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Pros and cons of a pocket listing versus the multiple listing service

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Posted: Friday, April 18, 2014 7:37 am

Have you ever considered selling a home without ever listing it? Has someone knocked on your door and said they wanted to buy your home and the excitement overwhelmed you? Has a real estate agent ever said “I can sell your house without putting it on the Multiple Listing Service for a discounted rate? Pocket Listings should be a red flag to a potential seller. The term pocket listing typically refers to an agreement between a seller and a real estate broker that allows the broker to market the property outside of the multiple listing service. The property is advertised through the broker’s “network,” and a buyer is targeted by what amounts to “word of mouth.” Although this seems attractive please be aware of the risks involved.

Here are a few caution points any seller contemplating a pocket listing should be aware of:

1. The home might sell for less than market value. How is the sale price being established? If the home isn’t exposed to the maximum number of potential buyers (usually accomplished via the MLS), how can the seller be confident that the best price was received? With a shortage of quality listings, multiple offers and bidding wars might happen and without exposure to the MLS this would be impossible.

2. What would motivate a seller to consider a pocket listing? If the potential to save on agent commissions is the expectation, this is rarely a good excuse. A 4 percent commission might be 1 or 2 percent less than market and appear like a bargain, but a seller should look at the big picture. Agents soliciting pocket listings typically have a buyer lined up so the conventional agent split doesn’t apply. So while the total fee might be less than market, it’s more for the agent since they keep it all. Agents who solicit pocket listings commonly have buyers for these properties and would retain the entire commission. The pocket listing may also have clauses that if a buyer’s agent is involved the commission would be increased.

3. It’s worth noting that an estimated 45 percent of homebuyers in 2013 found the home they bought on the Internet, from IDX feeds to various sites from local Multiple Listing Services and not directly through their agent.

4. Issues that plague a “normal” sale will be present with pocket listings as well. However, a competitive environment provides options to a seller. Repair issues, appraisal problems or other challenges can better be negotiated or ignored when there are multiple interested buyers.

Homebuyers have some risks when purchasing pocket listings as well. Most of the negotiating power vanishes if the buyer shows too much interest in a home. Buyers who ask agents to stuff mailboxes in a particular community enter the game at a significant disadvantage. Sellers will be less cooperative making repairs and giving buyer concessions than sellers who have marketed their properties and have had more interest. If you are considering a pocket listing, please meet with a local realtor and make sure you are making the right choice for the sale of your home.

Eileen Schamber is the president of the Lodi Association of Realtors and can be reached at president@yourlocalaor.com.

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