By Michael Repka, Esq.
Once a real estate agent starts to feel comfortable that they have the inside track on a listing, many start angling for an opportunity to show the property to their buyers, or their office’s buyers, before allowing other interested buyers to know about the home’s availability. Naturally, this period of exclusivity greatly enhances the chances of that agent, or that office, getting commission from both sides of the same transaction. This strategy is generally better for buyers because they are likely to pay a lower price due to less competition. However, these “pocket listings,” “periods of exclusivity,” or early access periods, are almost always bad for a seller seeking the highest possible price.
It is just common sense that increased exposure and competition results in the highest possible price. Individual buyers are likely to pay more if they know that they are competing with other interested parties. Alternatively, one of those other parties may be willing to pay more than the particular buyer that has already been identified.
So the question becomes: Why do so many sellers allow agents to show their home to a mere fraction of the potential buyer pool and give these preferred buyers early access?
I believe the answer is simple: Some agents trick their clients into letting them do this despite the clear disadvantages to sellers. Clearly, agents have a tremendous amount of commission to be gained by “double-ending” the transaction, plus they are likely to save time, money, and effort in marketing the property. Similarly, real estate offices use their listings as bait to attract buyers by promising them they will be able to get homes at lower prices due to less competition if they work with one of their agents. In fact, one large real estate brokerage ran an extensive local ad campaign encouraging buyers to visit their website and work with their agents to get access to “hundreds of homes before anyone else.” Implicit in this campaign was the idea that the buyers would be able to pay less due to reduced competition. While I agree that this makes sense
from the buyers’ point of view, that savings to the buyers comes at a direct and equal cost to the seller who listed with that brokerage.
To encourage sellers to allow listing agents an opportunity to show the homes with limited competition, some brokerages or agents have created scripts that make this seem innocuous to inexperienced homeowners.
The general gist of the scripts goes something like this: “I may have some buyers who are willing to pay an above-market price if we can get them in early. After all, it can’t hurt to show them the property because we can turn down the offer and come on the Multiple Listing Service if it isn’t high enough.”
This sounds safe enough, but this is only step one. Once the listing agent has a buyer who submits an offer, the seller then turns to the same listing agent for advice on what to do. Often for self-serving reasons, many agents encourage the seller to accept the offer, arguing that the market has taken a turn for the worse and that buyer may not be around in a few more weeks. Then the seller has to make a decision in a vacuum. There’s no way to know what other buyers would offer, especially once the home is fully prepped, staged, and marketed, but many sellers feel like the offered price is good enough. They may be leaving a lot of money on the table without even knowing it.
The Real Estate Market Has Changed
Many years ago, access to listings was restricted to licensed real estate agents. Now, however, this information is broadly disseminated to the public via the Multiple Listing Service (the “MLS”). Once uploaded to the MLS, this information is syndicated through a number of popular websites such as MLSlistings.com, Zillow, Realtor.com, Redfin, and thousands of individual real estate agents’ websites, including the DeLeon Team.
Nowadays, many buyers work with out-of-the-area agents, discount agents, part-time agents, or a friend with a real estate license. Just because these potential buyers are not working with a well-established real estate agent or team, such as the DeLeon Team, that does not mean that they are not good and qualified buyers.
Similarly, a lot of buyers do almost all searching on their own via the aforementioned websites and only contact an agent once they have identified a property. Therefore, not listing the property on the MLS dramatically reduces the property’s exposure.
Some argue that I am such a strong proponent of maximizing exposure because DeLeon Realty does not take commission from both sides of any transaction. Therefore, we have nothing to lose by arguing against these off market, “double-ended” transactions. That is exactly the point. I don’t think the real estate industry would recommend off-market sales very often if there was not a financial windfall attached to them. Sure, some sellers may be willing to give up tens (or hundreds) of thousands of dollars to prevent anyone from knowing that they need to sell their home, but I think these sellers are few and far between.
Sellers should be very skeptical of any agent who suggests allowing them the opportunity to show the property to a small number of select buyers before putting the home on the MLS and before launching a broad multimedia marketing campaign to promote the property. If the agent really does have an interested buyer, they will have a bias that could, and probably would, prevent them from doing their very best to stimulate competing offers.
Plus, if a potential buyer is truly that excited about a home, it is likely that they will wait a few more weeks and submit an offer with all other interested parties. At a minimum, the agent and the brokerage should agree that they will waive 100% of the buyer-side commission if the same brokerage represents the buyer on an off-market sale. As mentioned above, this is DeLeon Realty’s company-wide policy for all sales, and I hope it spreads.