Pocket Listings: Out of Sight, Out of Mind

Every so often, you will see references to a "pocket" listing. These are usually bad for owners, and usually bad for buyers, but good for agents.

A "pocket listing" is one where there agent keeps the listing "in his pocket" rather than advertising it on MLS. This keeps it out of sight to nearly every potential buyer! If it's not known to be available, how many people are going to want to see it or decide to make offers?

If a property is not on MLS, how do people find out about it? Why, by the listing agent advertising to buyers that there is this wonderful property available that they can only see through this agent. In order to see it, of course, that agent wants an exclusive buyer's agency agreement. This gives them a means to lock up the buyer's business as well as the sellers. Of course, limiting the potential market is a violation of the duty owed to the seller because it also lowers the sales price.

It also gives the agent a lock on both halves of the sales commission, as they're pretty much by definition the procuring cause.

There is also a very high danger to the seller: If the agent does not have your property on the MLS, their buddy the property flipper may be the only one that the property gets shown to. This person then puts in the only offer - and even if other offers get put in, the agent plays gatekeeper by tossing them in the trash unbeknownst to the their client. The flipper offers a low-ball, owner takes it because it's the only offer, flipper turns around and sells at profit. Not that this doesn't happen with properties on MLS, but it's a higher danger if the property isn't on MLS.

There is one situation I can think of where a pocket listing is acceptable: if it is temporary, in order to deal with an issue that will make it difficult to market the property for what it's worth. The owner wants the property available, but it isn't really in their best interest to put it on MLS now.

If I take a listing in December, it's usually better to keep it in my pocket until people are done with the whole Christmas holiday thing and ready to get back to business - usually the second week in January. That way the "days on market" counter isn't 30 or more the first time any potential buyers really consider it. People really do refuse to look at property that isn't fresh on the market - it's dumb, but they do it. The San Diego market usually doesn't return to the usual level of activity until mid to late February, but I can guarantee that your potential market in December is a fraction of the interest the same property would generate at any other time of year, and the lowest ebb continues until everyone is back from New Year's. This period is the best time of year to be a buyer, but the worst to be a seller - and it's completely predictable.

If the property is undergoing work to make it more salable, that is also a potentially good reason to keep it in my pocket. This gives me a chance to explain what's going on before the prospective buyers see the current state - to frame the issue, so they know what's going on, and what's being done to fix it, before they see it. Especially since most people are visually oriented, if they understand it's going to look good eventually before they see the current mess, that's a much better chance of a good offer and a sale that my client the owner is happy with. Because I properly manage their expectations, they are better able to consider the property than if they see the mess made by construction cold. That's why there's a sign in the yard, but no entry in MLS yet. People who want to live in that neighborhood will see it as they drive around, and I will happily show it to them - with or without their agent - once they understand why it's not on MLS yet.

(I also do not do dual agency - ever. If I'm showing one of my own listings, the people seeing it sign a piece of paper that says I am not their agent, and that they understand I am doing this purely because I owe the sellers my best efforts to get the property sold.)

In either of these cases, I will write up a memo explaining why it's not in the seller's best interest to put the property in MLS yet, and get their written agreement as to the date or conditions under which the property will appear in MLS. Most states have laws on this point, by the way. Without this agreement, it goes in MLS as soon as I can get it entered.

Temporary is the only thing that can make a pocket listing acceptable. There is a reason - whose end is marked by some definite date or event - that both the owners and the agent understand and agree means it will likely generate a higher sales price if this property doesn't go onto the MLS until it's over. Once it hits MLS, the Days on Market ticker starts going and I lose my ability to frame prospective buyer's expectations, because any listing good agent wants potential buyers to be able to see that property any time with only their agent for company.

Putting a property on MLS means that everybody can see that it's available, and (if the agent has explained the owner's financial interests to them property) that the ability to come see the property is as wide open as the owners can possibly make it. This maximizes the abilities of potential buyers to know the property is available and to come and see it, thereby generating the maximum possible interest and therefore, the maximum probability of highest sales price. Sales is always a numbers game, and you get the best results by pre-loading the odds in your favor. The only possible exception to wanting the widest possible exposure are if there is a temporary reason why people might not like it as much now as they will in a few days.

Caveat Emptor

Original article here