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Pocket Listings: Are Non-Listed Properties Good For Real Estate?

Angie Shipe March 22, 2013 0
Pocket Listings: Are Non-Listed Properties Good For Real Estate?

Last fall, an estate in Woodside, Calif. sold for $117.5 million. Some are saying it was the highest price ever paid for an existing home. But we don’t know much about the deal—the Silicon Valley property was never actually listed for sale.

We don’t know much because the transaction was an off-market deal designed to protect the privacy of all parties involved. These secretive so-called “pocket listings” are becoming more and more common, particularly in the luxury home market. There’s no way to gauge the trend’s impact on the industry as a whole. But with the market getting stronger and the inventory of existing homes relatively low, the recent increase in these secretive listings as an often-overlooked strategy in selling real estate, is raising eyebrows.

Pocket listings (also known as “hip-pocket” listings, “whisper” listings, and “quiet” listings) refer to homes sold without being listed on the Multiple Listing Services (MLS). Property information about these off-market listings is passed through a private network of in-the-know realtors and select clients. An agent who keeps the listing in his or her “pocket” gets word out through a number of alternative means, including open house and private tours.

So what are the pros and cons of pocket listing? Let’s start with the arguments against them:

Pocket listings skew the overall real estate market picture.

Real estate professionals who rely on the MLS want to see fewer of these off-market real estate deals because they deprive buyers of a clear picture of the state of the market. They say homes not listed skew everyone’s picture of the housing market by not being available for comparison against other properties for appraisals, sales or mortgage refinancing. Market “comps” are an essential element of home appraisals, and without having all the inventory available for comparison shopping, knowing the true value of a given property becomes more difficult.

Pocket listings enable unscrupulous agent behavior.

Some agents use the allure of access to a “secret inventory” to stoke buzz among buyers. They cultivate a reputation of knowing where the best unlisted properties are, giving themselves an aura of exclusivity. This isn’t necessarily a bad thing. But keeping the listing internal also allows them to collect the full listing and selling commission. And an agent putting his or her self-interest ahead of the client’s is violating real estate license law. Furthermore, if a seller is conducting a private listing with the goal of screening buyers, they are violating Fair Housing laws. Discriminatory selling is not only unethical, it is illegal.

We’ve seen that pocket listings can be good for the agent’s reputation and bottom line. But are they good for the seller? Sellers have to agree to a pocket listing, so why would they not want their property exposed to the entire marketplace? Getting as many offers as possible is how you drive up prices, right?

Pocket listings give the seller an opportunity to test the market.

The seller sometimes wants to measure the market demand and really has no intention of selling at all. Pocket listings let sellers test the waters. In the highest reaches of the “trophy home” market, luxury homes are fetching jaw-dropping prices even without a bidding war. These multimillion-dollar homes simply aren’t bought and sold the way more modest homes are marketed. If you can easily find a home’s value using the MLS (by looking at market comps), chances are the seller will fare best listing on the open market, where a bidding war might push the price higher. This rule of thumb simply doesn’t apply to more unusual (read: expensive) properties.

Pocket listings protect the seller’s privacy.

An MLS listing (and Realtor.com, Trulia.com, and Zillow.com listings) makes information about the seller and the property available to anyone. Sellers at the wealthiest end of the market spectrum often will list privately so they can avoid this unwanted forfeiture of their privacy. This approach might make sense when the property’s “wow factor” (the price and the property itself) might draw more curious window-shoppers than actual serious buyers.

When the seller is a celebrity or otherwise well known, the pocket listing allows them to avoid having information (including photographs of the interiors) circulated on real estate websites—and in gossip magazines. Another advantage is that the unsold property isn’t subject to a running count of the number of days it has been listed. An overpriced listing with a high “days on market” number will attract low offers. Stale listings look bad, pure and simple. Buyers don’t really know how long a pocket listing has been on the market, so the stigma of remaining unsold for great lengths of time doesn’t apply.

 

Image by Atwater Village Newbie (Spelling Manor, Holmby Hills) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

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