House hunters in the Philadelphia region may have encountered it during this red-hot real estate market: Their dream home suddenly appears on Zillow and Redfin, at the perfect price, in their preferred neighborhood, with the correct number of bedrooms, bathrooms, and more.
Then — before there’s even time to schedule a showing or attend an open house — the house is under contract.
It’s possible that another shopper simply moved faster — the region has not been immune from bidding wars when inventory is low. But there may be another reason the property moved so quickly: A home doesn’t have to be formally “on the market” to be for sale.
For years, “pocket listings” have quietly allowed sellers to give their homes a test-run before officially listing them. The practice — also called “whisper listings," “off-market listings," or “coming soon” exclusives — often takes the form of email blasts, social media announcements, yard signs, and web pages, which give insider access and advance notice of homes that are not officially for sale. Prices are often included, as are photos and property details. In many cases, buyers can take a tour days or weeks before the listing is officially live.
The idea, according to agents who handle pocket listings, is to let sellers test their home’s price, photos, or readiness before officially listing on a multiple listing service, a regional database that nearly all real estate brokers use to distribute information about the homes they sell. The technology feeds public platforms including Zillow and Trulia, both 2000s-born start-ups that changed the industry by making listings more publicly available.
Some real estate agents say it’s important for properties to have a “pre-marketing” period before the official “days on market” count begins. Buyer interest tends to drop as the number of days on market climbs and shoppers wonder why the home hasn’t sold, or whether it’s overpriced. Many Realtors say the first two weeks on the market are the most crucial for success.
Other industry observers say pocket listings demonstrate a worrisome lack of transparency and a possible fair housing issue, because only certain people are made aware of a property’s status. That is a disservice to sellers, they say, creating less competition for their homes, which can keep prices down.
“It’d be like me opening a hotel and not advertising it and just calling a few people to stay at my hotel," said Mike McCann, a Philadelphia real estate broker at Keller Williams. “How much business am I going to get that way?”
The debate has swelled in recent years, as the real estate industry has faced many changes and challenges. Real estate markets nationwide are reeling from some of the lowest levels of supply in recent history, which has driven up prices and kept many millennials and first-time buyers from purchasing homes. Meanwhile, start-ups and new competitors in the market — including new national brokerages such as Compass — have challenged the way that the industry has long operated.
Real estate observers who oppose pocket listings allege that the practice exacerbates these mounting challenges, dropping inventory even lower and promoting competition instead of cooperation when it comes to the best interest of the client.
Proponents say opponents are punishing innovative business models and restricting customer choice.
In recent weeks, two major real estate organizations took steps to rein in pocket listings. On Oct. 16, Bright MLS — the multiple listing service that represents roughly 95,000 real estate professionals in the mid-Atlantic region, including those in the Philadelphia region — instituted new rules for off-market listings. The National Association of Realtors (NAR) followed suit at its annual convention a few weeks ago, with a 720-79 vote by the trade-group’s board.
The Bright MLS decision, which takes effect immediately, requires agents to submit listings to the MLS within one business day of publicly marketing a property, defined as anything from yard signs to fliers and email blasts. If agents are caught violating the policy, they may be subject to a $5,000 fine from Bright, which agents say is a crucial tool to access the market. Jon Coile, chairman of Bright, said he believes the fine’s price is high enough to deter agents from writing it off as “the cost of doing business.”
The new ruling by the NAR, called the Clear Cooperation Policy, essentially says the same. NAR considers itself the country’s largest trade organization, representing 1.3 million members. The group’s policy becomes effective May 1.
“We want to create a market that’s open and fair, and that is pro-consumer,” Coile said. “The sellers get the most exposure to the most possible buyers so they can get the highest possible value for their houses. It’s also pro-buyer. They can pick their favorite agent. And they can buy anything.”
Coile also said the policy change prevents agents from privately marketing listings to their own pool of buyers and then double-dipping — making it easier to collect the entire 6% commission for themselves.
The policy change drew swift reaction on both sides. Compass, the real estate start-up with a growing presence in the Philadelphia region and a member of Bright MLS, sent a “pre-litigation” letter in October to Bright’s president, Brian Donnellan, calling the policy change “unlawful, anti-consumer, and anti-competitive."
“The limitations it places on brokerage pre-MLS marketing programs — and, in turn, consumer choice — are highly problematic...,” wrote Cory Perkins, Compass’ head of inventory strategy and operations. “The policy is further problematic because of Bright’s high market share, and the fact that the MLS is an essential service.
“If the MLS were to exclude members from using the MLS if they did not agree to this policy ... those members would have no viable alternative,” Perkins continued. “Such retaliatory actions would plainly be anti-competitive and would necessarily draw scrutiny from consumers and the government.”
Last year, Compass launched “Compass Coming Soon," which allows agents to post listings to the brokerage’s website days or weeks before sharing them with the MLS. Though the policy is slightly different from other forms of pocket listings — ones in which a seller’s agents exclusively market property off the radar to select pools of buyers — Compass Coming Soon listings only appear on its website. The brokerage does not restrict agents from showing Coming Soon listings to buyers before they are on the MLS.
At Compass’ Center City office last summer, Lance Pendleton, the brokerage’s head of agent development, explained the benefits of its Coming Soon program while leading a seminar.
“Right now, how many of our competitors have on their website exclusive property listings that have not yet made it to market?” Pendleton asked. “We are the only brokerage in the country who can give you [two weeks] — the most important time on the market — twice.”
Compass declined to comment for this story.
Bright’s president defended the platform’s policy in a response to Compass last month, saying that pocket listings put “brokers’ own interests before consumers, while creating the appearance of (and enabling) fair housing law violations.”
“We do not believe business models that encourage market distortion or exclusionary practices are ‘pro-consumer,’" Donnellan wrote, adding an invitation to Compass to meet and discuss its concerns.
The Bright MLS and NAR rules do not prevent agents from listing a property as “Coming Soon” on the MLS, as long as it’s on the platform and is not shown to customers until the property is officially on the market. Agents can market “Coming Soon” properties for up to 21 days.
Additionally, Bright MLS will make exceptions for clients who want privacy during transactions. Properties can be marketed off-platform in those cases as long as there is no public marketing, too.
Chris Somers, president of the Greater Philadelphia Association of Realtors, said he agrees with the new policy because “it’s important for agents and consumers to get access to lists as they come.”
But as the policy rolls out, he hopes people are patient as “administrative headaches” are sorted out.