estate, that the first offer you get is probably the best offer, and sellers get tempted just to take the first offer simply because it’s higher than what they expected.”
“So, pocket listings not only potentially hurt buyers, they hurt sellers, too,” she added.
Beyond sellers and listing agents, Wood said some buyers are also creating their own pocket listings by utilizing their networks to find out who’s on the brink of listing and swoop in before anyone else can make an offer. Just like traditional pocket listings, she said, the buyers who are able to do this are primarily white, as homebuyers of color likely don’t have the real estate connections to pull such a deal off.
“They’re approaching people who aren’t actually selling their home, but they’ve maybe heard through either their agent or someone else that this person might be thinking about selling, and they go to them directly when that home is not actually on the market,” she said. “Buyers who are doing this tend to not have buyer’s agents that they’re working with; they’re just approaching the listing agent directly and so then the listing agent would be able to be a dual agent and get the entire commission on that sale.”
“This is a practice that you’re more likely to see in extremely high demand markets,” she added. “Even though it is the buyer themselves going out and taking the initiative, it likewise is something that just contributes to discrimination and can contribute to homogeneity and keeping neighborhoods the same over time because sellers very often will sell to people who they feel are similar to them, or who they feel would be ‘a good fit for the neighborhood.'”
Greene said the studies about how pocket listings impact minority homebuyers and homesellers are few and far between, and there needs to be more exhaustive research that outlines the short-term and long-term financial impact on consumers and on cities’ efforts to reverse the impact of decades of redlining. Although it’s difficult to put a dollar amount or statistic on the issue, he said, it doesn’t mean the real estate industry should ignore anecdotal experiences.
“There are many reasons why people of color want to see homes more widely marketed,” he said. “Obviously, advertising housing more widely would be more beneficial for housing justice. Even without exhaustive research, it doesn’t take much to realize that. If you stick to your existing social networks, you’re likely to perpetuate the racial patterns that are found there.”
What’s the solution?
As Newsday‘s 2019 investigation ‘Long Island Divided’ proved, many minority homebuyers aren’t even aware of the ways they’re discriminated against during the transaction process, especially if they’re first-time buyers and don’t have many homeowners in their circle.
The same thing happens with pocket listings, as minority homebuyers are unlikely to even know what they’re missing out on. That’s where real estate professionals, especially those in positions of privilege and power, can step in, National Fair Housing Alliance General Counsel Morgan Williams said.
“Regardless of your intentions, you are operating within a housing landscape impacted by segregation, and you impact how that’s perpetuated or not,”he said. “You have to bear in mind the context of residential segregation is across neighborhoods, how your practices can perpetuate that and how you, as an agent, can operate in a way that promotes housing choice as much as possible.”
Galicia said agents can 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?'”
For agents who are concerned about their sellers’ privacy, Fairweather said agents can encourage sellers to place their home in a trust so buyers aren’t able to find personal information. Agents can also create other rules regarding open houses, she said, that protect sellers from looky-loos or others with unsavory motives.
“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.”
Next, Wood said agents can do more to anonymize offers to stifle the impact of implicit bias and help sellers make a decision simply based on the strength of an offer.
“Agents are doing things like creating a spreadsheet for their clients of the offers that they’re getting, and they aren’t seeing buyers’ names because that can potentially tip you off to the race or ethnicity of a buyer, or something else, like if they’re part of a same-sex couple,” she explained. “The seller will only see the amount they’re offering, their downpayment, their closing timeline, and other nuts and bolts of the offer they’re proposing.”
“It makes it easier for the seller to make a decision, just based on the actual merits of each offer and which one is right for them, whether it’s the highest offer, whether it’s the one that works with their timeline, or whether it’s the one that they think will just be the easiest, ” she added. “It’s sort of taking the identity of the buyer completely out of the equation, which could be really helpful in terms of mitigating discrimination.”
In addition to being more critical of their own practices, Greene said the industry needs 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.”
“And because homes aren’t advertised to the widest possible market, buyers aren’t learning about everything available to them,” he added. “I think it helps all of us in the industry to come up with a wider range of solutions to address seller concerns while making housing opportunities more widely available.”
Finally, Greene said it’s important for white real estate professionals, in particular, to attempt to place themselves in the shoes of minority consumers and colleagues to re-examine some of their practices.
“I think it’s always helpful to ask questions like, ‘How would my colleague, who’s an agent of color, experience the situation differently? Or if I were an agent of color, how would this transaction be different? How would my experience be different with respect to my social networks? What are my friends of color experiencing selling real estate?'”
“I think when people put themselves in other people’s shoes, it begins to shed light on the disparities, and some of the unintentional ways, our social settings and our social networks, and really just social segregation in this country reinforce existing patterns problematic,” he added. “Many people in the industry become more reflective regarding the role of the real estate industry in perpetuating housing patterns.”
“There’s a value to just asking questions regarding your everyday situations, and how if you were of a different background, how that situation would be different.”