From the WSJ:
The 19th-century brick rowhouse on a leafy street in the capital’s upscale Dupont Circle neighborhood is the sort of property that usually would spark a bidding war in a hot real-estate market.
But when the elderly owners were ready to sell, the home didn’t appear in the local real-estate listings. There was no for-sale sign nor even an open house.
Instead, like a growing number of properties sold here and in other major cities, the home was sold as a “pocket listing.” Such properties aren’t advertised to the public but pitched mostly by word-of-mouth among tight-knit networks of agents and their clients.
Pocket listings—also known as “whisper” and “coming soon” listings—have been popular for years among celebrities and the wealthy seeking to shield their privacy. But they increasingly are used by a broader segment as the housing market heats up and inventory remains tight.
The practice has its critics. Some agents say pocket listings are anticompetitive, preventing sellers from getting full market value. Proponents say such listings are useful if homeowners are looking for a quick sale and understand it might result in a lower price.
Even in a strong property market, homes typically spend at least a week or two in a listing database, so appearing for only a day can be a telltale sign of a pocket sale. Though it isn’t required, some agents list pocket sales in the database so the selling price can be registered, helping them keep better track of the market.
Some agents note the practice can lead to problems beyond a lower sale price. Pocket listings punish buyers who lack connections and never have a chance to bid on properties. There is also the risk of discrimination, whether intentional or unintentional, if a property is shown only to an agent whose clients happen to all be white.
There is also the potential for a conflict of interest when an agent finds a buyer from a colleague in the same brokerage, which then collects fees from the buyer and the seller.
State laws don’t prohibit pocket listings, but generally require that agents serve their clients’ best interests, which includes wide-scale advertising to maximize a property’s value, said June Barlow, general counsel at the California Association of Realtors. However, many states allow agents to bypass that step if they get their clients’ written consent.
The trend comes amid growing frustration over a shortage of homes up for sale. Nationally, at the current sales pace, it would take 5.2 months to eat up the supply of existing homes on the market, according to the National Association of Realtors. That’s down from 5.6 months a year earlier and roughly the same level as in 2005, during the housing boom.