Use of Pocket Listings in California: What You Should Know

What are Pocket Listings?

A pocket listing is a type of real estate listing agreement that is not widely disseminated as part of the property marketing process as a normal course of business. Often used when an owner has specific reasons for wanting to sell their property without it being broadly marketed, pocket listings allow a seller to retain control over the terms of the sale and who can view it. This is generally done by asking the listing agent not to make a multiple listing service (MLS) entry for the property.
Improved privacy and security, control over who shows the property, and a potential advantage in negotiating the contract price are all part of the original reasoning behind pocket listings. For example, a wealthy family might have a home where they choose not to provide access for the MLS. They want the ability to retain control over who comes through their home without unwanted visitors.
A typical set of motivations for a property owner to opt for a pocket listing is if the seller wants to keep the details of the home out of public view for some reason. In some cases this is because they are in the middle of a divorce or a legal matter, and they want to protect the existence of the asset in question. Otherwise, it could be because a family is traveling for an extended period of time and they don’t want to make their address easily accessible. Some sellers simply want to maintain control over the situation , or they may not want third parties to use a potential sale as leverage in negotiations for other matters, such as future employment or business deals.
Unlike a listed property that allows agents to have open house days and where listings are sent out automatically to interested buyers and to the MLS, pocket listings are more private. This means that less information about the house is widely available and not available to the general public. A pocket listing is usually done with discretion as an attempt to target very specific customers for a sale rather than pitching a home to anyone possible. Well-known and desirable properties and neighborhoods may benefit from the desirability that comes with an exclusive listing. Therefore, they may be easier to sell with a pocket listing than with a traditional one. If the seller doesn’t want a large number of people walking through the property or having the information available online, a pocket listing is beneficial.
For both sellers and buyers, pocket listings can be advantageous under the right circumstances. Although they may be tricky to navigate in terms of the general real estate process, they do allow for the smoothest possible sale of a property in some cases. This makes it beneficial to learn more about pocket listings in California, particularly if you are thinking about selling a home soon.

The Legal Status of Pocket Listings in California

Pocket listings have long been a source of controversy among real estate professionals and investors. While these listings can be a boon for some investors looking to capitalize on off-market real estate deals, they can also present challenges and legal risks that must be navigated with care. Responding to recent concerns expressed by the California Bureau of Real Estate (CalBRE), the California Association of Realtors® (the "CAR") on November 1, 2015, issued an updated Standard of Practice 1-12. This amendment states that more than 72% of home buyers find at least some of their properties through the Multiple Listing Service (MLS), but only 17% use pocket listings. The CAR Standard of Practice further provides that an exclusive listing agreement should not preclude a listing broker from marketing the listed property by any other lawful means, including advertising in MLS, at brokers’ tours and open houses. CalBRE issued its Opinion regarding pocket listings on November 3, 2014. In particular, the Opinion (i) furnished warnings to both the listing agent and the broker that pocket listings may violate both the law and the stated policies of numerous MLSs in California, (ii) cautioned the listing agent and broker that pocket listings may give rise to potential liability, and (iii) recommended listing agents and brokers embrace technology that permits more expansive access to pocket listings, such as zip forms designed for pocket listings.
As such, pocket listings in California exist within a complex legal framework. Key regulations and provisions that govern pocket listings include: Business & Professions Code § 10131 requires that a licensee act on behalf of another to do either of the following: Among other things, this statute causes a licensee who sits on pocket listings to be regarded as a real estate broker who is required to comply with the requirements of a real estate broker under California law. As a result, the licensee becomes subject to the disclosure requirements of B&P Code § 2079.16, as well as the general fiduciary duties of a real estate broker. This statute will be important for investor-clients because if pocket listings are not disclosed as required by the statute, the omission may be fraudulent in nature.
Prior to December of 2006, MLSs throughout California began to require that any contract or listing form state that there was no relationship by contract between the listing broker and the client that prevented the listing broker from disseminating to other brokers any listing of property. However, the CAR forms do not use the language suggested by the MLSs. In fact, while the CAR listing agreement provides that the broker has the right to control the manner, time and frequency of advertised showing of the property, it does not provide that listings are to be made available to other brokers. As such, CAR forms may still be used by brokers who do not intend to disseminate pocket listings through MLSs.
In California, the Department of Real Estate (the "DRE") regulates real estate brokers and salespersons. The DRE’s primary brokers’ regulations are set forth in B&P Code § 10085 et seq. and 10 Cal. Code Regs. § 2700 et seq. Among other things, the DRE has authority to suspend or revoke any license. In fact, on October 19, 2015, in the matter of Joe Orlando, the DRE invoked its power to revoke Orlando’s real estate broker license on the basis of violations of B&P Code §§ 10130-10139 and 10075-10080. Mr. Orlando was a licensed real estate broker who operated the MLS in the San Fernando Valley. Among other things, Orlando segregated listings of some properties from the larger community of MLS users, thereby stifling competition among his licensee peers. To this end, Orlando engaged in a practice commonly known as a "pocket listing." Orlando did not deny the allegations set forth in the accusation against his license, but rather settled the matter with the DRE.
Additionally, the California Attorney General has addressed pocket listings. For example, in 1969, the AG opined that a broker could not withhold property from the MLS in order for the broker to represent themselves as being the sole agency with the exclusive right to sell the property. More recently, in 2009, the AG opined that tighter restrictions on pocket listings and non-disclosure agreements in California would benefit consumer interests in the state.

