Pocket Listings- Any Benefit to the Buyer?

17 Replies

The primary benefit is to the Agent, he/she can get both sides of the commissions. It is a dis-service to the Seller not a benefit. The buyer benefits because the property is not exposed to the full market, only to the friends of the Agent, so a lower purchase price.

The benefit is really mostly to the buyer, then the agent and last the seller. The buyer is usually getting told about something that will get bid up higher than list if it is opened up to the MLS at large. The agent gets double commission and good will with his repeat buyer. And the seller gets a fast close, but since it is probably a really good deal for the buyer he probably would have gotten some higher quick close offers anyway so that isn't necessarily to his benefit.

Promotion
PropStream
Web + D4D Mobile App for you & the team!
Trusted Provider of Real Estate Data, Marketing, Skip Tracing & A
#1 Real Estate Software for Investors, Agents & Brokers to find leads and close deals nationwide.
7 Day Free Trial!

I disagree a bit... I run a pocket listing website and have extensive experience in the off market world.

Every situation is different and every agent handles pocket listings differently.

In the above comment. you are assuming that the agent is holding the listing as a pocket for the sole reason to double end it.

The way my company is designed is to actually work with agents and create and exclusive off market dynamic for any pocket listings. We pay full commission and are never out to simply double end the deal.

In addition, we list as pocket listings for very specific reasons which make sense to list as a pocket listing vs an MLS listing.

1. seller privacy (very important to high net worth individuals who do not want to be bothered with open houses, nosey neighbors, etc.

2. investors with properties under construction that will be hitting the MLS soon. We recently put a property that was down to the studs into escrow at fair market value months before ever being completed. this benefited the seller greatly because the property was locked into escrow before the project being completed, and is minimizing days on the market which translates to lower holding costs. combined with a great offer it was win win for the seller due to profit maximizing, buyer because they were able to customize a home and negotiate a price they were comfortable with, and probably lastly the agent because it took much more work then a normal listing due to milestones and repairs being made as the deal went on.

just some notes on the subject which i know can be debated all day long.

cheers!

Originally posted by Mike Izquierdo:

1. seller privacy (very important to high net worth individuals who do not want to be bothered with open houses, nosey neighbors, etc.

2. investors with properties under construction that will be hitting the MLS soon.

No 1. is a valid use of a pocket listing. In most markets that is going to be 1 listing in 1000. In South Pasadena, Manhattan or Aspen, certainly much more than 1 in a 1000. But I only see this working well for the seller if you work in the area's largest big dollar Real Estate company, so that you can market the pocket listing to other agents in the company.

No 2., listing a remodel before it is done, is just something I would never ever do or advise. So I don't even have an opinion about a pocket listing in such a circumstance.

in regards to #2

Some recent scenarios I have closed demonstrating seller advantages:

-Scenario A - How a seller can benefit from pocket listings - More exposure over a longer period of time can lead to more opportunities and choices.

1. Now I do primarily deal with fix and flip investors who like to see their money be turned 4 times a year, this typically means acquisition to disposition in 90 days. By beginning your marketing early through other agents you could maximize exposure. The more agents you connect with and let know about your amazing new listing coming soon ultimately means more buyers and more options for offers. Also, sometimes it can compel an otherwise exhausted buyer to see one last property after a weekend of open houses if you mention that the property is not listed yet but will be coming soon in x amount of days. Most buyers these days are online 24 7... with websites now that receive syndication from the MLS....everyone has access to it. Some buyers truly desire something different, something exclusive, something customized.

One recent exceptional outcome I have achieved with marketing pre-mls is to come across a buyer with a high down payment. The seller can then make a strategic choice weighing into consideration, time frames, possibility of another highly qualified buyer coming etc. Last year for example my team and I sold somewhere around 30 properties in 90032. A few times during construction an agent would let me know about an atypical buyer in the area...for example placing a 300k downpayment on a 400k house. Now in that area it is few and far apart when a buyer like that surfaces. When I find a buyer like this I will try and get as many of my coming soon listings onto that buyers radar because they may be gone by the weekend pulled into another area or property. In this situation, It was a easy decision for my seller to accept an offer during construction phase. Seller in essence made a very strategic decision to accept an offer pre mls because of the high probability of closing with that buyer in a area where FHA loans are much more common place then a 300k downpayment. FHA escrows often take 45 + days to close....When an investor can close a deal 30-60 days earlier consistently he can literally complete an extra flip off the time saved and hedge his investments by diversifying into more deals.

