'Pocket listings': Real estate's hidden market
Some homes are bought and sold without ever being officially listed. This word-of-mouth technique – once used mostly by the rich and famous – is gaining popularity among sellers who want to avoid the perils of a down market. But agents warn it might not be the best route.
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Rumor has it that Kim Kardashian and Kanye West are selling their homes, allegedly with the intent to cohabitate. Online gossip sites have reported that both homes are being sold via "pocket listings."
"Pocket listing" means that a home is not listed on a multiple-listing service but is instead marketed directly by the property's real-estate agent or broker — it is in that person's "pocket." The seller and agent have more control over who knows the home is for sale, who can look at it and, thus, who may eventually buy it. (Bing: Tips and tricks to sell your home fast)
If the rumors are true, Kardashian and West no doubt chose this type of sale to keep things hush-hush. Many of the rich and famous with homes to sell aren't interested in posting dozens of pictures online to be gawked at by millions, and they certainly don't want hundreds of strangers traipsing through at an open house, opening drawers and closets.
But many not-so-rich and not-so-famous homeowners also go the pocket-listing route.
"Some people don't want their neighbors to know their business, so when it is time to sell their home, they do it under the radar," says Sep Niakan, a real-estate broker with HB Roswell Realty in Miami. "High end definitely has common pocket listings, but we have pocket listings for $200,000 properties, as well."
These off-market listings have always been around. People may want privacy during a divorce or after a death, for instance, or a high-powered executive may not want his company to know he's thinking of moving. But this type of sale has become more prevalent, and some agents and brokers don't think that's good for buyers or sellers.
"You want as many eyes on the property as you can get, so you get the best possible outcome," says Penelope Huang, broker and owner of Re/Max Distinctive Properties in Menlo Park, Calif. "If you create some level of competition, you're going to get the best offer in regard to price and terms."
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Out of the public eye
If privacy is truly the issue, Huang says plenty of rules are in place to protect sellers who list on the MLS.
The seller can block the address from showing on the MLS. And the MLS only requires one photo of a home, so a seller doesn't have to post photos that show the interior. A seller also can require that a potential buyer be prequalified for a loan before viewing a home and can restrict viewings to appointment-only.
A seller could also move into an extended-stay hotel or stay with relatives while the home is shown.
"If they knew they were going to make an extra $50,000 or $60,000 or $100,000, they'd realize it's a small inconvenience that's worth it," Huang says. "The seller actually doesn't ever know what they could have gotten if they did expose it."
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But even those privacy measures aren't enough for some sellers, and that's where pocket listings — or exclusive listings, as they're known in some circles — come in.
Heidi Dittloff, marketing director for Gloria Nilson Realtors in New Jersey, says many sellers have high expectations of privacy in real-estate transactions. "They can vary in needs of privacy: being discriminating and quiet, being a political figure, being in the entertainment industry, family member ill, just had a child," she says. "Some sellers have their own reasons for not wanting to broadly advertise in conventional ways."
Dittloff says an agent with a pocket listing can customize the marketing of the property to reach certain types of clients.
She says one client had specific requirements for finding a buyer. The firm built a confidential website for the property, then sent a few select people a private letter written through Christie's International Real Estate, of which Gloria Nilson Realtors is an affiliate. A prospective buyer had to sign a confidentiality agreement, then received a password for the website that was valid for a short time. After that, the site was taken down.
"It pretty much was one of the only ways we were allowed to market the property," she says.
Testing the waters
Another reason for a pocket listing is that a seller might be hesitant to list a home in a down market but would be willing to sell to the right buyer, for the right price or both.
"Pocket listings are helpful in a down market because sellers don't want to put their house out there at a low price. But if you have a select buyer, you can make a deal happen," says Brian Capossela, president of Cap Equity Realty, a boutique real-estate firm that brokers properties for the entertainment industry. "[Pocket listings] are especially helpful right now because there’s not a lot of inventory on the market, so a lot of people are looking at off-market deals."
While a home that's on the MLS will be exposed to buyers and agents in the region and beyond, a pocket listing relies on direct marketing. Relationships are everything, which means it is vital to find a well-connected agent with a broad network of potentially interested parties.
Likewise, "to find a pocket listing you need an agent that's connected that can contact many other agents to see what's available," Capossela says.
But it can be tough to hunt down every off-market property, and Huang says it's getting frustrating for buyers to have to track down properties for sale. One recent buyer had been calling all over town trying to find agents with off-market listings. "They should be able to have a one-person go-to source with access to all that data," she says. That's where the MLS is supposed to come into play.
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And when several homes in an area are sold via pocket listings, it could have a broader effect on home prices, Huang says. "Non-MLS pocket listings are not aggregated into the data we have, so how do you factor that in for value?" she says. "Buyers need to know; sellers need to know so they price accordingly. And appraisers rely on the MLS. If an appraiser can't comp out a home, that loan could be jeopardized."
A secret treasure
But there is something special about finding a gem that's not officially "on the market."
"Sometimes when pocket listings are presented to buyers, they get more excited than regular listings because they feel they have happened onto a hidden treasure that no one else knows about," Niakan says.
And showing a pocket listing to a buyer can help an agent's reputation. "It adds credibility because (buyers) think you're a genius to know about things not on the market," says Melissa Rubin with Platinum Properties International in Miami.
A seller might also save a little money on the commission by only having to pay one side, Rubin says.
Rubin says many sellers who choose a pocket listing don't actually have their heart set on selling. They may not be motivated. "They say, 'If you can get me this price, I would sell it,' but the price is so far from the market value today," she says.
