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Pocket listings rob the pocketbook

In a tight housing market they hurt buyers and sellers

Posted: July 28, 2013 2:00 a.m.
Updated: July 28, 2013 2:00 a.m.

This home on Big Oak Lane in Castaic was listed for sale in July. Realtors say that sellers, with few exceptions, should list their homes with a Multiple Listing Service to get top offers and make the best deals.

Seller beware.

Unless a homeowner has an unusual need for security when selling a home, Santa Clarita Realty experts say sellers are better off listing their homes publicly with agents using the Multiple Listing Service, or MLS.

More commonly known within the real estate industry as “pocket listings,” or exclusive listings, these exist when a broker or Realtor does not make a home they’re selling available to other brokers in the office, or even to other Realtors in the community, withholding the listing from the MLS. While not illegal in California, these types of sales are not always to the benefit of the seller, experts said.

And the law does regulate disclosures must be made to sellers as to the benefits and disadvantages if a home is sold as a pocket listing.

“Sellers should be aware that pocket listings, and the restricted marketing that occurs with them, may not get them the best possible price and terms,” said Bob Khalsa with United America Realty and president of the SCV division of the Southland Regional Association of Realtors.

Selling a home through a pocket listing may have adverse effects for the seller when fewer buyers are competing to buy the home, Realtors said.

A seller might get his asking price, but not receive an offer over the listing price, said Erika Kauzlarich-Bird, with Triple D Realty.

It may also be that the seller misses the chance to get an offer with even better all- around terms, she said.
“How does the seller know his agent has the best buyer possible, if the property is not offered to every single agent working with a buyer in any market?” said Connor MacIvor with RE/MAX.

And the seller can’t ensure that there aren’t cash-buyers out there who are willing to waive an appraisal contingency, MacIvor said.

Pocket listings also hurt buyers, Realtors say.

“Pocket listings reduce the available inventory to the public, thus increasing demand and inflating prices,” Khalsa said.

Not only could a pocket listing cost a seller thousands of dollars in a sale, but it could possibly raise questions of Fair Housing violations.

In the Santa Clarita Valley, Kathy Salisbury, with Triple D Realty, estimates the percentage of pocket listing sales might even be higher than foreclosures or short sales.

“There’s a lot of scrutiny going on right now as to whether pocket listings could violate code of ethics and certain laws,” Salisbury said.

As for ethics, there is also the question of creating a pocket listing so a Realtor may represent both the seller and the buyer on a given home.

Local experts say “double-ending” a deal — where an agent gets paid commission by both the seller and buyer for the same home — is self-serving for the agent in most cases.

Both the seller and buyer may get poorer representation in the transaction.

Some Realtors said they often use their own time to hunt down homes for sale for their buyers by checking out open houses that aren’t yet listed, knocking on doors and networking with other agents.

“We see a lot of listings come up in the MLS as sold before processing. They hit the market and go straight to pending (sale),” said Cherrie Brown of HomeSmart.

“I would say at least 15 percent of the (pocket) listings are sold by the agent who listed the home.”

Most likely another 25 to 30 percent are sold based on same-company relationships or networking group relationships maintained by the Realtor; and the rest of the inventory is on the open market, Brown estimates.

“It’s out of control,” Salisbury said.

There are cases, however, where a pocket listing is appropriate for a seller, Realtors say.

“If you’re an FBI undercover agent, undercover LAPD or gang task force, a high profile executive, actor or actress — or have a job where you require anonymity and you don’t want your family or home location on the Internet, in public, because you may endanger yourself or your family — then you might consider a pocket listing,” Salisbury said.

Otherwise, there’s no real reason for a seller to agree to a pocket listing, she said. It doesn’t properly serve the consumer the majority of time.

In an odd twist, even some desperate buyers have requested a pocket listing on a home.

“We had one buyer offer $10,000 over list price to keep it out of the MLS,” Brown said.

There can be a benefit to the seller but, if the agent is unethical, it can be handled the wrong way, Brown said.
A pocket listing with a single agent representing both consumers may also lack some accountability in the process of making a deal, Realtors said.

“Realtors must be aware that the only method to possess a pocket listing, and not be in violation of their Realtor Association Rules, is to obtain a signed authorization from the seller to exclude the listing from the multiple listing system or MLS,” Khalsa said.

Bottom line, as a seller you want the highest price, best terms and the most qualified buyer, Salisbury said.
“Don’t shortchange yourself by excluding your property from the MLS.”




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