One of the worst things a home seller can do when listing a home is price it too high.
Why? Because when a home sits on a Multiple Listing Service for months, and undergoes a few price cuts, prospective buyers will suspect there’s something wrong with it. And those who eventually are interested are more likely to fight for a lower price.
That’s why some sellers are asking their agents to market the home by word-of-mouth among colleagues and brokers, before the home ever is entered into a Multiple Listing Service, a database real-estate agents use to find homes for clients. At a time when home prices are on the rise, sellers are able to test the market with these “pre-MLS” or “pocket” listings, using prices that may be slightly higher than some comparable homes. These typically aren’t people who need to sell in a hurry; they’re often homeowners who are willing to wait to get the best price for their home.
“It’s a good way to tap into the market prior to going on the MLS,” said Hope Firsel, who with her husband, Chad, is putting a home in the North Center neighborhood of Chicago up for sale—but has not listed it officially just yet. It’s a custom-built, upscale home—complete with six bedrooms, a wood-burning fireplace and a decked-out home theater—and they want to make sure that their price is in line with the market before listing. “We don’t want to burn time on the MLS before we know what the honest feedback is,” she said.
It’s not only sellers who have something to gain from going this route, said Jennifer Ames, the Chicago-based Coldwell Banker broker who represents the Firsel family.
Given the inventory shortage in some markets, bidding wars are more common. Would-be buyers sometimes lose bids on multiple properties. Frustrated, they ask their agents for help in locating homes that haven’t hit the market yet—with an intention to lessen their odds of being burned again.
The seller may not negotiate as much in the sale, but the buyer is happy to get the house, rather than engage in another “scrappy dogfight” to get the winning bid, Ames said.
On a recent weekend, half of Ames’s 25 showing requests were for her pocket listings. “It’s almost an underground market,” Ames said.
This concept of sharing information prior to listing isn’t new, said David Faudman, founder and chief executive of Top Agent Network, an online community where the top 10% of real-estate agents in local markets (based on sales volume) collaborate, in part to share information on pocket listings with each other. It’s just that technology is making it easier to connect with other agents.
“Despite what you might read in the newspapers about pocket listings being more popular, now systems and technologies make it easier for agents to communicate about them,” Faudman said. “It used to be that agents would whisper to each other ‘I have something coming up.’”
While pocket listing is a strategy that can be used at any price point, it often has particular appeal to luxury buyers. Sometimes, as in cases of high-profile sellers who don’t want many people walking through their home, sellers never intend to list. More often, a seller’s agent will start some word-of-mouth buzz while marketing materials are still being created or closets are being cleaned out, Ames said.
“Sometimes you and the seller don’t see eye to eye, and as agents we are posed with ‘Should we bring this on the market at $8.5 million? It’s really like a $6.5 million house,’” said Billy Rose, broker with The Agency in Los Angeles, which specializes in luxury properties. “We will bring something on as a pocket to give the seller their chance to feel like they got a look at the price.”
If there are no takers, the home can be priced more competitively before it’s listed. (The time on market officially starts ticking when the home hits the MLS; its time as a pocket listing isn’t on the record.) Or, if the home is purchased before it is listed “the seller can say ‘See, I told you,’” Rose said.
The risks of pocket listing
Buyers may like the reduced competition of a pocket listing, but they risk overpaying when home sellers test the market. Sellers risk losing out, too, if they underprice their property.
That’s why some agents will always recommend listing. “As a broker, I think I would deliver more value to my client if I marketed their listing widespread and deep, and to as many avenues as I can, making it look as good as possible,” said Ron Escobar, a Century 21 broker in Los Angeles.
One recent example of when listing the home paid off for the seller: Shortly after listing, one Leonia, N.J., property had eight offers in a week, said Johnny Rojas, a Century 21 broker in New Jersey. The original listing price: $389,000. The best and final offer: $425,000.
In fact, if a seller who is working with a real-estate agent wants to delay or decline listing on MLS, they may need to sign an opt-out form—after receiving an explanation of the benefits of placing a home on the MLS, said Lesley Walker, associate counsel with the National Association of Realtors.
Sellers interested in the pocket-listing route should employ the services of a real-estate agent who has a clear strategy for marketing the property to interested parties and, above all, will place the seller’s interests above their own. For instance, an agent in this situation may try and find a buyer who is their own client; some would argue that makes it impossible for both sides to get a fair deal.
Amy Hoak is a MarketWatch editor and columnist based in Chicago. Follow her on Twitter @amyhoak.
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