When a couple looking to buy their first home approached real estate agent Annette Dedios at the beginning of the year, she knew it would be tricky to find something that fit their needs. They were looking to buy in Fresno, California – dubbed “the nation’s hottest housing market” by the Los Angeles Times back in March – and most of the homes listed in their desired neighborhood were above their price point.
Dedios had previously found the couple a condo in 2019, so when they approached her to get pre-approved to buy a house, she got to work. But, as she was doing so, her clients were poached by another agent – one who gave them an attractive offer: go with him to sell their condo and he would show them a home that was not yet on the market.
So-called “pocket listings” like the one that caused Dedios to lose a sale are not a new phenomenon. Brokerages have used them for years to corner the market by way of having the opportunity to represent both buyer and seller, keeping these sales within their network. They grew so prevalent in some parts of the country that the National Association of Realtors (NAR) passed a policy against the practice in 2019, requiring brokers to list any property that they are marketing to potential buyers on the multiple listing service, or MLS, a publicly available online database.
Still, real estate professionals say there are loopholes in the policy that allow the practice to persist, and in some cases worsen, because of the pandemic. The NAR policy does not ban “office exclusives,” which allows brokerages to market listings privately within their networks rather than listing it on the MLS. Advocacy groups such as the Consumer Federation of America have argued this loophole allows discriminatory housing practices to persist. Nor does it ban “coming soon” listings, which allow buyers to get a jump-start on a property and potentially close on it as soon as it hits the market.
The number of homes that have likely sold without being marketed to the public has grown by 67 percent since November 2019, when the NAR adopted its stricter rules, according to a Redfin analysis tracking MLS listings that were marked “sold” or “pending” the same day they were put on the database. Over the past year and half, demand for housing skyrocketed while supply shrunk to historic lows. Nationwide, 32 percent of homes sold in March of this year went for above list price, compared to 14 percent in 2020, according to real estate marketplace Zillow.
“There have always been pocket listings, but not like it is now,” said Liz Hogan, a luxury real estate agent with the brokerage firm Compass in South Florida. “We have so many people relocating to Florida, and there are literally not enough properties for all the people who are moving here.”
Hogan said she and other agents are part of WhatsApp chats where they share information on homeowners who are looking to sell their properties. In these chats, she said, “you say you know of an owner who is willing to sell in [a certain] neighborhood, and you’ll get like 10 responses. It’s almost like [these offline conversations have] become a secondary market.”
While pocket listings can be lucrative for real estate agents, some realtors expressed concerns to the PBS NewsHour that sellers do not get the best deal when they keep their properties from being marketed to the wider public, because there’s no chance for multiple offers to compete against one another. And with home prices already at historic highs, housing advocates worry that the practice could worsen already-existing racial and socioeconomic disparities in homeownership, as well as shut some buyers out of the market.
“It kind of feels one step removed from those racial covenants of the 1960s, which would explicitly say, ‘do not sell this home to anybody who was not white,’” said Daryl Fairweather, a chief economist with Redfin, which has come out against pocket listings. “Now, it’s not so explicit. But you know, it might serve the same purpose … who are you excluding?” Fairweather asked in reference to the practice.
How a historically tight market created conditions for pocket listings to thrive
A confluence of factors came together over the past year to shape this most recent housing boom.
When the coronavirus pandemic confined many people to their homes last year, those who were lucky enough to keep working began looking for properties with more space. The desire to purchase a home accelerated particularly fast among millennials who are now in their peak home-buying years, explained Alexander Hermann, a senior research analyst with the Joint Center for Housing Studies at Harvard University. Such buyers were attracted to the market not only by the desire for more space, but also by historically low interest rates.
At the same time, pandemic-related supply chain constraints – including a lumber shortage – slowed down construction of new housing and brought inventory to a historic low. As of last September, there was only an estimated 3.5 months’ worth of housing supply available in the U.S., a level not seen in more than 15 years. In the two years prior to April 2020 inventory did not dip below five months’ worth, according to Census data. Jeff Tucker, a senior economist with Zillow, told the PBS NewsHour that in June the company’s for-sale inventory was down 29.2 percent from the previous year, although inventory has ticked up slightly within the year – there were 3.1 percent more homes available that month than in May, he said.
Because of these compounded circumstances, buyers are aggressively seeking homes, even if they are not immediately turn-key ready. These days, “a home will sell in two weeks, no matter what condition it’s in,” said Dedios, the agent in Fresno.
