How Private Listings Affect Home Buyers and Sellers

How Do Private Listings Affect Home Buyers and Sellers?

Private listings, also known as pocket listings or off-market listings, have become an increasingly contentious topic in the real estate industry. These are properties marketed exclusively within a brokerage’s network rather than listed on the Multiple Listing Service (MLS). While proponents argue that private listings offer sellers flexibility and privacy, critics contend that they disadvantage both sellers and buyers while potentially violating fair housing principles. Understanding how private listings work and their implications is essential for anyone involved in real estate transactions.

Understanding Private Listings: Definition and Purpose

A private listing occurs when a property is marketed exclusively to a select group of agents and clients within a specific brokerage or network, rather than being published on the MLS where all real estate professionals and consumers have access to the listing. This practice has grown significantly in recent years, with some brokerages initially listing approximately 40% of their sellers’ properties off-market before eventually moving them to the MLS.

Brokerages promote private listings as a way to give sellers market insight and testing opportunities. The idea is that sellers can gauge buyer interest at their proposed listing price without immediately committing to a full public marketing campaign. For sellers with privacy concerns—such as celebrities or high-profile individuals—private listings offer discretion by avoiding public announcement of their intention to sell.

The Impact on Sellers: Financial Consequences and Market Exposure

While private listings may appeal to sellers seeking privacy or market testing, research demonstrates significant financial drawbacks. A multi-state study conducted by BrightMLS and Drexel University found that homes listed on the MLS sold for 17.5% more than off-MLS listings, representing more than $53,000 for the typical seller. This substantial difference highlights the real cost of limited market exposure.

The reasoning behind this price disparity is straightforward: more exposure generates more buyer interest and competitive bidding. When homes are visible to all real estate agents and buyers on the MLS, they reach millions of potential purchasers. Zillow receives nearly 230 million monthly visitors, virtually guaranteeing exposure to interested buyers for any property listed through traditional channels. In contrast, private listings restrict visibility to a narrow group, reducing the likelihood of competitive offers that drive prices upward.

According to Zillow’s research, sellers typically lose money when their homes are marketed off the MLS, a reality that aligns with market fundamentals. The broader implications for sellers include potential difficulty in maximizing their wealth built through what is often their largest financial investment. Industry professionals note that this practice appears designed primarily to benefit brokerages’ bottom lines through commission collection from both buyer and seller sides rather than to serve sellers’ best interests.

However, some real estate professionals argue that private listings serve a specific purpose for overpriced properties. When a home is initially listed at too high a price on the MLS, it may sit on the market and eventually sell for less than if it had been priced correctly from the start. Private listings allow sellers to test the market and receive feedback without accumulating days on market, potentially helping sellers arrive at optimal pricing before listing publicly.

The Impact on Buyers: Limited Inventory Access and Choice

Private listings create significant disadvantages for homebuyers. Zillow’s research indicates that 91% of buyers believe they should be able to see all available listings and access them for free, without barriers. When properties are kept off the MLS, buyers lose visibility to properties that might be perfect for their needs.

The buyer disadvantage is particularly acute in tight housing markets. In many areas, housing supply remains 30% below pre-pandemic levels, making access to complete market inventory even more critical for home shoppers. When private listing networks proliferate, buyers cannot see the full picture of available homes, potentially missing opportunities that could be their best option.

Additionally, private listing networks create structural problems with agent selection. Buyers must agree to work exclusively with an agent from a specific brokerage to access homes within that brokerage’s private network. This arrangement removes buyers’ autonomy in choosing their ideal agent and instead ties agent selection to network access rather than agent quality or buyer preference.

This restriction increases the likelihood of dual agency, where the same agent represents both buyer and seller in a transaction. When this occurs, neither party receives optimal representation, as a single agent cannot effectively advocate for both sides’ interests simultaneously—much like a lawyer cannot represent both plaintiff and defendant in a lawsuit.

Zillow’s Position: Private Listings Are Terrible for Home Buyers

Zillow has taken a strong stance against private listing networks, arguing that they benefit only a small group of brokerage companies while harming the broader market. According to Matt Kreamer, communications director at Zillow, transparency serves as the key driver in an open and fair marketplace.

Zillow’s position emphasizes that buyers are better off when they can see the maximum number of listings. When homes are placed on the MLS within a day, everyone has access to the available inventory in their market. This transparency is particularly important given that many buyers are eager to see what’s becoming available in real-time, especially when inventory remains constrained.

The research backs this perspective. Zillow research demonstrates that the more people who can see a home, the more likely it is to enter a bidding war and sell for a higher price. This logical principle—greater visibility creates greater competition and better outcomes—underpins industry standards for open market transactions.

The Fair Housing Concerns: Discrimination and Market Access

Beyond financial and consumer access issues, private listing networks raise serious fair housing concerns. The National Fair Housing Alliance, the National Association of Real Estate Brokers (representing primarily Black brokers and agents), and the Consumer Federation of America have all expressed concerns about pocket listings and private listing networks.

One primary concern is steering—the discriminatory practice where real estate professionals influence buyers toward certain neighborhoods or away from others. Private listing networks make steering easier to perpetuate by allowing agents to control which buyers see which properties. By restricting visibility to a select group of buyers, private listing networks can inadvertently exclude buyers from certain demographic segments.

