An article on Realtor.com calls pocket listings a sneaky way to sell your home. But as real estate investors know, sometimes being sneaky can actually work to your advantage, especially with the way that the real estate market is today.
In this article, we’ll discuss how pocket listings work compared to the traditional MLS, and some things to consider to help you decide if using a pocket listing is the best way to sell your property.
How a Pocket Listing Works
In many ways, a pocket listing is the exact opposite of a traditional real estate listing on the multiple listing service (MLS) that we’ll discuss next.
Instead of using an MLS listing to market your property for sale to the general public, a pocket or off-market listing is an exclusive listing not on the MLS that is confidentially marketed to potential buyers away from the public eye. Real estate professionals can handle a pocket listing, which is sometimes called an exclusive right listing, and will oftentimes cooperate with a buyer’s agent and share the real estate commission.
A home seller or real estate investor can also market their property themselves directly to qualified buyers as a type of pocket listing. Online real estate marketplaces such as Roofstock reach a global network of qualified real estate investors to help sellers earn about $8,600 more compared to a traditional sale on the MLS.
In addition to potentially saving money with a pocket listing, confidentiality is another key reason for using a pocket listing. Celebrities, professional athletes, wealthy homeowners, and even real estate investors often prefer to market their homes only to the most qualified buyers.
With rental property, for example, tenants who know a home is for sale may become nervous, stop paying the rent, or even try to break their lease when strangers show up at all times of the day or night to look at the house they are renting.
When a situation like this occurs with a tenant, listing a rental property for sale on the MLS could backfire on an investor.
That’s because real estate investors value a rental property based in large part on the income generated. A home without a tenant may be worth less because it is vacant and not generating income than a turnkey rental property that is already rented to a tenant and producing monthly cash flow.
How a Traditional Listing Works
If you want to list your home for sale on the MLS for maximum exposure, you’ll need to hire a licensed real estate agent – also known as a REALTOR - who is a member of the National Association of Realtors (NAR) and a member of the local and state/territory multiple listing associations.
The REALTOR will act as the listing agent and work on your behalf to determine an asking price, negotiate the best deal, and guide you through the entire sales transaction process. Real estate commissions are always negotiable but generally range between 5% - 6% for the sale of a median-priced single-family home. That means if a property sells for $250,000 the seller would pay a sales commission of $15,000 to be split between the listing and the selling brokerage.
According to the most recent report from the NAR, most REALTORS worked 35 hours per week last year and earned a median gross income of $43,300. The majority of real estate agents are independent contractors, which means they are responsible for paying all of their business expenses from their gross income, including items such as office and license fees, auto and travel expenses, marketing supplies and materials, and health insurance.
The median number of residential transaction sides for a REALTOR last year was 10. Each transaction has two sides: one is the buyer side and one is the seller side. That means if a REALTOR only worked one side, the agent was involved in 10 sales per year or less than one sale per month. However, if the agent worked as a dual agent and represented both the seller and the buyer, the number of actual sales per year would be less than 10.
The National Association of Realtors is America’s largest trade association and has effectively banned its members from taking off-market or pocket listings. Today, the NAR is involved in at least two lawsuits (here and here) for prohibiting REALTORS to accept pocket listings.
Critics claim that one of the reasons the NAR banned pocket listings is that the surge in demand for pocket listings is a threat to the NAR-affiliated MLS system. According to an article in Chicago Agent Magazine, critics also claim pocket listings threaten the NAR’s ability to control competition in the residential real estate brokerage.
The NAR’s position is that pocket listings violate the association’s “Clear Cooperation Policy” which requires brokers to submit a listing to their multiple listing service within one business day of marketing a property to the public.
Pros and Cons of a Pocket Listing
Of course, whether a pocket listing is good or bad is ultimately the decision of each individual property owner. While one real estate investor may prefer to target the sale of a turnkey rental property only to the most qualified buyers, others may see a benefit in listing the property on the MLS and marketing to the public at large.
