A very common question I hear asked in regards to purchasing a puppy is "What pick am I?" Most breeders are on a first come first serve basis when it comes to picking a puppy. Other German Shepherd breeders prefer their dogs go to working homes and give those people choice over pet homes. I believe both these methods are completely fair. In addition, you only run into picks overlapping each other if everyone wants a dog for the same reason or people start picking based on color, cuteness etc., instead of on future temperament.
Allow me to explain: First pick puppy means nothing unless everyone is looking for the same thing out of their future dog. Example: If everyone wanted a low energy puppy that would be content with one walk a day and lay by your feet when you watch T.V. then first pick would matter, because the breeder would be steering everyone in the direction of a few particular puppies.
We as breeders and trainers can only make an educated guess as how the puppy will turn out, based on how the puppy acted as he grew from 1 day to 7 or 8 weeks of age. This by no means is a definitive method of choosing prospective temperament and energy level. But, if 10 experienced breeders had access to the same litter for 7 or 8 weeks and you wanted a puppy that matches the description above chances are all 10 breeders would recommend one or two puppies in the litter for you.
This being said everyone is looking for a dog that has a slightly different temperament and energy level. Therefore, your first pick would be different than mine, which would be different than my parents, which would be different from the person who has the pick before you.
The best way to go about getting a puppy is to give the breeder a description of what you are looking for in an adult dog. A responsible breeder will be honest enough to tell you if all the puppies that are right for you are already spoken for or if this litter of pups is not the one for you.
To make things more confusing sometimes the guesses we make are wrong. We may think that one puppy in the litter doesn't have great working potential but when that puppy becomes 2 years old it happens to be the best working dog of the litter. That's the way things go, so, for the sake of repeating myself, ask the breeder which puppy is right for you based on your temperament descriptions.
As far as favoring working homes is concerned. A working home is defined in our books as a home that is going to show the dog in some sort of competition. When it comes to German Shepherds:
Schutzhund, Search and Rescue, Police K-9, Herding, and Agility come to mind. Working homes require working dogs which have different temperaments and energy levels than pet owners are looking for. So, if you the pet owner gets pushed out by a working home you can rest assured their pup isn't the one the breeder had in mind for you anyway.