The Hidden Dangers of “Off-MLS” or “Pocket” Listings

By Michael Repka, C.E.O. & General Counsel, DeLeon Realty

Last year, 2018, was the first year that the Deleon Team was number one in Menlo Park. We also outsold all other agents and teams in Portola Valley for the first time. Although we are consistently number one in Palo Alto by a wide margin, usually number one in Los Altos Hills, and amongst the top agents or teams in Atherton, Los Altos, and Mountain View, we were proud of our top ranking in Menlo Park and Portola Valley. So, not surprising to anyone who knows us, we ran an ad patting ourselves on the back. This ad, which we ran several times in the Almanac, included a list of the top agents and teams in Menlo Park and the final MLS sales volume for each one for the entire 2018 year. Naturally, we only included everyone’s MLS sales because that is the only information publicly available and verifiable.

One agent became very upset that we published this list. Apparently, she wanted to be number one (#1) and reportedly felt that the verifiable results, while accurate, were misleading. Reportedly, in her view, even though the chart did not include anyone’s off-market sales, she felt this comparison was unfair because we did not show her off-market sales. Her argument was that she sells a lot of properties with limited marketing and publicity (i.e., they are not on the MLS) and she believes that her off-market sales volume is disproportionally high compared to other agents. If true, one must query, “why?”

As the most active listing agent in Silicon Valley (and now in Menlo Park), I receive many phone calls from people interested in selling their property. The majority are interested in taking all steps necessary to achieve the highest possible sales price – which includes the proper preparation of the home, the appropriate timing of the listing, and ensuring the maximum amount of exposure. However, some sellers indicate that they are looking for a quick and/or easy sale that doesn’t require the aforementioned steps. As the highest-volume listing agent in the area, I am uniquely positioned to bring about a quiet and expeditious sale through my robust network, yet I feel compelled to caution sellers about traveling down the “quiet sale” road without fully considering the drawbacks to such an approach.

Undoubtedly, there are some sellers who are willing to forego the highest possible sale price in exchange for increased privacy or added convenience. However, there are sellers who unwittingly travel down the path of limited exposure based on reassurances that they will achieve the same price without any inconvenience or effort. In other words, some sellers end up with a lower sale price without fully considering the potential costs associated with limited exposure. Quite simply, a home that is not properly prepped and/or receives less than the maximum amount of exposure is much more likely to sell for a lower price.

CONFLICTS OF INTEREST

One of the biggest problems that arises out of “pocket listings,” “off-market listings,” or periods of exclusive access is that the listing agent dramatically increases the chance of the buyer being represented by the listing agent or someone close to the listing agent. This could be a friend in the same brokerage that may be paying the listing agent a sizable referral fee, a relative, or someone with whom they enjoy a reciprocal arrangement. More often than not, this works to the benefit of the buyer and, because the seller’s interests are often diametrically opposed, to the detriment of the seller.

When a seller is presented with an offer before full public exposure, they often have to make a decision in a vacuum. The seller doesn’t know how much other potential buyers would be willing to offer, so they need to rely upon either their own judgment or the advice of the real estate agent. The problem is that the real estate agent and/or their brokerage often gains a direct financial benefit from a quick and quiet “double-ended” sale. Therefore, the seller needs to take the agent’s advice with a grain of salt. It is easy to imagine that a listing agent would prefer this route, as they might get commission (or a referral fee) from both sides of the transaction, while simultaneously saving nearly all marketing costs. Therefore, the listing agent may be tempted to encourage a seller to accept an offer, even though it is quite possible that there could be another buyer out there who would pay a higher price. Alternatively, the actual winning buyer may be willing to pay a higher price if they were faced with competition.

LIMITED EXPOSURE

The key to generating the highest possible sale price is making sure that the maximum number of qualified buyers are aware of the property and come see it. There are a number of ways to do this. The first is getting the home onto the radar screen of all potential buyers. At a minimum, this should include listing the property on the Multiple Listing Service (the “MLS”) with a link to its custom website featuring a fully narrated video, a 3-Dimensional tour, high-quality photography, and a comprehensive description of the home.

Moreover, properly marketing a home in Silicon Valley requires far more than simply listing it on the MLS. Many buyers may be searching for a home of a certain type, but are not actively searching in your particular MLS area, or even your city, for that matter. That’s why comprehensive exposure also includes other media such as radio, television commercials, multiple newspaper ads in different cities, direct mail, and active promotion by the real estate agent.

It is simply common sense that a home that is exposed to fewer qualified buyers will receive fewer offers, and those buyers that do put in offers will feel empowered to make lower offers due to the lack of competition.

THE LEVEL OF PROPER PREPARATION

Although it’s hard to understand why so many sellers are willing to sell their homes without adequate exposure, one possible explanation is their ability to forego the listing preparation process. Unfortunately, I have heard reports that some real estate agents proactively encourage sellers to allow them to show their own buyers the property without full exposure by instilling fear of staging, touch-up paint, cleaning, and many of the other steps that are involved in properly preparing a home.

While the ease of this approach is certainly enticing, the lack of preparation is yet another reason why sellers should be reluctant to blindly travel down this road. Without question, homes look better once they’re properly prepared, staged, and marketed. Thus, when a limited number of buyers are seeing a home that has not been properly prepped, and they are comparing this home to other homes on the market that have been diligently prepared, buyers are inclined to offer lower prices. From the buyer’s point of view, this makes a lot of sense because he or she will probably get the home forsubstantially less than a property that is properly prepared and marketed; but from the seller’s point of view, it can potentially result in leaving hundreds of thousands of dollars on the table.

ENGAGING IN THE LISTING PROCESS

While some agents are quick to ask for a period of exclusivity or encourage sellers to allow them to market the home as a “pocket listing” or “off-market listing,” sellers should see any of these suggestions as a red flag. If a seller is particularly interested in selling a home without maximum exposure, they should be working with a trusted professional that will advise them about the potential costs involved with such an approach. If the seller nevertheless wants to go forward after receiving the required advice, then that is completely their prerogative.

However, sellers that encounter an agent who habitually encourages clients to restrict access to only their buyers (or buyers in their office) should consider other alternatives for a listing agent. The formula for achieving the highest possible price for a Silicon Valley listing is really quite simple— make sure the property is: (1) presented in the best possible light; (2) marketed very aggressively to the maximum number of potential buyers in a variety of different areas; (3) easy to access and well-presented throughout the duration of the listing period; and (4) represented by an agent who acts solely in the seller’s best interest, and that will not accept any commission or referral fees from any buyers on his or her listings.

At DeLeon Realty, I encourage all of my sellers to follow these steps, and all DeLeon sellers know that the listing team is only representing them. As has been well publicized, DeLeon Realty takes the extreme measure of waiving all buyer-side commission in any transaction where a DeLeon buyer’s agent represents a buyer on any DeLeon listing. The greatest benefit of this approach is that both the buyer and seller confidently know that they are working with an agent who is completely loyal to them. This unique ethical model, enacted in April 2017, has saved our sellers over $5.7 million to date.

AGENTS SEE THE IMPACT

Ken DeLeon is the most active and well-known buyer’s agent in Silicon Valley. Yet, Ken has seen countless homes sell off-market for a low price when he had a buyer that would have paid more. After I wrote an article similar to this a year or two ago, another one of the most active and well-respected agents in the area told me that he really liked the article. He commented that he has watched multiple homes sell for materially less than his clients would have paid. In fact, I suspect that the vast majority of active agents will attest to the same situation if asked.

The only way to truly know that you are getting the highest possible price for your home is to market it as widely as possible. Doing so will attract more potential buyers and the competition will push the price higher.