This historically low supply has made pocket listings all the more attractive to some real estate agents, said Antonia Ketabchi, a real estate agent with Redfin in Bethesda, Maryland.
“Every listing, every home, is just that more valuable since there’s so few of them,” she said. Ketabchi also noted that while pocket listings were prevalent in her region prior to the pandemic, she’s now noticing more homes that are sold before being listed on the open market.
Agents who spoke with PBS NewsHour said that you can usually tell if a home purchase was secured through a pocket listing if it’s marked as “sale pending” or “sold prior to publication” when it’s listed publicly on an MLS database. Ketabchi said that her buyers will spend hours scanning the MLS database as well as Redfin for available homes, and become discouraged when they see there are homes already sold by the time they are advertised publicly.
“It’s just a terrible conversation to have – when you have to explain to people why suddenly houses pop up as pending without ever hitting the open market,” she said.
Eduardo Claros, who started looking to buy a home in Sacramento last year, said it was not unusual to receive a notification that the sale of a home was pending before he and his wife even made it to the open house to view the property. They had difficulty navigating the process to bid on both existing homes and new builds, and Claros said the experience made him feel that as a buyer, “there is no way to verify … that you’re getting treated fairly or being evaluated equally.”
NAR policy does require brokers to publish listings on the MLS within one day of marketing them to the public, but realtors can get around this policy by working their networks to find out about properties that have not yet been listed, South Florida agent Liz Hogan explained. She also said that the hot market has pushed some agents to flout the normal processes of finding homes for their clients, given there are so few options in certain neighborhoods.
“Agents will have a buyer for a certain neighborhood and they literally will go door to door right now knocking to try to find something that’s available,” she said.
Sellers may decide to keep their homes off the market while looking for someone to buy it for a variety of reasons, real estate agents told the NewsHour. Sometimes property owners who are very high-profile wish to keep the listing off of a public database for privacy reasons. But during the coronavirus pandemic, said Susanna Kunkel, a real estate agent in Philadelphia, more people considered selling through pocket listings because they were concerned that letting potential buyers into their homes would pose health risks.
Elizabeth Korver-Glenn, a sociology professor at the University of New Mexico who has studied pocket listings, said she’s spoken with real estate agents over the past year who are so inundated with offers that sometimes they’ve engaged in the practice just to avoid vetting all of them.
“It’s definitely not just exclusive to luxury properties,” Dedios said of off-market deals. “It could happen for any property that a seller is wanting to sell.”
For buyers who are struggling to find homes to buy in their price range, pocket listings may present an enticing opportunity in the current market. Rori Dawes, a 42-year-old health care professional, nearly gave up on the process after she and her partner had three offers on homes in the Concord, New Hampshire, area rejected.
“We were not even in the ballpark of what the houses ended up going for,” Dawes said. “Most of them were at least $50,000 over the asking price.”
But in April, the couple heard about a property through a real estate agent who was also a colleague of Dawes’s fiance’s mother. The property belonged to the agent’s sister, who was recently widowed, and she didn’t want to list it publicly because of the sensitive nature of the sale. The couple put in an offer after seeing the property, which the agent accepted, and it closed before going on the market.
“We got extremely lucky,” Dawes acknowledged. “If it went on the market, I’m sure [the agent] could have gotten more for it.”
While Dedios said she understands why people in the market for a home are drawn to certain properties that they hear about through their connections, she worries that sellers don’t get the best offers when they exclude the wider public from their listings.
“In a market like we’re in now, where the [COVID] restrictions are easing up, people are more comfortable with showing their homes, the prices are very high, there’s a shortage of inventory and a surplus of buyers, why would you not put your home on the market?” Dedios said.
Kunkel said it usually benefits clients to publicize their listings to as many different buyers as possible, particularly in an urban area like Philadelphia, which draws people from all over the country. She recently worked with a couple from Washington, D.C., who bought a home at $125,000 over the asking price without even seeing the property in person.
“Because [the buyers] were from D.C., if that had been a pocket listing, they would have missed their highest buyer,” Kunkel said of the people selling their home in this case.
Why exclusive listings are concerning to housing advocates
While not every pocket listing is discriminatory in nature, experts who have studied the practice say that it is rooted in exclusionary housing practices and could potentially worsen already-existing inequities in the housing market.
