Hand in pocketA couple of weeks ago a local brokerage here on the North Shore ran an ad in the paper with the following headline:

"Don't Let Your Agent Hide Your House in His Pocket"

What they were referring to is "pocket listings": the practice of brokerages selling listings without putting them into the Multiple Listing Service.

This practice has been around forever, but has traditionally been used mainly for ultra high-end or celebrity homes, where privacy is a key concern. But recently there has been a dramatic increase in the use of pocket listings for properties in all price ranges.

Why? Because the market is so hot right now that that there are many more buyers than there are homes for them to buy, resulting in multiple offers and bidding wars. Since it is so easy to sell a house in this environment, this no-muss, no-fuss approach to getting their home sold is appealing to sellers. They don't have to have hordes of people traipsing through their home, they can forgo staging and constant cleaning and haggling with potential buyers.

And apparently some brokerages and agents are encouraging their sellers to do this.That way the agent or the brokerage can sell the home to one of their own clients or one of the clients of their firm. This guarantees they get a commission on both sides of the deal, as well as the increased market share that goes along with a double-ended transaction.

Buyers love exempt listings because they believe it gives them an advantage if fewer people know about the house. They will be less likley to get caught in a bidding war and less likely to have to waive the contingencies that are there to protect them (mortgage, appraisal and inspection contingiencies). Which is precisely why a pocket listing is not necessarily in the best interest of the seller.

Don't get me wrong. There's nothing wrong with selling your home this way. But before you take this route you should be aware of the downside, and your Realtor has a fiduciary responsibility to explain it to you.

The drawback to keeping your home out of the MLS is that you significantly reduce its exposure to the marketplace, and the fewer buyers that know about your property, the less likely you are to get top dollar in the sale. 

That old adage still holds true: maximum exposure results in maximum price. A recent study by a multiple listing service in Northern California shows that off-market listings sell for about 13% less than those entered into the MLS. On an $800,000 home that's $104,000 less!

There is a gray area in all of this. Our local MLS (Midwest Real Estate Data LLC) requires brokers to enter a property in the MLS within 72 hours of signing a listing agreement, unless the homeowner signs an authorization electing to keep the property out of the MLS. Usually agents use this 72 hour period to get the photos taken and the marketing materials prepared. They also will create buzz among the agents in their offices and other brokerages by publicizing that the the new listing is coming soon. This creates an "auction effect" and buyer agents work hard to secure the home for their clients before anyone else has a chance to bid.

As a seller you may want to think twice before jumping on that first offer, especially if your home has not even hit the MLS. You will almost certainly have more negotiating leverage if you wait until all potential buyers have been exposed to it.

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