The Easiest Way to Find “Off Market” Deals: Pocket Listings

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The off market deal – the white whale of real estate.

Every real estate investor wants one (or 100), but how do you find these elusive deals? First, let’s review some off market deal categories:

  1. Delusional Off Market – “Sure, I’ll sell…if you offer me a ridiculous price”.
  2. Unmotivated Off Market – “I really like your offer, but I’d like to think about it for a year or two”.
  3. Bipolar Off Market – “You’re great, we have a deal…wait, I changed my mind, your offer is insulting and I dislike your face”.
  4. Pocket Listing “Off Market” – “Hi, I’m the selling broker, I’m here to help. Let’s get this deal done!

Can you tell which type of off market deal is my favorite?

I recently had a delightful experience with a #3 type off market deal. The owner and I shook hands on a price, then a day later he refused to sign the contract saying he needed more money. It was a great deal, with seller financing so (against my better judgment), I reluctantly caved and we “shook hands” again at the higher price. I had the contract amended, sent it to the seller. No communication for several days, then I received an email stating that he had a change of heart and no longer wanted to sell. Fantastic.

The above story is just one reason my favorite path to an off market deal is via a pocket listing. For those that don’t already know, a pocket listing is really just a lightly marketed, non-listed (you won’t find it on Loopnet.com) deal. While not completely off-market, pocket listings are superior to widely marketed deals as the buyer pool (competition) has decreased dramatically and most of the players are fairly rationale. In other words, because the broker is restricting the market to individuals / firms he knows and perhaps trusts, it’s rare that an unlikely to close, outlier offer from an inexperienced investor might derail the bidding process.

Most brokers secure their pocket listings by either

  1. approaching an owner with a proposition – “If I can get you X price, would you be willing to sell and pay my commission?” or
  2. working with an owner that prefers a quiet selling process.

Why wouldn’t a seller want to widely market their property? I’m often baffled by this same question. Perhaps they don’t want the property management team to know their selling, perhaps they don’t want a ton of investors / competitors touring their asset, perhaps they are prioritizing surety of closing over price, perhaps the seller is wacky and doesn’t know what he or she is doing.

Related: Five Tips to Get Great Deals On the MLS (Including Buying Houses on Friday…?)

Why I Love Pocket Listings

While I have a clear preference for pocket listings, I will certainly continue to make unsolicited offers to owners of properties I’d love to buy. However, I now refuse to spend a lot of time on such deals until the contract is signed. Consequently, I devote most of my off-market acquisition efforts to working with brokers via pocket listings over true, for sale by owner, off market deals. Here is my rationale:

  • As discussed, it’s far less likely that I’ll waste my time working on pocket listing. When an owner starts sending due diligence files to a broker (to put together a small offering package) they get committed to the idea of selling.
  • I don’t believe the price discount (pure off market vs. pocket listing) is dramatically different and justifies the added headache.
  • The broker is usually a rationale 3rd party that can talk the (occasionally emotional) seller off the ledge if an issue – which might require a re-trade or contract extension – pops up during due diligence. Despite what you might think, most selling brokers I’ve worked with are just as much on your team once the contract is signed (they want the deal to close, which usually means keeping the buyer happy).
  • Pocket listing valuations tend to be more reasonable and you are typically bidding against fewer competitors (sometimes no competitors), who are mostly professional investors.

Related: 8 Ways to Find Great Real Estate Deals

How to Get Access to Pocket Listings?

If you are new to real estate investing and don’t own a professional investment firm, it’s going to be a bit more difficult to convince brokers to put you on their pocket listing email / phone call list. Here are your options:

  1. Charm the pants off some brokers. Attend an industry event (ideally specific to your target asset class), attend the cocktail hours, meet some brokers and tell them what you’re looking for. You can even make it easy for them by putting you acquisition criteria on your business card or by following up after the event with a detailed email.
  1. Hit the phones hard. Identify the top brokers in your target markets and start dialing for dollars. For some, this might sound intimidating / akin to water torture, but its really not too painful. Sure, it’s technically a cold call, but if you are a legit buyer and can articulate your investment goals, the broker will be happy to take your call and add you to their list.
  1. Ask questions about current listings. Find marketed deals that look interesting, but perhaps the asking price is too high, and call the broker with some specific questions on the listing. Thank him for his time and say something like, “I’ll think about it, but I’m having a hard time getting close to the seller’s number (price) so I’m not sure it’s worth making an offer. Do you happen to have any pocket listings similar to this deal”?

The bonus to this strategy is that the broker will likely tip his / her hand on the level of bidding competition (they might even indicate that a much, much lower number would get a deal done). If they do not have any pocket listings to share with you, they might give you a call the next time they do.

