As the real estate market has heated up, it has become markedly easier to sell a home. While that is good news for home sellers, it brings with it a set of realtors who try to sell homes off-market as a pocket listing, lining their own pockets and often leaving money on the table for the sellers they represent. Let’s take a look at the practice of pocket listings and see why you need to avoid it.
What is a Pocket Listing?
When a real estate broker takes a home listing, they advertise the home for sale to other brokers and the general public through the MLS database. This tells buyers and their agents that a home is for sale and how the home may be viewed and who is responsible for receiving offers on the home.
A pocket listing occurs when the real estate agent “keeps the listing in their pocket,” advertising only to their own buyers and direct associates. The goal of the real estate agent is to procure a buyer themselves and avoid having to cooperate with other brokers. By keeping a transaction in-house, they keep the commission dollars in-house, often doubling their own commission or doubling the commission for their company. They may also be working with a frustrated buyer who keeps getting outbid, so they line up the buyer in a deal that faces no competition. Neither of these tactics is in the best interest of the home seller.
Broad market exposure gets the highest and best price for a home
To get the highest and best sale price for a home, you need to expose the home to the broadest market possible. Any economist, appraiser or lawyer will tell you that. What would you rather have , 5 people made aware that the home for sale or thousands of potential buyers competing for your home. Chances are if you expose the home to 5 people and you get an offer for $500,000, you would get multiple bidders at that price if you exposed it to the broader market of home buyers. More competing buyers = a potentially better offer for your home.
Broad market exposure for a home listing means putting it in the MLS so that all of the real estate agents and buyers in your market are made aware that the home is for sale.
Market exposure also means allowing time to see the home
Simply listing a home in the MLS is not sufficient to ensure broad market exposure. You also need to allow a little bit of time for folks to see the listing online and in-person. A scheming real estate agent will advertise their pocket listing to their own network, get a bid in hand and then hit publish on the MLS listing. Later that day their seller accepts the initial offer well before anyone has had a chance to see the home. The listing agent has given the illusion that they marketed the home to the general public, but structured the timing in such a way that no one but their own buyer clients could succeed with an offer.
A real estate purchase involves a few activities that take some time. First, a buyer or their broker needs to identify a home in online listings that matches their criteria. This is followed up by an in-person tour of the home and an opportunity to make the decision on whether to make an offer. Our market is moving fast, and buyers need to be prepared for quick action, but a listing agent who only allows a few hours for these activities to occur is clearly working in their own best interests.
There is no exact timeline that ensures broad market exposure. However, it is easy to say that a few hours or one day on the market is not sufficient to garner the most competition. The market is moving fast at the moment and buyers are motivated, so our general guidance it to give it a few days on the market to make sure that potential buyers have had a chance to see it. For example, if you list your home for sale on a Friday, don’t accept an offer on Friday. Allow it to be on the market through the weekend to give potential buyers a chance to see it.
MLS rules prohibit pocket listings
Almost all real estate agents are a member of their local MLS. By being a member of the MLS, they agree to be bound by the rules of their marketplace, which includes requirements on how and when they list homes for sale. It also requires them to cooperate with other brokers in their market who may be able to procure a buyer for your home.
In Western Washington, the Northwest MLS requires that a listing agent input their listing by 5PM the day after a listing was received from a seller and there are stiff penalties for not following this rule.
Getting a quick offer that you can’t refuse
A highly motivated buyer may appear on the first day of your listing and make an outstanding offer. This is happening more and more as buyers get frustrated after losing out on bids. Should you just accept the quick offer?
There are a few things to consider before accepting a quick offer on the first day. The first obvious question is where the buyer came from. Did they come from the broader market or is this buyer sourced using the pocket listing tactics of your listing agent? If it feels like the listing agent is pressuring you to accept an offer from one of their clients or one of their colleagues clients, they may be looking out for themselves and not ensuring maximum competition for your home.
You also want to analyze the potential for better offers and weigh it against the potential of losing this enthusiastic buyer. As a general rule, an enthusiastic buyer who is pressuring you for a quick decision will remain an enthusiastic buyer a couple of days later. Whether you will get a better offer or not is a harder question to answer. Take a close look at recent sales data. Is there evidence that similar homes have sold for more? Or are you being offered a “top of market” price? You should never be pressured to make a quick decision on the first day your home is on the market, but at the same time should not ignore a legitimately fantastic offer from a highly motivated buyer.