Now at the end of the day, we are the experts, it is our role to guide our sellers and make the best choices. For certain properties in certain price ranges it may not be appropriate. Listings agents should have a pulse on the market, and be able to make decisions whether or not to market pocket listings and to which type of buyers. I have clients that demand only being shown pocket listings. (buyers in all price ranges might i add) I also have clients that I know would kill me if i showed them an under construction home.

*Important- Pocket Listings are not for the faint of heart or inexperienced. They are much more difficult to sell then a standard MLS listing and require more work. My office when choosing to complete a pocket listings always includes a marketing plan that ends with a MLS listing. The goal is to create opportunities that would otherwise not be there if we waited to begin our marketing after the mls listing. We have a significant marketing budget which we use to perform all the normal marketing a agent would do during a mls listing but what makes us different is we begin it as soon as absolutely possible. If an investor closes on a property who we work with, we usually begin marketing that day. Take a look at your next MLS listing and look at how many views it receives. On several of my listings I am able to receive more impressions on possible buyers and agents through my marketing techniques then the MLS is capable of 10 times over. I use email, website, print ads, door knocking, cold calling, and some secret techniques of my own 0:)

Scenario B (least likely but happens)

Investor was over leveraged and mismanaged his construction funds. He had a rather large portfolio and was left with two properties that had been gutted. For privacy reasons ill use similar yet rounded numbers.

Property was located in Los Angeles County, and was down to the studs. I could have sold it for 300-350k to a cash buyer because it was obviously not financeable and seller had no equity since he had already pulled cash to finish other projects. Since my team has experience in these scenarios we took it as a challenge. We marketed it as a customize your own home property. We found a buyer who loved the idea to be able to customize his home for his wife as an engagement present. They understood the situation the seller was in and saw it as a opportunity to get a truly custom home for a fair market value instead of competing in a multiple offer situation. They put a significant down payment which contractually was to be used by seller for completing the remodeling per their choices of flooring, paint colors, counter top and cabinet selection. We set up milestones, inspections, and other safeguards for both seller and buyer. Property sold for 500k which was on the upper fair market value range. This scenario greatly benefited the seller because he was able to complete his construction and not get foreclosed on. Buyer of course did get to customize his home which is also rarer. This is a pretty rare example in an extreme situation but it happens. Trust me id rather not sell a property like this but I will if Its possible.

anyways to continue with my lovely sale, these funds were then used to finish another property the investor ran out of funds on. since the other property in was kept off the market it was remodeled and placed on the MLS and later sold.

More recent scenarios for seller benefits

I don't know if 1 in a 1000 is a accurate number wether it is high or not...but I understand what you are trying to say. I can say this. I also work with plenty of sellers that contact me because of the pocket listing nature. Here are some real life reasons I have been hired to sell someones property recently where they have contacted me directly.

1. I do not think it is anyones business whether I sell my house or not, especially my neighbors. Please discreetly as possible sell my house. If it is not possible to be sold in this fashion the I do now want to sell.

2. I do not need my family to know that I may be selling the house. Can you sell it without a for sale sign.

3. I have had long term tenants, and I do not want them to know about the sale in case it does not go through. Because it could scare them and they may begin looking for a new place to rent.

3. "My tenants are like my family." "They run their business' from their units. I do not want a sign in their front yard, open houses, or nosey buyers which may disturb them".

4. My properties are under construction but we are open to customizing the buyers home for a premium and or a highly qualified buyer

Now yes in certain situations, some requests from seller will hurt the sale. such as not doing an open house or not placing a sign on the property. I always communicate to sellers that there is a trade off from their privacy to exposure when never exposed to the MLS. But if it makes the seller happy, and they can live their life without added stress to their kids, family, or tenants it can be worth it to them. If an investor can purchase and sell more properties as a result of quicker turn times from pocket listings, it would be in their disinterest to not at least consider pre-mls marketing as a pocket listing. When pocket listings are worked correctly in the right circumstances they are highly effective in benefiting the seller and buyer much more then the agent benefits, who in my opinion works much harder then the agent who simply lists it on the MLS.

