Imagine you are selling something-anything-on the open market. If we broke down the walls of time and space and put everyone who might be interested in what you are selling into one big room, it is obvious that the more people there are in that room, the better chance you have of not just selling, but selling at a good price. The fewer the people exposed to your product, the longer the odds of a favorable sale.
Now imagine that you are selling the very same thing on a desolate roadside where only a few passers by will ever see you. Anyone who stops and looks has enormous leverage. If you don't sell to them at the price they offer, you have no other options. It's them or the highway. They've got you.
Putting a home on the Multiple Listing Service puts your home in the proverbial crowded room. The MLS is, in a very real sense, THE market. It absolutely dwarfs the number of people who might casually pick up a supermarket home magazine, get their fingers dirty perusing the classifieds, or those who might happen to stroll by your home and see the sign. If you don't think the MLS is THE market, just try convincing an asset manager at a bank to not multiple list a foreclosure to get it sold. Or find me a divorce decree that mandates selling a home that forbids listing it with one of those useless, overpaid brokers. Both the judge and asset manager would agree that if the home isn't listed, it isn't truly for sale.
Now...even though 99.9% of brokers would agree with what I have just written, there are some brokers & agents, many of whom are here in the New York area, who would try and convince you that keeping it off the MLS is in the seller's best interest. These agents are trying for something we call in the industry a pocket listing. A pocket listing is the agent's little secret, and their agenda is one thing, and one thing alone: to sell the property to their own buyer and avoid splitting their commission with a cooperating broker. The metaphor is perfect: instead of your home being openly displayed "on the shelf," it is in the agent's pocket (think of a shady guy opening his coat, displaying cheap watches), hidden from public view, and only shown to someone who isn't working with another broker. Pocket listings are sometimes called a "office exclusives." The name is prettier, but the intent is the same. The object isn't exposure, but secrecy. Secret houses don't sell very well.
There is no scenario I know of where a a pocket listing is in the seller's interest. Exposure is limited, cooperation from brokers who might have a buyer is cut off, and possibilities are diminished. I have had instances where sellers have asked me to keep their home off the MLS because they only wanted me to handle the perspective buyers, but that thinking is mistaken. Committed buyers often have their own agent. Even those that don't have a buyer agent may know full well that I work for the seller and be unwilling to have me handle both sides of the transaction. It doesn't work.
The benefit of a pocket listing to the listing agent is twofold. If they do find a buyer, they don't have to split the commission. Is that buyer the best one? Who knows? Why should they care? If it closes, they made a double commission. They also have an opportunity to use the listing to pull buyers in that they'll sell another house to. They put an ad on Craigslist, jettison the buyers with agents, tell inquiring agents it is sold or off market now, and solicit all the other phone calls from uncommitted buyers to use them when buying a home if the pocket listing isn't to their liking. A wise seller would never allow their home to be used like this. There is nothing wrong with picking up buyers from a listing, but only if the agent has made a 100% effort to sell the listing first. There is nothing 100% about a pocket listing.
Buyers should also beware of a pocket listing. You are dealing with an unscrupulous agent whose motivation is money only, you have no agent representing your interests, and there may be less recourse if you have a problem or complaint with that agent. Practice business in the sunlight, and avoid the dark alley of a pocket listing no matter what side of the transaction you are on.
Search the MLS like an agent here. New York's Premier Short Sale REALTOR. Read my short sale bog here. See the New York Photo blog here. J. Philip Serves Briarcliff Manor, Ossining, the River Towns, Westchester County, and the bedroom counties of New York City.
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Pocket listing is indeed a bad practice of a realtor or Real Estate agent, but sometimes the sellers or owners fail to realize that they need to be on MLS or public listing system in order to maximize the selling or their own home... When a FSBO goes off the market, they becomes pocket listings for some.
This is a true statement, "The MLS is, in a very real sense, THE market."
I am still amazed that agents try to do pocket listings and that sellers allow them, especially in this market.
First of all, the agent (be they buyer or seller) is ALWAYS working for the seller. That is who pays their commission and puts food on their table. Let's not let buyers be under the impression that an agent is their best friend when the agent will be paid by the opposite party in the transaction.
Second, if the seller who lists with such an unscrupulous agent as described here, shame on them for sitting back and not being an active participant in trying to sell their home.
Third, I will dissuade a client every time from listing with anyone as an "exclusive right to sell," although agents are reluctant to take it any other way. A homeowner should be allowed to sell to whomever they choose if not brought in by an agent.
Finally, as evidenced especially in northern Westchester, some agents are not honest from the get-go when listing a home and give the seller unrealistic views of the market. Rather than sell a home, they over-price it & let it sit for a year. There are way too many listings like that today.
The good news is that Phil Faranda is not like that and can be trusted....and he didn't pay me to say that! LOL
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There is a difference between a pocket listing and an Office Exclusive. Office exclusives are listings that have formal legal listing agreements, signed. Pocket listings are usually not signed and more a seller giving access to an agent to show the property, sometimes with an individual agreement for each showing - Office Exclusives can be co-broked to other offices and shared it does not mean that the listing won't be shared. Pocket listings won't be shared because a seller has not formalized the listing and the agent can't share it. Office exlusives on occasion are necessary. A widower who is upset and nervous and can't deal with traffic, a divorce where access is blocked and if on the MLS can cause issues. WIthout a doubt the MLS is "the market", but on rare occasions doesn't work.
Lisa - the payment of the commission is unrelated to the agency relationship. A seller pays a buyer's agent to bring a buyer to the table and does expect that agent to be representing them.
Well, Gee thanks for that - as if i didn't go to law school. I wasn't targeting my comments to real estate agents but to prospective sellers/buyers who seem to be duped in the process. It is an awful market and I find that most agents are not helping the process.
I agree with that Lisa. Not sure all agents understand all of this as well as they should. I work with a lot of attorney's and that does not mean that this is understood. No insult intended but you did say that the Agent is ALWAYS working with the seller and I take exception to that. I do a lot of buyer brokerage and the fact that the seller pays has nothing to do with my fiduciary to the buyer.
Philip, sometimes agents will take a "pocket" listing when they want to capture the listing now BUT the house is not yet ready for the market (needs a few repairs or painting). Also I've had sellers who were "private" and didn't want anyone to know about their property for sale -- often commercial property. I don't necessarily agree with that "pocket" philosophy, but I will do what my client requests. I agree with you that the MLS is the 100% solution.
Phil, great take on the importance of the MLS.
What's also critically important with MLS participation is that when done with consistency, reasonably accurate numbers can be established to determine trends- something that, absent the requirements to provide all listings, is not found anywhere else (to date). Areas that don't use the MLS and respect the power that it wields as a data provider are doing a huge disservice to the real estate community as a whole: buyers, sellers, real estate agents, appraisers.
Until a venue arrives that forces participation in the way that a well run MLS does, real estate agents in certain areas (lacking the data from an MLS) will continue to scratch their heads in an already confusing market, unaware of daily activity, waiting for third party quarterly results. Hard to figure out why the reluctance is there; pretty sad for consumers in areas that refuse participation.
Good article you have provides