But she says that the market is always changing and that it's good to know you have a potential seller. "Everything we do in our lives is about the relationship," she says. "We keep relationships with our clients, whatever they want us to do. It's never about today and never about today's transactions."
In some cases, she says, a seller who wants to try a pocket listing will be motivated later on and decide to move the property onto the MLS. And the MLS is generally her recommendation for all sellers. "We have a fiduciary responsibility [to sellers]," she says. "It's about the customer, and the goal is to sell the property."
Huang says she has sold only one pocket listing in 24 years. "It was an elderly patient who was very ill and wanted to sell to the next-door neighbor's children," she says. "He was not interested in selling to anyone else." Even in that situation, Huang got an agent to represent the buyers. "I didn't double-end that deal," she says. "Everybody was represented, even though it was a slam dunk."
She and other brokers and agents recognize that there are plenty of legitimate reasons to not put a house on the market, but "those are not the norm," she says.
"It's always fine to have an exception to the rule," she says. "But it needs to be an exception. Those people need to understand that they may be jeopardizing their ability to maximize their investment."
CORRECTION: "Pocket Listings"
July 24, 2012: Sep Niakan is a real-estate broker with HB Roswell Realty. An earlier version of this article included an incorrect spelling of his name.
In Colorado and most other states, there is NO legal requirement that an agent submit a listing to the local MLS. Nor is there any requirement that they even be a member of the National Association of Realtors, who ultimately owns the MLS's via their local and state boards, and is a voluntary trade group. It is not a closed shop union. The only legal requirements that any agent has in order to sell a property is that they are actively licensed with their state's real estate commission, the regulatory body that oversees brokers and is backed by state law and regulations.
As a matter of fact, even if an agent is an active member of their local MLS, the bylaws of that body probably do not require that every listing be submitted to them; only that IF a listing is going to be posted to the MLS, it be done in a stated numbers of days from the signing of the contract.
Sorry to confuse y'all with facts, but let's get this right...
the Property Owner's Network
Most Multiple Listing Services require brokers and agents to submit ALL listings, and consider it unethical to have "pocket listings". If the agent/broker is a member of an MLS, they sign to that effect. Beware the agent/broker that violates ethics, you could be the next one.
First "Pocket LISTING" is a misnomer. The property is for sale but not listed in the exclusive club of the MLS, with an agent who wants 3% commission for actually doing very little. The advent of the internet and the ability to show and advertise properties for free without the use of an agent is very popular. That fact alone has worried brokers throughout the indusry because it has threatened a revenue stream that was not readily acccessible to anyone, only to themselves. Second the idea that an agent is going to protect the buyer AND the seller in a transaction over their own interests is akin to saying the lion is going to protect the lambs and the fawns. Agents are paid from proceeds of the sale which come from the seller. That fiduciary responsibility is heavily tied to who is paying them. They would argue that they are paid before the seller is paid from the proceeds of the sale. The fact is, were there no sale, they would not be paid. Contracts are only valid if people can read them. If they feel they need help, they should enlist such help at their own expense. Parties in a Real Estate transaction need to read the contract they are signing and only sign it if they understand and agree to all of it. It is very much a personal responsibility. Some Agents are very helpful in advising sellers on the sale of their property while other use their own and other agents listings as tools to encourage a buyer to buy a certain property by showing the upper priced lesser quality units to compare with the property they have in mind to sell which happens to be their own listing thereby increasing their commission as not only the listing agent but the selling agent also. Agents have held the MLS too "close to the vest" for too long for people to trust that they are not hiding something from them. When the "expert" hides something it is usually not in the best interest of anyone but the expert. Agents need to remain agents for a specific party and not become the overseeing judiciary of a Real Estate transaction.
Ms. Huang does a good job of defending her in-the-box view of homeselling, but she barley acknowledges the value of selling outside the MLS. As a broker, I have been doing exactly that for years, and just sold a low-end home to an all cash buyer that was never listed in the local MLS. I sold it for a 3% commission, not 4.5% or 5% or more, because I did not have to split it with another agent from the MLS. In a seller's market, which is what it has become in many locales with low inventory these days, buyers have no problem finding you. Nor do other agents, who after asking why the property's not on the MLS, then ask if they will get paid a commission if they bring forth their buyer anyway. Most non-MLS sellers will agree to pay an extra 2% or so to a co-broker if they know that buyer will actually buy. A buyer in the hand at 5% is worth more than a buyer in the bush at 3%.
This marketing dynamic does not require the MLS to work. The MLS was a great tool for the way real estate buying and selling used to work, but this is the new normal, and new ideas are going to have their say regardlesss of what your average Realtor thinks...
the Property Owner's Network
It is hard for sellers to know if the agent they are hiring has a reputation for holding listings off the market and trying to double-end the transaction before it hits the MLS. The seller may be told they will get higher net proceeds through the agent's 'special exclusive marketing program.' Saving a percent or two on the commission seems tempting but not when the sales price in an open market may be 3% -10% higher.
An agent who does pocket listings constantly will not have many friends in the industry and will have less showings because other agents may want to avoid working with that agent. The pocket listing agent may be uncooperative with providing disclosures, inspections, access to the seller to present offers, etc.
Agents have a fiduciary duty to protect the buyer and the seller. In my 27 years of experience in Silicon Valley, more than 99% of agents follow the letter of the law and always put the interests of the client ahead of their own. Trust but verify.