The Pros and Cons of Pocket Listings

For sellers, the pros are seemingly clear. You get the benefits of your home not being fully exposed to the public. Depending on the Columbus-Style policy of the MLS you subscribe to, it may mean that you don’t have to disclose as much about your home that other sellers would. There’s also the benefit of not having your property signage on display throughout your neighborhood. You can also maintain more control over your property due to the private nature of the transaction.
In the case of buyers, the benefits are there as well. Squeezing through the needle, so to speak, might possibly get you a good deal. With pocket listings, there’s a faster chance of getting an offer accepted and not having to compete against other potential buyers and their agents. A pocket listing can also be a way for someone looking for a deal to obtain one without some of the hassles that go along with a public listing.
But while pocket listings have their advantages, they are not without risks. While sellers can maintain more privacy, it comes at a cost. Many times sales prices are negatively affected by pocket listings. If a seller is willing to sell only to a buyer who is willing to pay top dollar for a property, then the pocket listing may be viable. However, if a seller is trying to set a justifiable price and compete with other listings, a pocket listing may work against them by artificially limiting buyer interest and offers. For this reason, sellers may be misled into thinking they’re getting a better price than they would for a public listing.
On the buyer side, the risks are magnified. While pocket listings could mean a way to avoid the competition, it could also mean you’re making an offer on a home sight unseen. This can be highly problematic for several reasons. For starters, pocket listings have been known to be utilized for homes that are in need of significant repairs or are not desirable for other reasons. It is widely known that some realtors only show homes to selective buyers. What further complicates the bargaining process is the lack of full and fair information. If the conditions of the home are not fully known to a potential buyer, their offer may go awry because they don’t fully understand what they are paying for. Worst of all, potential buyers can ask to take the home for a walk-through only to find that it is completely dilapidated or in need of serious repairs.

Industry Guidelines and Ethical Considerations

With the surge in popularity of pocket listings, numerous real estate associations have outlined the industry guidelines addressing the use of such listings. The National Association of REALTORS® ("NAR") Policy Statement 12-3, for example, states that "[p]roperty listed for sale shall not be marketed publicly without the informed consent of the seller(s)." In addition to this general guideline, a number of organizations have developed comprehensive guidelines specifically addressing the use of pocket listings.
The California Association of REALTORS® ("CAR") has provided Guidelines for the Use of Pocket Listings, which are in line with the NAR policy statement. These guidelines were republished by the Los Angeles County Board of REALTORS® in a newsletter they distributed in March 2017 (March 15-21 Issue), which also covered the pocket listing debate. The CAR Guidelines state that "[t]he MLS requires disclosure of the fact that the property will be withheld from the MLS, the reason for withholding it and [a]n appropriate status." CAR Relator® members "are not permitted to make public comments or post information about pocket listings on social media." Furthermore, "[r]elator® members should not place their own private toll-free hot line as the Contact (on the MLS)."
The California Regional MLS, Inc ("CRMLS") also punctuates the importance of proper disclosures in its rules and regulations, which were effective April 17, 2017, stating in relevant part that "[m]aking any public comments or posting information about Pocket Listings on social media is strictly prohibited." CRMLS also provided a template that brokers may use when preparing the necessary Pocket Listing Disclosure for the sellers to review and sign. The disclosure is clear in requiring the seller to acknowledge the positive and negative aspects of pocket listings. Among the benefits are the ability of the broker to pre-screen potential buyers, show the property to qualified and serious buyers only, the ability to "get exposure through private real estate tours," the fact that "public open houses are not required," that the seller is free to "negotiate privacy," and the added benefit of not using expensive staging, cleaning, and marketing materials when not using the MLS. On the other hand, the seller also acknowledged that, among other things, pocket listings provide fewer buyer opportunities, the property may sell for a lower price because it is not exposed on the MLS, and the seller is not maximizing the benefits of a MLS.

