POCKET LISTINGS… What do I need to know?

 

I am often asked about Pocket Listings… I want to give you information about Pocket listings so you have a bit more knowledge about them and get less caught up in the “hype” or “Fear of missing out” mentality that they can cause.

 

Firstly, what is a pocket listing? It’s when a seller chooses not to list their property publicly on the market and instead tells one or a few agents about the property for sale. Essentially the listing is “in the pocket” of an agent and not out there publicly. 

 

How buyers can perceive pocket listings:

1. I might get to buy an amazing property that no one else has access to.
2. I might get a bargain because no one else knows about the property.
3. The property might be “underpriced” because the seller doesn’t know the real value of the property.
4. Fear of missing out on an opportunity that no one else has…I should act on it! OR This is such a special opportunity that no other buyer has. I should act on it!
5. I have more time to negotiate hard with the seller to get an extra good price because there are no other buyers to compete with. 

 

 

How some agents use pocket listings to get clients: Not to put my fellow agents down but some agents around the world in all real estate markets will sometimes use the line “I have access to pocket listings” to get clients to use them. As the client may think, “if I use this agent, I’ll get property opportunities that other agents can’t give me”. This is not the way to go.. read on for why...

 

The truth about pocket listings:

 

Firstly, let me ask you if you were selling your biggest asset, do you want the best price possible? 

I assume you would say yes to that. Does it make sense to keep it a secret but still expect lots of buyers and a good price? There’s an old saying, “you can’t sell a secret”.

 

In New Zealand, where I started my real estate career, I noticed 2 logical reasons for pocket listings 1) a celebrity client who wants to keep the sale of their property private and out of the newspapers or 2) a business owner who has many real estate agents as clients (eg a lawyer or accountant who has real estate agents as clients) and they don’t want to be seen to favour one client over another client by giving one client their listing. 

 

Now, As a seller, how do you get a good price? It comes from the competition of buyers wanting the property. More buyers are interested, and the “fear of missing out” or “urgency” emotions come into play. The buyer then offers their best price (maybe even over the asking price to secure their dream property). With competition, the price is bid up. With no buyers in competition, the price is negotiated down. 

 

So why would a seller choose to keep their property a secret from being marketed publicly?

It results in no buyers or 1 buyer, therefore “no fear of missing out”, then the one buyer they may get is negotiating the price down. The seller has no power. 

So why then?? The common reasons I see in PV are

 1) the seller has no motivation to sell. This is not a good situation for a buyer. The entire way through the negotiations and closing, the seller doesn’t budge. And if the buyer wants the property, they have to make all the concessions. I see this sometimes. An unmotivated seller who is just testing the market Or more likely humouring an agent by saying “if you get me $xx price, I’d sell”. (By the way, the $xx price is normally well over the market price because they have no need or motivation to sell). 

2) The property is lacking the correct documentation to be transferred to a new buyer easily. Therefore it can’t go on the MLS. This way the seller will sell as a pocket listing and leave the buyer under contract but in limbo land, while the documentation is being sorted with an uncertainty of when the property may close (This can be a headache for the buyer!). Fancy buying a property but not knowing when you can close and move in? 

3) Another reason why it’s not able to go on the MLS, therefore, stays as a pocket listing - the property has a “catch”. For example, I’ve sold 2 pocket listings this year with 1-year-long rental agreements attached. The buyers had to agree to honour the rental agreements. Therefore, the buyers have to wait more than 9 months before they get to enjoy their purchase. Are you willing to do this? 

4) There is one other reason for a pocket listing. The most reasonable reason: The time it takes from starting the listing process, getting photos and video done and the point it goes live on the MLS. In that window of time. An agent may invite a few agents/buyers to go through the property during that “limbo” time. The purpose is to get early feedback from buyers. Things like presentation, pros, cons, price feedback etc. But it works the same. A seller hasn’t had other buyers through the property to gauge the market value. And often a seller has a higher price in mind when listing until the feedback comes in. (Agents monitor the level of enquires, showings and offers in the first few weeks of a listing launch to gauge how buyers are perceiving the property and its listing price).

