Last Updated: May 26, 2021

Exposing Your Listing To The Market Before Selling

Written By: Barbara L. Pearce
House under the night's sky with stars

Pocket Listings

One of the country's large real estate boards recently did a study of the prices obtained for so-called "pocket" listings. Those are properties that are really sold before they are listed, but that often go onto the MLS and immediately flip to pending status. In all likelihood, they were sold to a client of the listing agent or agency before anyone else saw them, and were then put onto the MLS for the purposes of market share for that agency. Buyers are seeking these types of opportunities, since there is such a short supply of new homes for sale. It has some appeal for sellers as well, since it shortens the amount of time that their home has to be ready for showing. It also gives them an early indication of value, if an offer is made, that won't be able to be inferred by number of days on the market.

What are the downsides?

One of the basic principles of behavioral economics is called the wisdom of crowds. That refers to the fact that large groups of people weighing in on almost any forecast produces a better result than one or two people can produce alone. Therefore, a house that is bid on, or even seen, by the general public will result in a sales price closer to the true value, than a bid by one buyer. In fact, this study of pricing mentioned above, for homes sold with pocket listings, resulted in prices which were 6 to 20% below what those homes were estimated to have gotten if broadly exposed to the market. One could certainly assume that the same thing would happen, perhaps even to a greater extent, if owners simply sold the home themselves. Real estate agents should be, and generally are, much more familiar with current pricing in the area, and have an incentive to sell a property for more, since commissions are usually a percentage of the sales price.

Countervailing argument

If someone feels that they are getting an early look, with a chance to buy before others can bid, shouldn't they want to make sure that they are paying a fair price? Maybe, and perhaps for that reason, they may come in high. Odds are, however, that they will want to pay as little as they can, and that time will work for them. That is particularly true without a broker involved, since buyers will expect to save the amount that the seller won't have to pay in commission, and will aim to pay his or her net price. (This doesn't usually go well, because the seller also expects to save the amount of the commission, but that's a topic for another day).

Bottom Line

So, in an ideally fair world, all buyers would have the chance to put in an offer equal to what the house is worth to them, and sellers would be able to tell what it's worth, by looking at the average of the offers, maybe throwing out the highest and lowest. The only way to do that is to make sure all potential bidders know that the property is available, which is how the MLS came to be in the first place. It still works pretty well, after all these years, and all these real estate cycles.

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