... sorry for long post ...its too easy for me to talk about pocket listings. hopefully it makes sense. lol.

point is. yes sellers can benefit from pocket listings, and i think they are more common and desired by sellers then you may believe.

My parents first rental out in California was a pocket listing. Honestly it benefited all sides.

They bought it this past summer when the interest rates had just jumped through the roof. The seller was ex-military who had just finished the local police academy. He had a job offer 8 hours away and wanted to buy a house. He couldn't buy a house till this one was under contract because he wasn't able to qualify for two mortgages.

4 Guys had lived their as a bachelor pad. The backyard was also nothing but weeds. When they moved out they left tons of junk. I knew the area and the potential so we told him for this X price we would take the house as is and close in 10 business days.

We closed on time even with a mortgage. This worked for everyone. The seller was able to close immediatly instead of having to hold on to the house 2-3 months while everything went though.

Sometimes it's NOT about getting the most money for a seller. In some cases it's about a timing issue for the seller.

Future liens, upcoming family issues, business issues, a property they want to buy with a higher upside then the lessor price they will take for a quick sale on their property etc.

The point is people can make sweeping statements but they do not apply to ALL situations.

Originally posted by Elizabeth C.:
My parents first rental out in California was a pocket listing. Honestly it benefited all sides.

They bought it this past summer when the interest rates had just jumped through the roof. The seller was ex-military who had just finished the local police academy. He had a job offer 8 hours away and wanted to buy a house. He couldn't buy a house till this one was under contract because he wasn't able to qualify for two mortgages.

4 Guys had lived their as a bachelor pad. The backyard was also nothing but weeds. When they moved out they left tons of junk. I knew the area and the potential so we told him for this X price we would take the house as is and close in 10 business days.

We closed on time even with a mortgage. This worked for everyone. The seller was able to close immediatly instead of having to hold on to the house 2-3 months while everything went though.

For sure there are circumstances where a pocket listing can benefit a seller, but I doubt this was one of them. There is nothing specifically related to a pocket listing in this deal that benefitted the seller. By putting it on the open market for even just one day, the seller may well have gotten a better offer (more cash, faster close), the agent would have had to split the commission, and you may have had to pay more to get it. There is no shortage of experienced, as-is cash buyers who can close quickly in almost every market in California.

Pocket listings are mostly for the benefit of the agent and buyer. IMO, the incentive is too great for agent to hold the listing when they have a buyer ready to perform. Sell it to as known buyer for $100K and get $6K? Or offer it on the open market, generate interest and a $120K offer and receive a commission of $3600?

K.Marie you are assuming that the agent who lists as a pocket listing cares more about 3600 dollars then his sellers interest.

Every pocket I market, I cooperate with other agents as much as a possible and consistently end up with a multiple offer situation where I am not representing any buyers. I probably would actually have a better chance of double ending if i listed on the MLS because a common practice for buyers these days is to call the listing agent directly and ask him to write up the offer.

In addition, I work on a volume level for most my pocket listings. Moreover, I am comfortable in my finances where my goals truly are to keep my sellers best interest in mind at all times so that I can have long term clients for the rest of my career in real estate.

My sales for the year are somewhere north of 55 Million. And my MODE sales price (most often) was probably in the 300k-500k range. And Yes I had a few big deals in the multi million range also.

Im not trying to toot my own horn here, but if a newly licensed agent tries to market a pocket listing...yes it could be a very bad idea. but if a experienced agent with networks as strong if not stronger then the MLS system markets a pocket listing correctly it can have highly beneficial results for the seller and all parties involved.

Originally posted by Mike Izquierdo:
K.Marie you are assuming that the agent who lists as a pocket listing cares more about 3600 dollars then his sellers interest.

Every pocket I market, I cooperate with other agents as much as a possible and consistently end up with a multiple offer situation where I am not representing any buyers. I probably would actually have a better chance of double ending if i listed on the MLS because a common practice for buyers these days is to call the listing agent directly and ask him to write up the offer.

In addition, I work on a volume level for most my pocket listings. Moreover, I am comfortable in my finances where my goals truly are to keep my sellers best interest in mind at all times so that I can have long term clients for the rest of my career in real estate.