Now, if I was a part time real estate investor, I might exhibit more patient dealing directly with sellers; however, for now I’m focusing our firm’s off-market acquisition efforts on pocket listings, which I’ve found have a much lower bid / ask spread and a much higher “hit ratio” of agreeing to terms and executing a purchase agreement.

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About Author

Brad is the co-founder of Park Street Partners, a private real estate investment firm focused on mobile home park investments. Park Street Partners seeks to deliver outsized cash flow returns through syndicated real estate investments to help its investors achieve their financial goals.

10 Comments

  1. 3.Bipolar Off Market – “You’re great, we have a deal…wait, I changed my mind, your offer is insulting and I dislike your face”.
    4.Pocket Listing “Off Market” – “Hi, I’m the selling broker, I’m here to help. Let’s get this deal done!
    NAILED IT!!! I just got a deal under contract that Id been working on for almost 2 years. Seller cancelled out appointment to sign the contract about 40 times. Also just got back doored by a selling broker on a house THAT I OWN!!!! Apparently my tenant whos buying the house is “besties” with the agent and wont deal under she gets paid. Its fine since I budgeted for 3% when I bought the house but annoying nonetheless

  2. I’ve always heard about the “Pocket Listing” and dreamed of how great they would be to have someone just deliver great deals to me. It just goes to prove the fact that rei is all about who you know and the relationships you build.

    Here is a question…Once you cozy up to an agent and get on there “pocket list” list, how important is it to jump on the first deal that they bring to you? Do you find that if you pass on the first deal or two they will stop bringing things to you?

    P.S. – Bipolar Off Market guy had me in stitches!!

  3. How many commercial brokers do you find you need to have sending you pocket listing info to meet your goals? I would imagine just one is not enough, and everyone’s goals are different, but just a general idea. Good tip about always getting back to a broker, even if the deal isn’t favorable. Thanks!

  4. As an agent I have always considered what you describe as expired or cancelled listings. To me, a pocket listing is a property that isn’t or hasn’t recently been listed, where the owners are willing to sell for the right price, and terms, etc. It’s interesting that so many have other definitions.

  5. Thanks for sharing this information. Investor friendly residential agents often come across those motivated sellers as well. Don’t be shy to let them know your exact parameters and top price, even if you doubt anything will happen. You might be surprised!

  6. Great article Brad, thanks for spilling the beans ;)

    @Karen in commercial, most brokers have a list of potential buyers who get first crack at any deal the broker puts together and anything good never hits the open market. By the time a property makes it onto LoopNet it’s already been passed over by the broker’s and their officemate’s best clients and prospects.

    The key point that Brad is making is that fro CRE getting on the good brokers’ lists is the route to finding good deals.

    Good hunting-

  7. shequann burrwell on

    I have never had a issue getting on a brokers email list. some of the deals I post on bigger pockets are from there. I just partner with the broker to allow me to push the deal threw my buyers list and other social channels and we split the 3-6% they charger the buyer or seller. Most are very agreeable and more then willing to work something out of it means they can get a commission out of it. I have even gotten paid by just By makeing the introduction to a buyer. Works with sellers too I’m doing this with a hotel in London with one of my buyers.

  8. Hi Brad – just wanted to point out that the use of “bipolar” in “bipolar off-market” is kind of insensitive, as that’s a medical condition. Normally editors catch and change things like that, but looks like this one slipped through.

  9. Great article Brad!

    I think you covered all off-market deal types and as a commercial broker in NYC I can attest to the fact that almost any deal on loopnet (for nyc anyway) has already been passed over weeks before it being listed by the broker’s preferred buyer’s list.

    However I would love to explain why a seller will choose a much smaller marketing strategy when selling their property via the “off-market” route.

    While there are several investing markets, i.e. SFR rehab flips, 2-4fam rehab flips, development, etc… My specialty is with the larger products in northern manhattan, Brooklyn, Queens and the Bronx. I am usually involved in Rent Stabilized investors who only use the off-market channels when trading a building.

    In this respect, “off-market’ sellers are primarily looking to avoid downward price pressure as a result of either an over-pricing or a soft market (as a result of various factors) Sellers avoid downward pressure because they know that if a building stays “on the market” for too long it will create a psychological hurdle for any future potential buyer wondering why this property has endured the market for so long (maybe there is something wrong with the building, local neighborhood or problem tenants).

    As a result, plenty sellers test the market with what they feel is market rate then wait and see the action/offers it generates. Like many have said… if they hit their number they will sell but if they don’t, they avoid the building getting a bad stigma from languishing on the market as a result of over-pricing. In addition to avoiding the turmoil caused by placing a 40 – 200 unit rent stabilized building for sale.

    If you would like more information concerning the NYC commercial market or any other REI topic for nyc with “off-market’ specialties, you can email me at [email protected] or call at 917-648-4586.

    – John

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