Why pocket listings are something to be wary of

May 29, 2015

 

michael blower

Michael Blower

Pocket listings, or listings marketed off of the Multiple Listing Service (MLS), used to be an insider term in the real estate business. It denoted properties that were for sale but marketed privately by the listing agent to a select pool of agents and brokers, rather than broad posting on the MLS.

Today, this practice is much more mainstream, with reports from sources such as the National Association of Realtors and MLSListings, Inc. that say pocket listings make up as much as 30 percent of listings in Northern California. Buyers and sellers should be educated on the facts surrounding off-MLS transactions.

Pocket listings have gained favor because they offer more control over the marketing of the property. For sellers, particularly those who are celebrities or high-profile individuals, keeping the listing more closely held affords privacy and controlled access with showings. The sales price and terms are also kept confidential. Additionally, it keeps unqualified buyers from having access to the property. While this can sound appealing, there are other aspects of this approach that must be weighed.

Agents who propose keeping a listing off the MLS have a fiduciary responsibility to ensure that their seller client is fully aware of all aspects of this type of transaction. In fact, state law dictates that an agent or broker must put the client’s best interest above their own and act in the best interest of the client at all times.

Motives can come into question in situations where, unlike MLS property listings, the agent can often represent both the buyer and the seller with a pocket listing and get both commission fees. While this is technically not illegal, if this is the motivation for recommending a pocket listing, it violates the Realtor Code of Ethics requiring placing the client’s best interests first.

Additionally, when an agent signs a listing agreement with a client, he or she is required to place the listing on the MLS within two days. Failure to do so can result in severe penalties or fines. The seller can request, or agree to the agent’s suggestion that a listing not be placed on the MLS, but that requires the seller to sign an “opt-out” form stating that he or she is directing the agent not to place the property listing on the MLS.

Agents or brokers should go a step further in telling clients about the benefits being waived by keeping the property off the MLS. The first is broad exposure for their property. When a listing is placed on the MLS, it is afforded exposure to a large pool of potential qualified buyers. That can translate into more offers and higher bids than those received through more limited circulation.

Off-MLS marketing of properties, by its nature, restricts the exposure provided to the listing. A broker or agent makes the listing available only to a select group of other agents and in some cases, select or private listing sites, hoping there is a qualified, interested buyer for the property. With less exposure, the potential for finding the right buyer is diminished. Moreover, it will likely receive fewer offers, and the value of those offers may be less than what other bidders might generate.

“The actual numbers are startling. Iin 2014, the median sales price for a home listed on the MLS was $725,000 compared to the off-MLS price of $566,000,” said MLSListings President Jim Harrison. “In Silicon Valley, every single county examined by MLSListings reflected this same disparity, with on-MLS sales prices reaching as much as 37 percent higher than sales off-MLS.”

It’s a rare situation in which getting the best, highest price isn’t the top objective for the seller. With hard data and considerable anecdotal reports showing that pocket listings fail to deliver the maximum sales price as comparable properties listed on the MLS, it is important to assess the merits to go off-MLS.

There will always be circumstances where that is the right option for a seller, and more hybrid listing solutions are appearing that bridge the divide between the two options. The keys are being informed about the options and their advantages and disadvantages, and being in control of the decision of how your property is listed to ensure your best interests are served.

2 Responses to Why pocket listings are something to be wary of

  1. Gail Reply

    June 25, 2015 at 10:53 am

    I’m considering a pocket listing because I don’t want people in my heavily board control community know I’m trying to sell my home. In the past when this is happened they would get sellers to make numerous necessary repairs. You mentioned in the article some highbred solutions. Would you go into more detail? Thanks

    • Michael Blower Reply

      June 26, 2015 at 3:02 pm

      Dear Gail:

      Statistical research by both the California Association of REALTORS® and MLSListings in our region, show that transactions outside of the MLS critically limit competition and do not serve buyers or sellers well. Listings marketed to hundreds of thousands of REALTORS, buyers and sellers have a market advantage. In addition, transactions conducted off of the multiple listings service harm the integrity of market data, so home buyers and sellers who rely upon that data and those statistics for pricing (and to make major decisions) are negatively impacted, as well.

      We encourage transactions on the only systems that support fair trade in the real estate market place, the multiple listing services.

      I hope that answers your question.

      Take care,

      Michael Blower

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