By Michael Repka
As an experienced real estate attorney, and the head of the area’s most successful listing team, I am regularly amazed by the sheer number of sellers that let their listing agents use their home as bait to attract buyers. Listing agents should act in the best interest of their sellers. Yet, many request a period of exclusivity to market their client’s homes to their own buyers before anyone else gets to know about the property. If they can’t bring about an easy sale, they will only then open it up to other agents in their office or other top agents. Limited exposure, and limited competition, almost always result in a lower sales price.
Interestingly, the same agents (or offices) tell buyers that they have access to “off-market” properties that the buyers can buy for less money because there is less competition. In this context, the agent is probably right. It makes sense that properties that get limited exposure, and thus less competition, will sell for less money. This is great for buyers but very bad for sellers.
For years, some agents who do a lot of business, or agents who work in large offices, argued that buyers should work with them because their sellers will let them sell their listings without other interested buyers knowing about the opportunity. Although this message was often whispered at open houses, or in one-on-one meetings, few agents had the audacity to broadcast that message publicly.
Now, however, a large local brokerage is becoming much more overt with the message. In a series of recent full-page ads in several local newspapers, this brokerage has compelled buyers to “Get a head start to finding your home. Access thousands of new listings before anyone else…” They are apparently implying that working with them will give buyers an opportunity to buy their sellers’ homes for less money than what these listings would typically sell for with maximum exposure and competition. One must query, why would a seller ever permit this to happen?
The Right Buyer may not Know about the Property
The real estate industry has changed. Many buyers find their home on their own, and then reach out to an agent to write up the paperwork. In some cases, this is because the buyer wants to work with a discount agent who will give them back a portion of the commission. In other cases, it is because the buyer wants to use a friend or family member who is out of the area.
Additionally, foreign buyers often work with agents who are located well out of the area due to referral arrangements with agents overseas. In all of these cases, the buyers would not be privy to information about these listings. One of these omitted buyers may have been the one who would have paid the most.
Even the buyers who know about the property may be willing to pay more in an environment where there is more competition. It
is completely natural for an interested buyer to offer less if they think that they have a head start, and they can get into contract before the faster runners know that there is even a race.
By way of example, last year, we received an unsolicited “preemptive” offer on a beautiful listing we had in Portola Valley. The proffered price was slightly above the seller’s target price, so she was inclined to take it. Nevertheless, I recommended that the seller turn down the preemptive offer and wait until the home had received full exposure to the market. Ultimately the home received 12 offers and sold for over 10% above the price offered by the early bidder (and over 50% above the asking price)—a real home run. By the way, the same person who put in the preemptive offer was the winning bidder, albeit at a much higher price due to the amount of competition.
This same scenario has played out many times over the years. Granted, it is harder to turn down solid offers in a weaker market. Therefore, sellers and listing agents should do everything they can to limit selective and self-serving exposure so that all offers come in simultaneously.
Information Coming from a Tainted Source
Yet another problem with this limited exposure listing approach is that it often leads to the listing agent, or their office, making money from both sides of the same transaction. Therefore, the listing agent who is advising the seller whether or not to take an offer may have a strong financial interest in getting the seller to accept an offer irrespective of whether or not it is the best they can do. Similarly, listing agents avoid marketing expenses by encouraging sellers to accept pre-emptive offers. After all, if listing agents, and certain offices, were not susceptible to these financial temptations, there probably wouldn’t be so many situations where the office’s buyers were given a “head start” or a period of exclusive access.
It should be noted that DeLeon Realty is the only major brokerage in Silicon Valley that waives all buyer-side commission in situations in which DeLeon Realty represents both the buyer and the seller. Thus, we are able to provide advice that is not influenced by the temptation of double commission. Simply put, we put integrity ahead of profits.
Buyers do benefit from buying properties “off-market” from listing agents who are willing to put their own interest, or their buyers’ interests, ahead of their sellers’ interests. However, this is at a direct and proportional disadvantage to the seller.
Sellers should be skeptical of any agent who asks for a period of exclusivity or an off-market opportunity. Maximum exposure and competition are conducive to getting the highest possible price.