The Pocket Listing Real Estate Debate - Who Chooses and Who Benefits?

Posted by Steve Vincent on Oct 14, 2014, 10:28:34 AM

In pocket listing, mls listing, out of MLS, Sellers, selling your home

The real estate industry is at it again:  focused on the wrong issue at the wrong time for the wrong reasons!

To begin, let me make it clear that we are talking about ordinary Realtors, here - 'Them' - not 'Us' (GreatNest).  We operate differently.

In the ordinary real estate world, there is a thing called a 'Pocket Listing' that occurs occasionally.  It is a listing that is held out of the MLS by the listing agent, giving that agent an opportunity to sell the home without the help of outside brokers or agents.  Ordinary agents sometimes take Pocket Listings so that they don't have to share their big percentage based commissions with others, so that they can keep it all for themselves. If the home is priced properly and is in a desirable neighborhood, it is possible, even likely that a ready, willing and able buyer will contact the listing agent directly and purchase the property.  Since there would be no outside broker involved, the listing broker would keep all of the 5% or 6% or 7% commission the seller agreed to pay.

For example, assume we have a $250,000 listing at 6% commission.  If it is a successful pocket listing, held out of MLS, the listing broker would gross $15,000 on the sale (I know.  Sit down, take a breath, get a sip of water.  That's a lot of money).  If the listing goes into the MLS and an outside brokers brings the buyer, the listing broker would gross half that much $7,500.  I think you can see why the concept of the Pocket Listing might be appealing to an ordinary agent!

There is a variation on this theme that has begun to show up in parts of the Triad.  It is the 'Coming Soon' listing.  You've probably seen them:  the for sale sign is in the yard with a rider sign attached that says 'Coming Soon.'  The listing agent is not simply letting the world know that this home will be available for sale at some future date.  Think about what happens when a buyer who has been looking in that neighborhood for a house like this one sees that sign.  Of course!  He or she calls the listing agent directly.  Again, no outside broker, no reason to split the commission - and the listing broker makes more money!

Years ago, before the Internet, before Zillow and Trulia, the real estate industry created the Multiple Listing Service (MLS).  Listings placed into the MLS were fair game for any member broker or agent to sell with the assurance that the listing broker would share the commission with them.  Thanks to the MLS, today, more than 80% of all residential sales transactions involve an outside selling broker in addition to the listing broker.  It is one of the reasons ordinary percentage based commissions have remained so high:  they usually have to be shared by so many people that the industry would likely collapse if sellers paid less!

The industry is saying that Pocket Listings are bad because they don't receive the full exposure MLS listings get, that when a listing agent holds a home out of the MLS he or she is doing a disservice to the seller.  I suppose that could be true in some tough markets or for some hard to sell listings - situations where it is important to pull out all the stops to find the right buyer.  But we are in a new real estate world today.  The Internet has provided vast channels for the distribution of listing information and the notion that nobody will know that your home is for sale without the MLS is simply not true.

My problem with Pocket Listings is who benefits and who chooses.

Pocket Listings are bad when the decision is made largely by the agent so that the agent can make more money; and honestly, that's how and why this little gambit goes down . . . most of the time.

But at GreatNest, we are different.   The difference is, with us, if there is no outside broker involved, THE SELLER PAYS LESS!  We don't charge them to compensate an outside broker if no outside broker is involved.  We don't make more money on a Pocket Listing and they don't pay for services that didn't factor into the sale.  If the listing is located in a desirable area and is priced properly an MLS listing may not be necessary or even advisable.  Our "out-of-MLS listings" benefit the seller, our client. Not us.

Of course, even when our listings sell through the MLS, even when our sellers choose to compensate an outside broker and agent, they still save thousands.  Let me be specific.  Assume we have that $250,000 home listed and sold through the MLS.  At closing, our fee would be $3,950.  The seller would also have to pay the outside selling broker whatever commission we offered at time of listing - say, 3% or $7,500.  Total commission would be $11,450.  Compare that with what an ordinary broker, charging, say 6% would cost:  $15,000!  Even in the most costly scenario, GreatNest saves this seller $3,550!

Note:  real estate commissions, whether set fee or percentage based, are not set by law and are always fully negotiable between the consumer and the real estate broker.