What you should know about pocket listings. Who does this real estate market trend benefit most and why is this reader annoyed by it?
Q: I’m annoyed with some of the things I see going on in the real estate market, including pocket listings.
Sellers should avoid brokerages that list properties internally before they are exposed to the market. The brokerage will brag that they sold the home before it hit the market as a good thing when it is not. It is good for the brokerage because they received the buyer and seller commissions. However, the seller not only forfeited seeing if one of the thousands of other agents had a buyer willing to pay more, but research shows getting more than one offer usually increases bids by $10,000 or more.
The only time a pocket listing may benefit the seller is if there is only one agent involved and the commissions are discounted significantly. That discount should be at least $10,000 even for a small house.
The Most Important Factor When Selling a Home
It is also true that the most important factor to get right when selling is price. Statistics show the overpriced homes sell for less in the end. When I have examined homes by type, price point or location, homes that sell in less than 30 days generally sell for more money.
Overpricing homes is a tactic many agents use to convince sellers that they can sell homes for more than other agents. Sellers should ask agents for the past two years of listings to see how much agents lower their list price or has their listings canceled or expired because they are overpriced. Realtors will try to show the last list price to make their numbers look better but they may have lowered the price several times before the home was bought.
Closing Costs and Commissions
Most sellers don’t know that money given back to buyers to cover closing costs is not reflected in the sold price. For example, if the sold price for a house is $300,000 but the seller had to give $10,000 back, the seller only received $290,000. Therefore, sellers need to make sure that they are comparing the original sales price to the sold price minus money given to the buyers to finance the buyer’s closing costs.
One last tip, most sellers are not aware that they’re paying commissions on the money they are giving back to the buyers to finance the buyer’s closing costs. In the example above the seller would pay commission on the $10,000 they are not receiving because commissions are based on the sold price. Sellers need to make sure to negotiate this with their agent in advance.
A: Thank you for your long comment on pocket listings and some of the ins and outs of the home selling process. You make some excellent points. We, too, have noticed that more homes are appearing to go on the market without really being on the market.
Lately, we’ve noticed quite a number of homes with brokerage signs on their front yards with a note stating that the home was “coming soon.” There is no information available about this home either on the listing company’s website or on online.
What You Should Know About Pocket Listings
These homes are called “pocket listings,” meaning the homes are not technically listed but the real estate agent is expecting to get calls from prospective buyers about the home. In a hot market, where the number of buyers outnumbers sellers, this would potentially allow the real estate company to capture both sides of the deal far more often.
We agree that this does a disservice to the seller. A seller should want the entire inventory of buyers to know that the home was available for sale and that all of these buyers would want to see a new home as it comes on the market.
In a bad market, we suspect the listing broker wants to test the waters on price. If a property is listed at $500,000, all the online websites would show that the home was listed at $500,000. But if the listing broker is wrong, and the prices drops to $450,000, that will also get reported online.
Once websites report that the home price has dropped 10 percent, buyers may suspect there is something wrong with the home, may wait for further price drops or may bid even less for the home thinking that the sellers might be desperate. We suspect that some listing brokers want to avoid this appearance and so go with the pocket listing first to try to gauge what buyers may want to bid for the home without tying the home to a specific amount that will show up online.
Pocket Listings in a Strong Sellers Market
We don’t quite understand pocket listings in a strong sellers market. In those situations, as soon as the home goes on the market, you’d expect tons of buyers to want to bid on the home and there would be no need to have the pocket listing, unless, as you pointed out, the listing agent is trying to keep the home to sell in-house (where an agent for the buyer and seller are in the same company) or where the listing agent feels they may get something better than if the listing is out in the open.
Are you a seller who has agreed to a pocket listing? Have you allowed your real estate agent to keep a “coming soon” sign on your property for weeks on end without it ever going onto the multiple listing service or being “listed?” Are you an agent who has done this? Please email us at ThinkGlink.com and we’ll publish your comments in a future column.