UNM professor Elizabeth Korver-Glenn in 2018 published an ethnographic study which considered the practice of pocket listings in Houston, during which she found that white real estate agents tended to maintain segregated networks when shopping around property listings to potential buyers, which in turn helped “reproduce racial inequality in the contemporary housing market.” She also found that white realtors favored pocket listings more than agents who are people of color. Her paper argued that the commission-based structure of real estate – in which agents get a certain percentage of the home sale – perpetuates discriminatory practices, as the real estate professionals she spoke with tended to assume that white clients “were more affluent and had higher-value homes,” and were thus more eager to work with them.
“Even if it’s not explicitly racist,” Korver-Glenn said of the practice of pocket listings, “they are nevertheless extraordinarily impactful and harmful for prospective homebuyers of color who are trying to gain access to homes.”
After speaking with Korver-Glenn about her research, Redfin’s CEO Glenn Kelman spoke out against the practice, and has since lobbied for the National Association of Realtors (NAR) to expand its ban on pocket listings. Redfin estimates that in cities including Chicago, Minneapolis and Columbus, the largest brokerages are pocketing more than 10 percent of their listings.
“Pocket listings are a relic from the real estate industry’s old history of perpetuating segregation,” Kellman wrote in an op-Ed published by the trade journal Inman back in May. “For too long, our industry has traded on exclusivity … as a marker of desirability, not shame.”
“It shouldn’t be like a game of knowing the right person in order to find a home to buy,” Redfin economist Daryl Fairweather said of the brokerage’s stance on pocket listings. “It should be equally accessible for everybody, no matter who they know.”
Rates of homeownership were already lower among people of color than white people before the pandemic, but the economic conditions of the past year have arguably worsened access to the market.
“The pandemic has exacerbated a number of existing and long-running inequities,” said Alexander Hermann of the Joint Center for Housing Studies, who noted that Black and Hispanic households were more likely than those that are white to lose income due to job loss over the past year, contributing to the already sharp racial disparities in generational wealth and homeownership that exist in the U.S.
While many households with stable jobs were able to build their savings during the pandemic and put money into investments such as a new home, 43 percent of households reported lost income during the pandemic, and nearly half of these households were earning less than $50,000 a year, according to an analysis of Census Bureau data by JCHS. Homeowners of color were particularly affected by income losses, with 50 percent of Hispanic homeowners losing income by the first quarter of this year, compared with 43 percent of Black homeowners, 39 percent of Asian homeowners, and 35 percent of white homeowners.
The fact that housing demand increased even as many Americans were suffering financially and millions were at risk of eviction points to a widening gap between who can and cannot afford a home in the U.S., which is often cut along racial and socioeconomic lines. In 2019, homeownership rates among white Americans were 30 percent higher than Black Americans, and as of early 2021, 17 percent of Black and 16 percent of Hispanic and Asian homeowners were behind on their mortgage payments – more than double the seven percent share of white homeowners, according to the same JCHS report.
Rising home prices only further contribute to this widening gap. U.S. home prices rose by 17 percent from the previous year, according to the S&P CoreLogic Case-Shiller index, which monitors home prices in 20 cities, reflecting the fastest rate of growth in 17 years.
“People of color, black people, brown people of low income people have been living with this for a very, very long time,” U.S. Housing Secretary Marcia Fudge told PBS NewsHour’s Yamiche Alcindor on Monday when asked about the disparities in Black ownership and wealth that have worsened during the pandemic. Fudge spoke about steps the Biden administration is taking to address this problem – such as providing assistance to Americans with Federal Housing Administration mortgages and extending the eviction moratorium another few months – but noted that nevertheless 25 percent of Black renters today believe they’re behind on rent.
Kunkel said she worried that when agents list properties exclusively to certain buyers, it only worsens these inequities. She went as far as comparing it to modern-day redlining.
“You’re offering it to a very small group of people, and it excludes buyers from outside the demographics of that brokerage, or that agent’s sphere,” she said. “In my personal opinion, I feel many times racist practices are driven by greed, frankly, with just a complete disregard for the effect of that.”
“Is this a way that some sellers who want to discriminate go about it?” Fresno agent Annette Dedios wondered. “I don’t know. But as an agent, we have the responsibility of making sure that’s not happening, because it’s against the law.”
Cresencio Rodriguez-Delgado and Vignesh Ramachandran contributed reporting.