by Hank Miller
on Monday, December 21st, 2020 at 11:15am.
Home buyers constantly balance emotion and data; heart vs head. During times of low housing inventory, the heart can be rather convincing and the result might be a disaster. Over the last decade, public home sites and social media changed the “traditional” ways to find a home. Pocket listings – homes marketed outside of the MLS – have become much more popular and some sellers find success just informally tossing their home out there. Buyers, eager to secure a home, find them and dive right in. This is the time for the head to keep the heart in check. This is the time for an experienced buyer's agent to refocus the buyer.
Why Consider a Pocket Listing?
In most cases, buyers chasing an off market home are either enamored with it for a certain reason or are looking for an opportunity where competition is limited. Every buyer finds value in different things; schools, design, area, access to amenities or roads…no two buyers are alike. This is called “value in use” and many buyers place a higher priority on that than what the data says; some buyers are willing to pay a premium to get what they want or need. Some buyers chase pocket listings to avoid competition. They may “put the word out” to an agent, friends or on social media that they’re looking for a home and have seen everything listed. The hope here is to find that seller that says “here’s my price, make me move”.
The Agent Situation
Most buyers use an agent to buy a home, there’s typically no cost for using a buyer’s agent so it’s unwise not to. A solid buyer's agent will act as a check to the buyer's impulses; make the buyer think before acting. The listing broker pays the buyer broker from the commission received from the seller. What happens when there is no listing agent, who pays the buyer’s agent? This is common with pocket listings; they are often sold by owner. Or, who pays the buyer agent if the seller has “word a of mouth” agreement with an agent? That agent may tip off a buyer’s agent about a home, but with no formal contracts how will the agents be paid? The first reaction may be “who cares” but no one works for free. Of course the question of representation is always on the table; who represents whom? Dual agency and conflicts of interest can be problematic so clarity on representation is critical.
Is the Home Worth It?
What’s the home worth? An appraiser can be called in or an agent consulted but in the end, the “market” in the form of buyers competing is the best indicator of value. In a situation like this, the seller is likely to set the price; if the buyer wants to pay it then discussion continues. If not, nothing is lost. Most buyers will pay a premium chasing pocket listings, the seller that considers selling for market value or less when someone comes to them is hard to find. In seller’s markets, desirable homes listed for sale on the MLS tend to sell quickly, sometimes with multiple offers. Buyers, for the most part, will tend to be grouped within a small range. This dynamic is absent with pocket listings, the buyer may not have competition but may be paying more than they should.
Little to No Negotiation
The moment a buyer approaches a potential seller and makes an effort to purchase their home, they buyer is at a significant disadvantage. The seller has something the buyer wants; bad enough to approach them unsolicited. Most sellers understand and use this advantage throughout the process. From price to closing date to concessions, buyers of pocket listings tend to acquiesce. This is particularly true with inspection issues and appraisal problems; the majority of pocket sellers are reluctant to negotiate anything. Buyers chasing pocket listings should understand just how limited their ability to negotiate typically is.
Pocket listings should be approached by buyers with caution. Negotiation power goes out the window; the seller knows the buyer wants what they have...
During times of very tight inventory, every buyer is looking for an advantage. While all want to “find that nugget”, chasing a pocket listing should be done with caution. As noted above, every buyer has different key requirements and while paying extra to find the “ideal” home may be an option, it pays to go in eyes wide open. Some buyers place a premium on those things important to them; value in use can supersede what the data says. That is a buyer’s decision but just know that at some point, the home will be listed for sale so expectations need to be realistic.
Home buyers that go under contract have a couple of consistent traits; preparation, education and a definition of success. They know what they want when they see it and are ready to go. Buyers rooting around outside the MLS looking for pocket listings and by owner homes need these same traits plus one big one: discipline. Homes sell off market, just ensure that the head has a much to say as the heart...or the wallet may suffer when it's time to sell.
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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