My sales for the year are somewhere north of 55 Million. And my MODE sales price (most often) was probably in the 300k-500k range. And Yes I had a few big deals in the multi million range also.

Im not trying to toot my own horn here, but if a newly licensed agent tries to market a pocket listing...yes it could be a very bad idea. but if a experienced agent with networks as strong if not stronger then the MLS system markets a pocket listing correctly it can have highly beneficial results for the seller and all parties involved.

I'm not assuming the listing agent isn't looking out for the seller. Most agents will tell you the pocket listing served their client best. :)

But it's only a very small percentage of agents that really know their markets well enough, and have a large enough network of buyers and associates to offer something better than what the open market will bring. Especially in an upswing and/or low inventory market.
Originally posted by Mike Izquierdo: I probably would actually have a better chance of double ending if i listed on the MLS because a common practice for buyers these days is to call the listing agent directly and ask him to write up the offer.

Given that you chances of double ending a pocket listing are close to 100%, I do not find this statement remotely plausible.

Promotion
Vacasa
Vacation Rental Property Management
We do the work. You get the ROI.
We do it all for your vacation rental. All—marketing, pricing, guest requests, housekeeping & more.
Free income estimate

@John rooster. how are anyones chances of listing a pocket listing 100% ?

Especially not mine lol. I depend on my network of agents to help me sell my pocket listings.

-Our pocket listings are shared with my network of agents. via email mailer campaigns to approximately 10,000 licensed agents nearby.

-My website is frequented by both agents and buyers routinely.

-We follow up with a calling campaign to agents to help promote the off market property we have and encourage agent cooperation.

-We attend and speak at networking events to promote our pocket listings to other agents.

-All online marketing directly states that we cooperate with agents.

I believe you are carrying an old school connotation and definition of pocket listings. There is a new school method that is being practiced in the industry. My brokerage is making pocket listings accessible to a wider range of agents, not just the elite in top brokerages.

Don't believe me? bring me an offer on my hot property of the week. It has investment flip potential and is not listed on the MLS. http://epocketlistings.com/hot-pocket-listings/

Agents and buyers welcomed! If price can not be obtained in the off market status, the property will be listed on the MLS as soon as the seller allows me to. But he told me he would take 350k now if he could get a quick cash close. Agents welcomed to bring your investors. paying 2.5% commission.

After looking at the closed sales on your website, I see that many of your pocket listings go to the MLS pretty quickly, some within a few days, some with reduced prices. So is the pocket listing just a way to offer the props to your buyer and agent pool before listing it?

I think I'm missing something. Unless your buyer pool usually pays more than the open market (and that may be the case), what's the advantage to the seller?

I'm also curious about what you say about buyers calling the listing agent to make an offer directly. How often is that happening to you?

I'm interested in understanding more about how you are using pocket listings as a marketing tool.

Originally posted by Mike Izquierdo:
-Our pocket listings are shared with my network of agents. via email mailer campaigns to approximately 10,000 licensed agents nearby.

-All online marketing directly states that we cooperate with agents.

I believe you are carrying an old school connotation and definition of pocket listings.

Yes, I am. What you are describing is not a pocket listing.

copy and pasted from investopedia, definition of a pocket listing:

"Any listing that is retained by a listing broker or salesperson who does not make the listing available to other brokers in the office or to other multiple listing system (MLS) members."

You are following the old connotation of term pocket listing. What i described is an off market listing. I cannot speak for other states but in California. "pocket listings" or "off market listings " can not be withheld from other agents intentionally because it creates discrimination concerns and would be illegal. My definition is definitely not the traditional use of the word, but it is an off market listing per the standard forms provided by zipforms. A pocket listing is a listing that is not listed on the MLS that is all. I know some states have made it illegal. but it is legal in California when practiced correctly. In California they require a contract to be signed and submitted to your MLS before marketing.

the MLS had a webinar on the subject earlier this year, titled pocket listings. They defined it as a listing not on the MLS. Investopedia does do a good job in general, but they are not the sole authority on the definition of pocket listings.

This past year I was interviewed by the LA times, MSN Money, Realtor Magazine....Apparently I have some credibility on the subject. just saying :)