Pros and Cons of Off-MLS Pocket Listings

Pros and Cons of Off-MLS Pocket Listings


What is an off-MLS listing?

An off-MLS listing (also known as a “pocket listing” or an “off-market listing”) refers to a property that is for sale, but has not been listed on the MLS (Multiple Listing Service). This means that the property will not show up on MLS websites such as Redfin, Zillow, and Realtor.com; these platforms are intended to showcase property listings for wider exposure. Instead, a pocket listing is marketed exclusively by the listing agent/listing brokerage via such channels as email blasts, on the agent’s/brokerage’s website and social media, paid-for off-market websites for realtors, and/or within the agent’s network. Some sellers may choose to try to sell their home as a pocket listing, and if it doesn’t sell, decide then to market their home on the MLS. Pocket listings are legal, as long as certain rules are followed. As of May 2020, the NAR (National Association of Realtors) updated these rules and it is important the new guidelines are followed.  

 

What’s fair market value for a house that’s not “on the market”? 

What was once an unusual way to market homes – outside of MLS – has become, especially with the heating up of the market, much more common. One question that does come up: how do you know what the fair market value is of a home that is not on the market? Fair market value is the price a qualified, reasonably knowledgeable buyer will pay to a seller (who is not under duress) and that the seller is willing to accept. The next question is: does this make sense for most sellers?


Why would you sell your house off the market?

There are basically three reasons for trying to sell your home as an off-MLS listing:

  1. Your highest priority and primary concern is confidentiality and privacy: you absolutely do not wish it to be public knowledge that you are selling your property and do not want any public marketing performed or public showings held. 
  2. You don’t want to prepare your home for showings, have open houses, or make an effort to do any typical property prep as a realtor would advise. Perhaps you don’t even need to sell, but if someone is willing to pay you a certain price that you’ve already decided on, taking the property as-is, then you will be completely satisfied selling at that price. 
  3. You believe that marketing and selling your home this way achieves the highest sales price, because buyers who do learn of it believe they’re getting a special inside shot at buying and step up aggressively.

Those are all valid reasons, but you should be aware of the potential trade-off you’re making.


Orchestrating competitive bidding and achieving the highest sales price possible 

One thing has become very clear in the current market: it is not uncommon for one specific buyer to be willing to pay significantly more than anyone else when they’re in competition with other buyers.

The reason behind comprehensive marketing, including listing the property in the MLS (which is probably the single best way of getting the word out to buyers and their agents) is:

 

  1. To reach that highest paying buyer (in the overall effort to reach every possible buyer) 
  2. To orchestrate a competitive bidding situation, or at least the fear of impending competition in that buyer’s mind.


Without comprehensive marketing, it is much less likely that this “best” buyer will hear of your home being for sale in the first place; it is much less likely that a dynamic competitive bidding situation can be orchestrated. In either or both of those cases, it is quite possible you will sell your home for less, and perhaps significantly less, than you could have.


It might seem like an excellent price, but are you getting the best price achievable? 

If you do sell your home off MLS in this market, it’s quite conceivable that you’ll find a buyer who will pay what appears to be a very good price. However, there is simply no way to tell if you are getting the best price achievable, or even, by definition, current fair market value. This is especially true in a rapidly appreciating market. Could there have been somebody else, who, if they knew about the opportunity, would have paid more? The reality is sellers will never know.  When my clients choose this route, I ask that they choose a “buy me now” price that they will never look back on and wonder or regret that they may have gotten more. For some sellers it is worth the risk of possibly selling for less depending on their circumstances. 

 

For other sellers, their buy me now price IS so much higher than any other comp, that if they did achieve that price it really would be a miracle, and sometimes they do. In the industry we joking call this “seller influenced pricing.”

 

How do off-MLS properties perform compared to MLS-marketed properties?

Obviously it’s not possible to sell the same property, at the same point in time, through both the MLS and through an off-MLS pocket listing sale to compare the results. A study from 2013 showed that approximately 89% of SF home sales occurred through the MLS and 11% occurred off-MLS, and that homes sold off-MLS averaged sales prices 9% to 17% less than MLS-marketed properties. Now, this doesn’t constitute “proof” because each transaction has unique circumstances, but it is an indication of what a seller might be sacrificing in sales price. 

There are some off-market situations in which the seller does not complete any pre-work property prep (e.g. painting, staging, and other cosmetic upgrades). In those cases, sellers could be saving anywhere from $30k-$80k in prep fees (general SF average), which is worthy of taking into account. 


Beware of the double agent

So, as we discussed, there are valid reasons to decide to go with the off-MLS pocket listing route (realizing that you might not get the highest price/best offer you could have otherwise).

 

A good agent will take care to explain the pros and cons of both an on market and off market strategy and let you decide what is best for you. If you find an agent who is aggressively pushing you to sell off the market they may not have your best interest in mind. Some agents may be trying to “double-end” the sale (i.e. represent both you and the buyer), thus earning twice the commission. While there are rare instances that this can be a win for both parties, these deals are very tricky to navigate efficiently. Make sure you are working with an agent you trust who has your best interest at heart. 

 

The value of a good agent

A quality agent works on your behalf with competence, integrity, work ethic, and a commitment to your interests. This can make an enormous difference in the outcome of your home purchase or sale in terms of money, stress, time, and future happiness. At the Krishnan Team, we love working with buyers and sellers, and always make sure their interests come first. Have questions about the San Francisco market? Call us at 415-735-5867 for a no-obligation consultation. You can also email us at info@ruthkrishnan.com.

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February 23, 2021
Selling a Home
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