Pocket Listings: Who Benefits?

By Michael Edlen
Special to the Palisades News

It has been a very challenging period for buyer’s real estate agents since 2013 when the market recovery began. Demand has consistently been stronger than housing supply and prices are far higher than the previous market highs reached in 2007.

However, the current Westside real estate market is showing signs of beginning to cool off, even though technically it is still a “seller’s market.” In fact, with steady increases in inventory at the higher price ranges, it is gradually becoming more of a “buyer’s market.”

For a variety of reasons, most agents are having a difficult time in the effort to find people who are interested or willing to sell their homes, especially in the more affordable lower-to-middle price ranges.

Michael Edlen

Some agents have approached that challenge by suggesting to owners that they could “quietly” let the agent do some unofficial marketing. This strategy, traditionally known as a “pocket listing,” enables the agent to discuss the property with people he or she knows and try to get some buying interest through fellow agents in their office.

Of course, the “listing” does not receive any advertising in print or online exposure and misses the vast majority of agents whose sole way of learning of listings is through the MLS (Multiple Listing Service).

There are, of course, occasions when a homeowner may prefer a low-key style of marketing. It may be more suitable if one of the owners is quite ill, or highly sensitive to having people come through their home. Others may not want anyone to know they might be selling their home.

Some sellers may be convinced it is a good idea because the agent proposes a lower commission if they can sell it quietly, having no marketing or advertising costs or time invested.

This is the question to consider: “Who benefits from a pocket listing sale?”

There are usually four parties involved in a home sale: the seller, the buyer, the seller’s agent and the buyer’s agent.

Does a seller benefit from having little or almost no exposure to the market? Is it likely that such an approach to selling will get the seller top dollar, when the buyer has no competition? Might the seller receive more money, and possibly better contract terms and conditions, if there were two or more buyers waiting for a home just like that seller’s property? 

The buyer might benefit quite a bit from being able to buy a “pocket listing.” Without needing to compete with other potential buyers, there is much less pressure on them to pay more, or to have more stringent contingency periods or conditions.

A study done over a period of one year in the last strong market showed that buyers in a local area very similar in demographics to the Palisades were able to purchase homes for 3-7% lower prices than had been paid for relatively comparable homes being marketed in the conventional way using the MLS.

If there is only the one agent involved, even if the commission is reduced by 2%, the agent does very well, especially considering there is little investment of time and no investment of money to do marketing of any sort. If there are two agents involved, they will still be well compensated relative to the efforts expended.

Some people think “pocket listings” are unethical. The more recent standard California sales contract form includes a section that the owner is supposed to read and initial that indicates they have been made aware by the agent that a listing like that might not be in their best interest.

There are exceptions in which an owner may receive even a higher price than might be expected.

Generally, sellers will succeed in obtaining the best contracts for their homes by hiring an agent who has many sales in the area and provides a vigorous custom marketing plan for that seller. Such an approach will assure maximum exposure to the great- est number of qualified prospective buyers before negotiating with one prospect.

Many listings have received multiple offers in recent years, often resulting in the home selling for more than its list price. Our team has been able to achieve multi- ple offers 25-30% of the time, using a very high-energy marketing system.

When the system works as designed, the results achieved in quality as well as dollars have consistently proven beneficial for the sellers.

As the market begins to normalize, and buyers feel less pressure, full market exposure will become even more essential for sellers to attain the best results possible. Then, “pocket sales” can potentially be significantly more costly to sellers.

Michael Edlen and his team have developed a highly effective system for marketing and selling with the best likelihood of multiple offers. Call: (310) 230-7373 or visit: Michael@EdlenTeam.com.

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