Here are some of the potential advantages and disadvantages to consider before using a pocket listing to sell or buy a property versus a traditional listing on the MLS:
Advantages of a pocket listing
- Sellers may pay a lower sales commission, with online real estate listing websites like Roofstock charging a fee of just 3% compared to 6% when using a traditional broker.
- Sellers also save an average of 2% of the sales price in reduced capital expenditures by not having to prepare the home for an MLS sale.
- Easier to target the most qualified prospective buyers, especially if you are selling a rental property to another real estate investor.
- Buyers may also benefit from less competition with a pocket listing, with more time to perform due diligence and put together a deal that makes sense for both the buyer and the seller.
- Different pricing and marketing strategies can be used with a pocket listing because the days on market statistic is not tracked as it is on the MLS.
- Privacy of the seller, buyer, and tenant in the transaction is completely protected with a pocket listing.
- Open houses are also eliminated when using a pocket listing, avoiding the additional expense and hassle of showing the property to anyone who shows up at the front door.
Disadvantages of a pocket listing
- Less exposure is arguably the biggest disadvantage to using a pocket listing, particularly if you are selling your home to an owner-occupant homeowner.
- Bidding wars may also be harder for a seller to create, but it isn’t uncommon for rental property marketed online to real estate investors to also generate multiple offers.
- Because pocket listings are effectively banned by the NAR, sellers may find it difficult to use a REALTOR to sell their home, although real estate listing websites like Roofstock do pay agents a referral fee when their clients buy or sell.
- Lack of a “For Sale” sign in the front yard means there will be no curiosity calls from the sign and a lack of walk-in traffic with prospective buyers or their real estate agents knocking on the front door of the house.
- FSBO homes sell for a lower price compared to agent-assisted home sales, according to the NAR, although nearly 50% of sellers say they did not actively market their home for sale.
How to Find a Pocket Listing
Pocket listings can offer a number of benefits to both buyers and sellers. But the big question is, where do you find a pocket listing if they aren’t being marketed to the general public?
When you know where to look and the right resources to use, finding a pocket listing isn’t nearly as difficult as many people think:
Real Estate Agents
Even though REALTORS are technically prohibited from taking pocket listings, experienced real estate agents with deep roots in the community usually know owners who are willing to sell to a qualified buyer.
Real estate agents may still have exclusive listings as long as they don’t market the properties, but that doesn’t prevent them from talking if you approach them.
Property Managers
Good property managers in the local market you’re investing in are in the business of working with remote real estate investors.
In addition to approaching their existing clients who may want to sell, the management company can also provide you with critical information such as the rent roll and P&L so that you can see how the rental is really performing.
Investor Blogs and Networks
Reaching out to your real estate team and investor networks you belong to is another good way to find off-market pocket listings. Fellow investors, contractors, inspectors, lenders, and escrow officers are all good people to talk to find property for sale before it hits the open market.
Some of the best real estate investing blogs and websites include BiggerPockets, The Roofstock Blog, and The Stessa Blog.
Pocket Listing Services
Websites that specialize in pocket listings such as HomeQT are one online option for finding pocket listings and off-market properties. The pocket listing service connects buyers and sellers to communicate anonymously before taking a tour of the property.
However, HomeQT doesn’t provide the option of completing the entire purchase transaction online.
Real Estate Listing Platforms
Roofstock is the #1 marketplace for buying and selling investment properties.
The online platform helps everyone from first-time real estate investors to global asset managers analyze, purchase, and own residential rental property from anywhere in the world. Since launch, buyers and sellers have completed over $3 billion in transactions through Roofstock without showing the property or removing tenants.
After submitting and launching a listing, the property is published to hundreds of thousands of investors on the Roofstock Marketplace. Sellers receive offers and close, with 100% of the transaction done entirely online. Best of all, sellers earn about $8,600 more by selling with Roofstock compared to a traditional listing on the MLS.
