Should you List Your Home on the MLS or Sell Privately?

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Transcript

00:00:00 music

[Speaker] Kathy Fettke: The MLS isn’t the only place to find homes for sale. There are studies that show more and more sellers are opting for exclusive listings, and that is limiting buyer options. Also known as “pocket” or “whisper” listings, buyers might want to work with an agent who has them. But beware, pocket listings are best for the broker, and not always the best option for buyers and sellers.

Hi I’m Kathy Fettke and this is Real Estate News for Investors.

There are many reasons for the current shortage of homes for sale. The pandemic delayed many seller plans to list their homes. The record low mortgage rates encouraged many to refinance with dirt cheap loans and remodel instead of moving. Many baby boomers are choosing to “age in place” which keeps those homes off the market. And there’s been a housing gap, in general, for many years. But there are headlines out there that blame another phenomenon. According to the Washington Post, many real estate experts say there’s been an increase in these so-called pocket listings, which keeps them out of the public view. (1)

Increase in Pocket Listings

Also known as office exclusives and private listings, these homes are not listed publicly on the MLS. They are marketed privately to potential buyers and other agents and brokerages.

A realtor in the D.C. area told the Post: “We’re seeing an increase in the number of office exclusives, and I’m not a fan of them from the consumer perspective.” But he says an increase in buyers makes it possible to attract more of them to these private listings, even though they don’t really benefit the buyer.

They are not that great for the seller either, but they are good for brokers who can earn the entire commission for both seller and buyer. So there’s incentive for the broker to encourage private listings.

Why Sellers Choose Pocket Listings

Sellers may also have a few good reasons to choose this strategy, and one big one for not choosing it. Moving.com offers some pros and cons. (2)

1 - Sellers may want to test the market and see if buyers are interested.

2 - Sellers may want to test a price especially if they aren’t willing to negotiate.

3 - Sellers may want to keep their real estate transactions private and avoid an open house.

4 - Sellers don’t want their home to languish on the MLS and be viewed as a problem.

On the downside, sellers will have fewer buyers considering the purchase of a home. That could mean less competition, fewer people to bid up the price, and fewer offers to choose from.

Not Much Benefit for Buyers

For the buyer, pocket listings make it harder to find those homes. Many sellers also choose pocket listings because they don’t want to negotiate, but in today’s market, that could actually hurt sellers since a majority of them are offering more than the listing price.

Another drawback with pocket listings is their potential to create a bias in the market, because real estate agents may end up marketing homes to certain people. Redfin CEO Glenn Kelman says: “Study after study shows that pocket listings disproportionately exclude people of color.” He cites housing market researcher Elizabeth Korver-Glenn who told him that a ban on pocket listings would help close the race gap in homeownership.

Her research shows that many brokers will market private listings to their own connections, and those connections will reflect their own ethnicity and background. That would naturally create racial subdivisions in the marketplace.

Kelman told the Post: “We have to ask sellers to be part of supporting the Fair Housing Act.” But some agents feel that a policy by the National Association of Realtors that’s meant to prevent private listings, actually encourages them.

NAR passed the Clear Cooperation Policy in 2019. It requires MLS members to list homes one day after they have been marketed in any way to the public. But it also gives sellers the option to keep their homes off the MLS. And apparently, those sellers have grown in number.

Redfin data shows that the number of homes sold as pocket listings rose 67% since November of 2019. They accounted for 2.4% of the market then, and currently account for about 4%. But some experts dispute that data saying that homes may be selling so fast, they don’t make it to the MLS.

Compass Promotes Private Listings

The Post reports that Compass real estate has been the most aggressive brokerage to promote private listings. It even has a page on its website that’s dedicated to this approach, called “Compass Private Exclusive.” It lists a bunch of reasons why sellers might want to be more discreet about selling their homes. Those reasons include moving for a new job, a change in family circumstances such as a marriage or a divorce, health issues, a desire to avoid open house events and interior photos for security reasons or to keep personal belongings private. These are just a few examples.

Some say private listings are not a big problem for sellers if they know the limitations. But D.C. area realtor David Howell says: “The real problem is when companies have a strategy to intentionally withhold a significant percent of their listings from the MLS. That ultimately benefits the company, not sellers and not buyers.”

He says that consumers benefit the most from competition and cooperation. Private listings don’t do much for that dynamic. It’s something to be aware of as you search for properties, and want more complete knowledge of what’s on the market. Check for pocket listings in the area that you are searching.

You can also check for links to our sources in the show notes at newsforinvestors.com.

If you like our podcasts, be sure to subscribe, and leave us a review! You'll also find a link to join our RealWealth network of investors for free in the show notes.

As as a member, you'll have access to the Investor Portal where you can view sample property pro formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.

Thanks for listening. I’m Kathy Fettke.

00:06:04 End Transcript

Links:

1 - https://www.washingtonpost.com/realestate/competition-is-getting-nasty-rise-in-private-home-listings-benefits-brokerages-hurts-buyers-and-sellers/2021/07/07/4ad6a0d6-ca00-11eb-81b1-34796c7393af_story.html

2 - https://www.moving.com/tips/what-are-the-pros-cons-of-a-pocket-listing/

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