by Hank Miller
on Thursday, December 10th, 2020 at 3:06pm.
In a strong market, sellers may not formally list their home but take a position of “here’s my price, make me move”. These are typically called “quiet, whisper or pocket listings” and while this can be a successful play, there are things for sellers to consider. Usually there is an agreement between a seller and real estate broker that allows the broker to market the property outside of the MLS. Agent networking, social media, open houses and other ways are used to expose the home. Sometimes there is no formal agreement, just a “hey agent, if you know someone that is looking….”. That informality can be problematic, there are legal and contractual aspects to be considered. Many owners talk about a move "if they get their price", but several things need to be kept in mind.
Why Consider a Pocket Listing?
Privacy is a huge advantage when selling home off market. A seller’s life is completely tossed when listing a home; people traipsing through poking around, their home broadcast all over the internet and everyone’s criticism heaped onto the plate. Situations may exist where this isn’t possible or desired; some want to sell a home in a very structured and private way, this is an option. Family situations, financial concerns, even Covid-19 worries can be a reason to "go quiet". High end homes, certain sellers and circumstances may benefit from/require anonymity and control, this offers that. Some sellers may also save money on commissions if things line up correctly and the process goes smoothly.
The Agent Situation
If the idea is to save on agent commissions, the expectation is often different than the reality. Agents soliciting pocket listings typically already have a buyer lined up, someone they think is a perfect buyer for that home. Similar to a for sale by owner, the total fee might be less than a conventional listing as there's a single agent involved. Consider "agency" though; if that agent knows an off market home and brings a buyer, typically that agent legally represents the buyer and not the seller. If neither buyer or seller have a "client level" relationship, who does the agent represent? Where do the loyalties lie? If that "word of mouth" from the agent brings in another agent with a buyer "that's dying for a home like that", who pays the agents? This can get very sticky, very quickly. If the seller ends up paying both agents, then it sold without the benefit of MLS exposure, which might have brought more buyers and more competition.
The Home May Sell Below Market Value
How is the sale price established? Is the seller depending on the agent to stipulate price? Don’t rely solely on a prelisting appraisal; there are many buyer and seller variables that cannot be accounted for by an appraiser. If the home isn’t exposed to the maximum number of potential buyers (usually accomplished via the MLS) how can the seller be confident that the best price was received? When a shortage of quality listings exist, multiple offers and bidding wars might be seen – which doesn’t happen without adequate exposure. That "magic price" to move might in fact be below what a highly competitive market can produce.
Sellers working "off market" can find success but there are several things to keep in mind. Basic business doctrine says the highest price usually results from the broadest exposure possible, something a pocket listing simply doesn't get.
Nothing Beats MLS Exposure
A pocket listing – like homes offered for sale by owner – simply cannot compete with a traditionally listed home. The major public real estate sites pull information from the MLS. Social media is a legitimate outlet but home buyers look where the homes are. It’s worth noting that an estimated 47% of home buyers in 2019 initially found the home they bought searching the internet, not through their agent. 93% search online real estate sites – fed by the MLS. Buyers are on the major public sites because they are fed by the MLS.
Unnecessary Repairs or Concessions
Potential issues that plague a “normal” sale will be present with pocket listings as well. However, a competitive environment provides options to a seller. Repair issues, appraisal problems or other challenges can better be negotiated or ignored when there are multiple interested buyers. In very strong seller markets, homes are bought “as is” and appraisal contingencies are often waived. Appraisals can be tricky as proper market exposure is considered a very strong indicator of appeal. Homes that transfer in a vacuum can present underwriting challenges under some circumstances.
Some consumer groups and advisors highly recommend avoiding pocket listings. Basic business principles reinforces that maximum exposure to a targeted audience typically results in the best price for a product. The industry is also wrestling with the many agency aspects of this; dual agency and conflicts of interest are common. Appraisers need to consider how off market homes were marketed, did the "market" act on them? Are they true "arm's length sales" if not exposed to the maximum number of buyers?
There are instances where word of mouth works; if a seller has a buyer willing to pay their price then they should close the deal. Ensure that everything is properly managed; the legal aspects are handled and pocket the profit. As with everything, knowledge and understanding is critical and if the deal is there, take it.
The Hank Miller Team puts 30+ years of full time sales & appraisal experience to work for you. Act with complete confidence & make sound, decisive real estate decisions.
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