So if a buyer makes an offer at this time, naturally it’s going to need to be VERY good-looking. So again, the buyers' agent is using this opportunity to gather points from his clients. The seller's agent is using this to get feedback from buyers so he can position the property correctly on the market. And the seller is thinking of a higher price than what it may eventually sell for (as we always hope for the magical price when we first list our property…Why wouldn’t we!). So as a buyer, you’re going to need to open your wallet for this opportunity. 

 

I have a weekly newsletter and a large following of buyers subscribed. So, because of this, other agents will often contact me with their pocket listings In case I have a buyer for their pocket listing. I’ll go and have a look. I’ll ask, why it’s not on the MLS, and 99% of the time, there is a reason which fits into one of the above categories. 

 

Occasionally, with a “cowboy” agent, they drop their commission to get a listing. And then aim to sell the property to their buyer. This isn’t an ethical way to go. It’s not a pocket listing but a listing that’s kind of a secret as the agent doesn’t want it “out there”. This is unfair to the seller and can be a challenge for the buyer. 

For the seller: the agent is more motivated by his commission, therefore, selling it to their buyer therefore not promoting the property on all the platforms to attract lots of buyers. The seller will never know if they got a good price. It’s unethical and normally those agents don’t have long careers. The seller may be saving 1 or 2 % on the commission but losing 5-10% on the sale price. You do the Maths. Good agents are worth their commission because they live and breathe real estate. They know the market and know how to market a property / negotiate to get a happy result. 

In this scenario, for the buyer: firstly, the buying experience will not be good. The agent will be representing both parties but their real relationship is with the seller. And from my experience, when a seller doesn’t want to pay the fair commission, sometimes it means their personality will often be “hard-nosed” to deal with. So potentially, you’re buying a property from a difficult seller and an agent that is on the seller's side. And it’s hard to know if what they are saying is true or just to make the deal happen for their commission paycheque. And if things start to go wrong, you don’t have an independent agent to talk to. It can be an unsettling experience. And I have had buyers reach out to me for advice when they have found themselves in this position and they are full of anxiety. 

 

I can tell you this, knowing what I know as an agent: if I was to sell my property, I’d want it to be looking great, staged beautifully, photographed beautifully and marketed EVERYWHERE! So that as many buyers from as many different platforms as possible can see my property for sale, giving me the highest chance of buyers interested and the highest chance to have more than one buyer in competition for my property so my agent can extract the best price possible. Who wouldn’t want the best price possible when they come to sell their biggest asset? 

 

I hear you ask, “But what if I can get a bargain that no one else knows about”. Sure, this may have happened years ago, before people were educated on prices. Before real estate agents had to practice more ethically. Before websites existed like Zillow etc. Or before Comparable sales in your building or neighbourhood were easily accessible. People are savvy these days. If I think about it, I’ve never seen a pocket listing priced well below market value. It’s an illusion. And if you think you did, let me ask you, who convinced you of that fact? Your agent?…

 

Ps, you’re still wanting a bargain? You need to buy a poor-quality property in an undesirable location after it’s been sitting on the market for a long time. But why would you? Why buy a property that no one else wants to touch? You have to think about the re-sale to realise your equity. And I’ve noticed, not great properties don’t just turn into great properties after a touch-up paint job - it takes a lot more than that! I sometimes think it’s better to overpay for a quality property in a quality location Than get a bargain for a property no one else wants to touch. Buyer beware!

 

So, you’re buying a pocket listing? Things to know: There will be hurdles and compromises that you wouldn’t get if you were buying a property listed on the open market. Be ready. Be relaxed. Go with the flow. And do your due diligence, it may not be the “amazing opportunity” you think it is. And be represented by an agent you like and trust. 

 

I hope this gives you a little more insight. Im always available for questions, reach out to me anytime. 

 

Paul Trimmer 

www.paultrimmer.com

AMPI MEMBER / OWNER & BROKER of the PAUL TRIMMER REAL ESTATE AGENCY

**This Article is written by Paul Trimmer and comes from his personal perspective.

 

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