Research has shown that homes sold off the MLS can potentially create fair housing problems, as marketing within private networks could result in certain populations systematically receiving less information about available properties. Lisa Rice, President and CEO of the National Fair Housing Alliance, emphasizes that pocket listings can effectively eliminate access to housing opportunities for individuals from marginalized communities, obscuring vital information about available properties and making it difficult for potential buyers to make informed decisions.

The concern is particularly relevant in markets where certain brokerages dominate and control significant portions of private listing networks. If fewer listings are publicly accessible in such markets, first-time homebuyers and buyers in those areas could face meaningful constraints in their housing options.

Market Impact: Appraisals, Valuations, and Lender Uncertainty

Private listings create broader market complications beyond individual transactions. Homes sold off the MLS cannot be used as comparable sales (comps) for appraisal purposes, potentially making appraisals difficult or inaccurate in markets with significant private listing activity. In large enough numbers, private listings could result in uncertainty about actual property values—a common problem in commercial real estate markets.

This valuation uncertainty causes lenders to offset the risk by charging higher fees or declining to offer low-down-payment loans. Consequently, private listings don’t just affect individual sellers and buyers; they can disrupt market transparency and increase borrowing costs for subsequent purchasers in areas with heavy private listing concentration.

The Current Market Reality: Most Private Listings Eventually Go Public

Despite concerns about private listing proliferation, current industry data suggests that most private listings eventually end up on the open market anyway. Lisa Sturtevant, chief economist at Bright MLS, notes that while private networks may obscure the full inventory of homes for sale, most eventually transition to the MLS.

However, private listing activity is rising. Bright MLS, the second largest multiple listing service in the nation, reported that pocket listings jumped from their historical 2% to 4% range to 8% in February of recent years. This upward trend demonstrates growing adoption of private listing strategies, even if many properties eventually reach the public market.

The housing shortfall itself—often cited as a justification for private listings—stems primarily from restrictive local zoning that prevents new construction, high borrowing and construction costs, and the mortgage rate lock-in effect. Private listings do not address these underlying supply constraints and therefore do not meaningfully improve housing availability or affordability.

Key Statistics and Research Findings

Several important data points illustrate the real-world impact of private listings:

• Homes listed on the MLS sell for approximately 17.5% more than off-MLS listings, representing over $53,000 in lost proceeds for the typical seller
• 91% of buyers believe they should be able to see all listings for free without barriers
• Approximately 40% of sellers initially list their properties off-market at some brokerages
• Pocket listings increased from 2-4% to 8% of listings between historical levels and recent reporting
• Housing inventory is still 30% below pre-pandemic levels in many areas
• Zillow receives nearly 230 million monthly visitors, providing massive exposure for MLS-listed properties

Transparency and Fiduciary Duty: Legal and Ethical Considerations

Not promoting a home to every agent and prospective buyer possible raises questions about fiduciary duty. Real estate professionals have a legal obligation to act in their clients’ best interests. Knowingly restricting the number of buyers who can see a property and potentially make offers appears to contradict this fundamental obligation.

Industry professionals have raised concerns that private listing practices may violate fiduciary duties, potentially exposing brokerages to lawsuits from sellers who discover that their homes sold for significantly less than they would have achieved through traditional MLS exposure.

When Private Listings Make Sense: The Exception, Not the Rule

While the evidence strongly favors MLS listings for most sellers, private listings may be appropriate in limited circumstances. Sellers who prioritize maximum privacy over maximum price—such as celebrities, politicians, or other high-profile individuals—may reasonably choose private listing options. Most MLS organizations allow sellers to opt out of online listing display while still maintaining MLS access and exposure to agents.

For this very small subset of sellers with exceptional privacy concerns, private listing options through companies like Compass offer a reasonable alternative. However, this should remain the exception rather than the rule, as it doesn’t serve the needs of most sellers who prioritize maximizing their sale price and selling within an acceptable timeframe.

Frequently Asked Questions

Q: How much less do homes sell for when listed privately instead of on the MLS?

Homes listed on the MLS sell for approximately 17.5% more than off-MLS listings, which translates to more than $53,000 for the typical seller in a multi-state study by BrightMLS and Drexel University.

Q: Do all private listings eventually appear on the MLS?

Most private listings eventually end up on the open market, though the timing varies. Currently, pocket listings account for approximately 8% of listings, up from historical levels of 2-4%.

Q: Why do private listings hurt buyers?

Private listings reduce buyer access to available inventory and force buyers to work with specific agents to access properties within those networks. This limits buyer choice and can lead to dual agency situations where one agent represents both buyer and seller.

Q: Are private listings legal?

Private listings are generally legal, but they raise concerns about fair housing compliance, fiduciary duty, and potential discrimination if they systematically exclude certain buyer demographics from accessing properties.

Q: What percentage of buyers think they should see all listings?

According to Zillow research, 91% of buyers believe they should be able to see all available listings and access them for free without barriers.

Q: When might a private listing be appropriate?

Private listings may be appropriate for high-profile individuals or those with exceptional privacy concerns who prioritize confidentiality over maximizing sale price. However, this should remain the rare exception rather than common practice.

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Author

medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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