Off Market Listings Only Reduce the Profits for Home Sellers

Off-market, private, or pocket listings are becoming more and more commonplace as sellers are somehow being persuaded to keep their properties off of the Multiple Listing Service during this hot real estate.  Generally, they are being told that by keeping their property listing ‘private’ their privacy will not be invaded by troops of public gawkers traipsing through their homes, and that they will not have to hassle with signs, lock-boxes, and agents showing their homes, etc.  Whatever the rationale that is being sold to sellers it is unfortunate because they are actually unknowingly leaving large percentages of potential profits on the table.

In the real property market, today’s victims of secret or private sales are homeowners that are letting their property be marketed at least 10% under real market value.  Dishonest brokers/agents who are playing coy first gain the sellers’ confidence then encourage them that it would be most effective to keep their property off the Multiple List Service (“MLS”); to maintain personal privacy and stay away from potential fraud; and limit the inconvenience that comes with marketing one’s home like signage, broker tours, lock-boxes, etc.

The claim that some brokers and agents are using to convince sellers to have a “private” or “pocket” listing/sale is to guarantee buyers to their clients. However, in a lot of instances those guaranteed buyers are coming from the broker’s and agent’s own offices or circles of close net friends which dramatically reduces exposure to the marketplace, but allows for the brokers and agents to possibly double-end the transaction, or “keep the whole deal in the office.”

What they also fail to tell unsuspecting sellers is that exposing the property on the MLS places it in front of over 14,500 local networked broker and agent members, all of whom then have the possibility to work with the property.  Limiting exposure to the MLS is by definition limiting the marketability of the property.  And coincidentally these “private” or “pocket” listings are common when the real estate market heats up and there is limited inventory.

It is estimated that in Santa Clara county residential properties on the MLS sold for 13% more than “private” or “pocket” or “off-market” listings in 2012.
It is a violation of a listing broker’s fiduciary duty to the seller to keep the home off the MLS unless the homeowner, after being fully and faithfully informed, has a legitimate reason for not marketing the property to all brokers and agents in the MLS.  It is always in a seller’s best interest to have a massive advertising of a home, which encourages and promotes bidding wars and greater sales prices. Sellers who are convinced to have an “off-market” listing probably do not recognize the concomitant advantages of placing their home on the MLS, so they acquiesce and go along with their broker or agent’s recommendation based on guarantees from their broker/agent that they will get either equally as good a sale price by doing so; all without the hassles of signs, tours, brochures, lock-boxes, etc.

Broker and agents have the duty to exercise care, integrity, fair-dealing, and loyalty for their customers.  This task consists of performing their best possible acts and conduct to acquire the greatest sales price for the home.  Recommending “private” or “pocket” listings is typically NOT in a seller’s best interests.  There are however exceptions or rare occasions where these type sales make sense for sellers, but they are extremely rare; not 10-15% of the active marketplace.

It is estimated that as the local real estate market began warming back up, exclusions from the MLS raised considerably, almost doubling for the first quarter of 2013 as compared to the same timeframe in previous years.  In 2012, homes not put on the MLS amounted to approximately 15 % of the market or $340 billion in sales volume.  Incredibly, at a conservative 10 % decrease in fair market value (due to private or off-market listings), that would equate to $340 million in potential lost seller net proceeds – all “cloaked” in the name of privacy and/or hassle free transactions.

The MLS was designed to subject properties to maximum exposure leading to a maximum sales price for the specific timeframe.  Leaving a property off of the MLS dramatically limits exposure – doing exactly opposite of what a seller should be doing.

The brokers and agents who recommend “private” or “pocket” or “off-market” listings should be held to answer with specific reasons and factual details for this recommendation and be asked to provide verifiable proof that their recommendation will lead to a maximum sales price for the seller.  The bottom line is that a broker or agent will never be able to prove that limiting exposure of a home by preventing the listing on the MLS will maximize the sales price.