The Impact of the Clear Cooperation Policy

Due to the rise of pocket/coming soon listings and the increased frustration within the industry, in late 2019 the National Association of Realtors (NAR) adopted the Clear Cooperation Policy (CCP), which became enforceable in May 2020. Under this new policy adopted by the California Association of Realtors in January of 2021, residential real property listings must generally be submitted to a MLS within one business day of marketing the property to the public. If a property owner requests that a property be listed on an MLS, then the property owner must comply with the CCP, and provide the MLS with the appropriate listing data. The CCP will not apply if: (i) the seller is an owner-user who has concern about their private information being shared publicly; (ii) the seller is an anonymous LLC; or (iii) rental property in an HOA that does not allow rentals. While a seller may opt out of the CCP for the reasons described above , once the owner serves a written notice to the MLS and/or listing broker, the property cannot be marketed to the public, a period of more than one business day. Realtors must comply with CCP, and must also make a nondiscriminatory payment or fee to the MLS that administers the MLS where the listing will be published, at the time the listing is submitted. If the listing is marketed to the public without being shared with the MLS within the time prescribed, the agent must document the decision to not share in the MLS, and place the documentation of the decision into the MLS, regardless of the market status of the listing (even if the listing is not yet in the MLS).

How to Legally Use a Pocket Listing

There are several ways for real estate agents and sellers to use pocket listings legally and ethically in California. First, you can disclose the pocket listing to your clients, providing them with the rationale that you believe the listing would be better off marketed outside the MLS. It is easier to gain the green light here if you have sales data and a good explain why you believe that is the best option.
Second, you can draft a short addendum to have your seller’s signature. The addendum should simply state that the seller acknowledge the benefits of marketing the home on the MLS, but that they have chosen to proceed with a pocket listing. If you are working with a buyer and believe that the pocket listing is priced too high, it is your duty to counsel them as well.
To protect yourself and the seller, make sure you put all of your communication to the seller in writing, such as e-mails, texts, etc. If you need to for disclosure purposes put it down on paper, even if in an informal text message, journal, or by any other method you can think of. Maintain copies of all communications with the seller. This is the best way to protect yourself should something go wrong.
If you see issues in the property that you believe represent material facts, follow the same counsel above. In other words, put it down in writing. If a later problem arises with a pocket listing, for example if the seller failed to disclose a material fact to a buyer or lender, this record will serve as evidence for which side was truthful with the story. Always protect yourself.

Final Thoughts

In conclusion, pocket listings are legal in California, but come with specific requirements that must be followed to avoid running afoul of Department of Real Estate regulations. As such, California real estate brokers and their clients should carefully consider the legal implications of pocket listings and be mindful to enter into written agreements with the seller outlining the reasons for, and agreement to, a pocket listing. Of course, if the seller is seeking to designate brokers by class or type, the designated agent must be identified and the agreement to designate them is critical.
Furthermore , agents engaging in pocket listing agreements should always remember their obligation to comply with any governing laws, including those regarding the protection of the seller by preserving and maintaining confidentiality, as well as by protecting privacy and personal information of the seller. A failure to comply with these rules and omission of any pertinent seller information to the buyer could result in the imposition of punishment or disciplinary actions against the pocket listing agent and broker.