Real Estate Pocket Listings in Texas Divorces

February 11th, 2020

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In a Texas divorce, a court cannot sign a final decree and close the case until it confirms that all issues related to the divorce have been addressed. If the parties have minor children, this means that either they must have reached a settlement agreement on child custody and child support, or the court has ruled on these issues after a trial. The final decree of divorce must also resolve all disputes relating to property division, including identifying community and separate property and dividing community property between the spouses. Real estate often presents significant challenges for divorce lawyers and their clients. Some creative solutions might be available for those challenges.

If divorcing spouses jointly own the house where they lived, it is community property under Texas law. It is possible for the two of them to continue as co-owners after the divorce, but it is often best if one spouse is able to divest entirely from ownership. Selling the house and splitting the proceeds could be the best option for many people, but this often presents its own difficulties. A controversial practice known as “pocket listing” has gained prominence among real estate professionals in recent years, although the National Association of REALTORS (NAR) has effectively banned the practice for its members. It is worth examining more closely, as it could offer advantages, as well as risks, for some people going through a divorce.

What Is a Pocket Listing?

The Houston real estate market can appear glutted with properties, or listings can seem sparse. Properties in up-and-coming parts of Houston may only spend a few days on the market before they sell. High-end properties might wait weeks, months, or longer for a buyer. Pocket listings attempt to avoid many of the pitfalls of putting one’s property on the general real estate market.

To understand how a pocket listing works, one must first understand how a regular listing works. Most real estate agents use a multiple listing service (MLS), which collects property listings throughout a geographic area and allows buyers and their agents to search based on factors like location and price. Listing one’s home on an MLS makes it visible to all real estate agents in that area, and opens it up to inquiries from anyone looking to buy a home.

In a pocket listing, the seller’s agent never enters information about the property into MLS. Instead, the agent only markets the property to a select group of agents and potential buyers. The goal is to find a buyer from within a smaller network than the entire MLS. This is sometimes known as an “office exclusive” listing when an agent only makes property information available to other agents in their own agency.

Are Pocket Listings Legal?

Pocket listings are legal, in the sense that no specific law at the local, state, or federal level prohibits homeowners and real estate agents from entering into a contract to sell a property without listing it on MLS. Whether pocket listings are ethical or not is a different question.

In November 2019, the NAR Board of Directors approved a policy prohibiting pocket listings by NAR members. This policy does not have the force of law, since the NAR is a private trade association, not a government agency. It can only enforce the policy against real estate brokers and agents who have voluntarily joined NAR.

Advantages of Pocket Listings

High-net-worth people involved in a divorce might find advantages in some aspects of pocket listings:

Privacy: By keeping a property off of MLS, divorcing homeowners can exercise some amount of control over how much information about the home, and about the divorce, is available to the public. It also ensures that only people vetted in advance by the owners or their agents will be able to consider buying the property.
Sales price: A listing on MLS is generally considered to be an invitation to haggle over the listing price and other aspects of the sale. Unless a property is in a particularly in-demand location, it is fairly rare for a property to sell for its initial listing price. Pocket listings are often only available to people whom the sellers or agents know to be in the market for this particular kind of property. This can mean that potential buyers are less likely to haggle.
Speed of sale: With MLS listings, sellers put their property out into the market and wait for buyers to show interest. This could take some time, particularly for properties with high listing prices. Pocket listings can speed up this process in some cases by focusing on a specific group of potential buyers.

Disadvantages and Risks of a Pocket Listings

The advantages of pocket listings all relate to the economic aspects of selling a home. Pocket listings also have the potential for economic disadvantages, as well as economic and legal risks. The economic disadvantages, or risks, derive from the flip side of the advantages:

Speed of sale: If making the listing available to a select group of potential buyers, and no one else, fails to lead to a sale, the seller might end up waiting longer than if they had used MLS in the first place.
Bidding wars: Buyers who find a property through MLS might try to negotiate the listing price down, but if property has multiple interested buyers, the eventual sale price could be higher than the listing price. Pocket sales make this kind of bidding war less likely.

The legal risks of pocket listings specifically relate to how spouses are expected to conduct themselves during a divorce case:

Secrecy: Pocket listings are not exactly “secret,” but they are easier to conceal than a listing on an MLS. Any effort to sell community property during a divorce requires the involvement of both spouses. It is important to make sure that both spouses sign off on listing contracts and other documents involved in the sales process.
Standing orders: Some Texas counties have orders in place, known as “standing orders,” that prohibit the parties to a divorce from taking certain actions. Harris County does not have a standing order, but Montgomery County does. It requires spouses in a divorce to preserve community property during a divorce, and limits how they can sell or otherwise dispose of property.
Temporary orders: Texas courts in any county can enter orders with provisions similar to those found in standing orders, which could affect either spouse’s ability to list a property for sale during the divorce.

Stacey Valdez is a board-certified family attorney who practices in Houston, Texas, representing people in divorces, child custody disputes, and other family law matters. Clients at Stacey Valdez & Associates, along with their families, are always our top priority. We are committed to helping our clients through profoundly difficult experiences with compassion, support, and tireless advocacy. Your first meeting with us is free in most situations. Please contact us online, or give us a call today at (713) 294-7072 to schedule a confidential consultation to discuss your case.

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