Oct022015

Are real estate “pocket listings” a good way to sell homes?

Are properties for sale but withheld from the MLS, so-called pocket listings, a viable way to sell real estate or a seller ripoff?

dont_pick_realtorA for-sale property that is not listed on the MLS is a “pocket listing.” Sellers, particularly famous sellers, who don’t want legions of potential buyers traipsing through their house often ask agents not to put the listing on the MLS. Agents must follow the rules of their local MLS that mandates a listing within a certain number of days, but if the listing is informal, the agent may pre-market a property to select buyers.

Most often pocket listings are used by agents who want to double-end the deal and make double the commission. In that scenario, the agent is ignoring the inherent conflict of interest in dual agency to make more money. Typically, this arrangement favors the buyer over the seller. The buyer participates to get a good deal, the agent participates to get a double commission and a quick sale, and the sellers… well, they often get screwed.

Pocket listings work for sellers who want minimal hassle and recognize they may not get the best price due to limited exposure. We developed our No Cost Sales Program to offer sellers an opportunity to pre-market their properties to our extensive database. If we find a buyer in our database without going to the MLS, we waive the listing fee — a discount even Redfin can’t match.

Real-Estate ‘Pocket Listings’ Go Mainstream

Selling a home without advertising to the public, long popular with celebrities, is gaining credence in major U.S. cities, data show

By Josh Mitchell, Sept. 24, 2015internet_real_estate

WASHINGTON—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.

Is this enough exposure to get the highest possible price for a seller? Probably not, but that isn’t always the seller’s top priority. If they value privacy and convenience over maximum selling price, then pocket listing their home may suit their needs. However, the sellers need to understand they are probably not getting the highest offer the market will bear.Picasso_realtor

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.

Both parties are correct. It is anticompetetive, so the seller will not maximize their residual equity check; however, if this is clearly disclosed and a seller agrees, the decision is really the seller’s to make.

In this case, the owners’ agent walked four competing developers through the home one morning last summer. The developers planned to gut the five-bedroom home and turn it into a high-end condo building with several units. Two days later, the agent had an offer in hand for $1.76 million, which the couple accepted.

Because the agent knew the buyer, “I didn’t need to do any work whatsoever—not even cleaning,” said Jean Kim, an 83-year-old retiree who owned the house with her husband. Renovating the house or even holding a traditional open house would have been impractical because her husband is disabled, Ms. Kim said. The couple didn’t get an outside appraisal of the home’s worth, she said, adding she was happy with the sale price.

Can you fault an 83-year old for choosing convenience over maximum resale value?realtor_clown

In the five counties making up northern California’s Silicon Valley, the share of home sales that didn’t appear on the main listings database rose to 17% in the first half of 2014 from 13.6% in 2012, according to operator MLSListings Inc.

This is more likely to be realtors double-ending these deals and ripping off their clients. The special circumstances where this is appropriate won’t encompass 17% of the market.

News Corp, which owns The Wall Street Journal, also owns realtor.com, the listing website of the National Association of Realtors.

The Wall Street Journal’s real estate coverage has strongly deteriorated since they became industry shills.

realtor_shill

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.

It also rewards buyers who become part of these social networks.

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.

Hence the disclosure.

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.

Dual agency

We represent many buyers. We have a database of 9,000 people who have contacted us over the years. Plus, an additional 100 to 150 contact us each month. At any given time, Shevy and his team are working with 25 to 50 buyers actively making bids in the marketplace.

What’s not as widely known is that we also have many listings. In fact, of the 57 deals Shevy and his team completed in 2014, 24 were buyers and 33 were sellers. As I mentioned previously, pocket listings are a problem because of dual agency. However, there is a compromise that we utilize that mitigates the dual agency problem.

Our method of avoiding the conflict of dual agency is to assign the buyer and the seller to different agents. If an agent has a listing and one of his buyers wants to bid on the property, that buyer is handed off to a different agent to process that bid. Each agent works diligently to represent the interests of their client, even if it means no deal takes place. We do enough business that it’s not worth it to do a few extra deals at the expense of our integrity. It’s a philosophy shared by all the agents on Shevy’s team.

Pocket Listings

We have pocket listings that we email to our entire database. Shevy has relationships with two flippers active in Orange County where he handles all of their listings. They believe he adds more value than he costs. One of the ways he adds value is through exposing properties in the renovation process to our extensive database. These flippers work with Shevy because they know our database of prospective buyers is much larger than anyone else’s in the market. Our buyers are aware of these properties before anyone else in the market, and some of these properties have been sold directly to these buyers without going to the MLS.

No Cost Home Sales

nocost_3dWe don’t keep pocket listings to double-end the deal. In fact, since we have so many pocket listings, we’ve come up with a unique sales program to leverage our massive buyer database and avoid even the perception of a conflict of interest. If we sell a pocket listing to one of our buyers without implementing our full-service marketing program, we waive the fee on the listing side. We’ll handle the entire transaction for a 3% fee, typical of a buy-side fee.

One of the biggest problems with pocket listings is that there is no compelling reason for a seller to participate. They aren’t obtaining maximum market exposure, and these sellers are often pressured to accept an offer from the listing agent’s buyers so the agent can make 6% instead of 3%. We provide a compelling reason for sellers; we save the seller half the fee. This also makes us impartial and indifferent as to what the seller decides. If the seller wants MLS exposure and full-service marketing, we will do that. It requires more work, but there is a fee on the listing side to compensate. To further leverage our buyer database, we offer a reduced fee if the seller transacts with one of our buyers. The total cost to the seller is comparable to discount brokerages, but they receive full service.

Full-Service Marketing Program

In consulting work, it’s customary to prepare a detailed scope of work to be performed under the contract. For some reason, real estate agents rarely if ever do this (most likely don’t want to be held accountable). When Shevy and I first discussed this program, we decided to clearly detail exactly what services are provided for each seller who signs up. Many agents won’t commit to a detailed scope of work because quite frankly, they don’t want to do any work. Marketing costs time and money, and many agents would rather spend very little time and no money and hope the MLS sells the property for them.

We think there’s a better way.


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