What Are The Upsides and Downside of an In-House Home Sale AKA Pocket Listing?
An in-house home sale – where the listing agent sells a home to a buyer without marketing the home to other potential buyers – is something that happens from time to time. Real Estate agents often refer to this as having a “Pocket Listing.”
While there are rare circumstances where the practice makes sense, in most cases, sellers are ill-served by an in-house sale or pocket listing.
Whether you are a seller being encouraged to allow your listing agent to sell your home without advertising it, or you are a buyer who is being told you are getting a great deal by getting a home before it is listed, beware. Chances are you would be better off going the traditional selling or buying route.
What is an In-House Home Sale
A home sale that happens ‘in-house’ is one where the listing agent finds a buyer for your home without going through the usual channels. In real estate circles, it is known as “double ending a deal.” For agents, this is real estate nirvana because they don’t have to give another real estate agency half the commission. They get to keep the whole thing.
In a standard home sale, the listing agent will list the home on the multiple listing service (MLS), which is where the vast majority of buyers and real estate agents search for properties to buy.
Instead of advertising to the market that your home is for sale and you are looking for buyers, the transaction happens in-house with a buyer the listing agent finds. Essentially, only you, your agent, and the buyer that the agent finds know about the sale.
The perfect example of an attempt to have an in-house sale by a real estate agent is when you see a real estate sign that says, “coming soon.” A coming soon listing is not officially on the market in regular marketing channels, but the agent is attempting to find a buyer none the less.
When discussing this subject, however, the term “in-house,” can be a bit misleading. Lots of people in the real estate industry consider an in-house sale to be one where the company marketing the property has the listing side and the selling side of the transaction. It does not necessarily mean that the listing agent also brought the buyer.
Another agent within the real estate company could have brought the buyer, and it would be considered an in-house transaction. As long as the home is being exposed to the entire real estate market, there is nothing wrong with an in-house transaction. Most real estate companies want to sell their own listing and that is perfectly acceptable.
Confused yet? Don’t be – you are going to see the pros and cons of an in-house sale very quickly. In most cases, the downsides significantly outweigh any upsides when the property is not exposed to everyone. Pocket listings are almost always a disservice to a home seller. So when referring to “in-house” sales I’m referring to no cooperation with outside agencies.
NAR Just Banned Pocket Listings!
Want to know something really telling? The National Association of Realtors just banned the practice of pocket listings. As someone who is always looking out for the best interests of their clients, this makes perfect sense!
The policy change does not become effective until January 1, 202o. Additionally, NAR directors delayed implementation until May 1, 2020, to give more than eight-hundred multiple listing services time to make any technology changes and educate users. The next thing they should do is ban dual agency as that does nothing for consumers either!
There is already a set of real estate agents complaining about the ban of pocket listings in online forums and Facebook. Frankly, it really sickens me, as these are the type of agents that always do what’s best for themselves and not the client.
In-House Home Sales – Pros and Cons
Pros of an In-House Sale
As you can probably tell already, I’m not a big fan of in-house sales or pocket listings. However, there are a few benefits that are worth looking at before we get into all the drawbacks.
You avoid a lot of traffic through your home.
If you are seriously ill or have some other reason not to want multiple buyers looking at your home, an in-house sale can help you avoid the inconvenience of showing the house to different people.
The only buyer that will know about the sale is the one that the listing agent communicates with, which likely means that you will only have to show your home once. For some sellers, accepting what is probably a lower price than market value is worthwhile to avoid showings and to deal with multiple potential buyers.
The listing agent may discount the commission.
This isn’t actually a benefit for the seller, which is unfortunate since it is arguably the most significant benefit of an in-house home sale. Under normal circumstances, a listing agent would probably split the commission with the agent who brings in a buyer – but since the listing agent is the one bringing in the buyer, they get to serve both seller and buyer.
However, it is impossible to serve the best interests of a seller and a buyer. A seller’s agent should seek to get the best terms for the seller. A buyer’s agent should attempt to get the best conditions for a buyer. One agent can’t do both. It is hard to believe that an agent encouraging an in-house sale is serving anyone’s interests but their own.
So, while the agent may charge you a lower commission, you may not be getting the full scope of services from the agent if they become what’s known as a dual real estate agent. If you are going to be selling your home in-house, you should insist your agent remains as a seller’s agent. Never accept dual agency where the agent becomes a neutral party.
If the agent you hired remains a sellers agent, they will be able to give you guidance and advice. If you allow them to practice dual agency, they will not be permitted by law to provide you with any advice. Dual agency is one of the ways real estate agents deceive their clients.
You Can Test The Market and Get Feedback
Another claim that real estate agents like to make who are advocates of pocket listings is that a seller can “test the market” and get feedback. If a real estate agent doesn’t know that the dark brown kitchen cabinets from the 1970s and the rose-colored wallpaper in the dining room aren’t going to be drawbacks, you should hire another agent.
These same agents will claim that an open house will do the same thing, once your home is officially on the market. They will let strangers into your home all for their own personal gain rather than explaining any of the downsides to hosting one.
You should ask yourself if testing the market is really necessary.
Cons of an In-House Home Sale
Now that we have exhausted the pros of an in-house sale – didn’t take long, did it? – We can look at the cons. Just like selling a house for sale by owner, there are more disadvantages than advantages.
The home gets no exposure through regular marketing channels.
Keeping the fact that the home is for sale hush-hush means that none of the regular marketing channels are used by the agent to get the word out about the sale. There is no MLS listing, no advertising, no social media marketing, or any other type of marketing. To get the best price for your home, you need to have the maximum exposure possible.
Marketing a home takes a lot of work, so it is obvious why the listing agent would want to avoid it if possible. But the hard work that goes into marketing is what attracts all the offers that a seller will typically get. You obviously want the best marketing plan to sell your home.
Low offers, average offers, and spectacular offers are all avoided. The seller just gets the proposal from the buyer that the listing agent has pulled into the deal, and that’s it.
There is no opportunity to encourage a bidding war.
Bidding wars are not always desirable for real estate agents. But it would be dishonest to say that most sellers don’t hope for a situation where buyers try to outdo one another. Understanding how to get a bidding war on a house is something most clients want.
If the seller is in a hot market, it is often possible to get more than the asking price when good marketing attracts a variety of buyers. Sellers in such situations can walk away with more money than they expected. More often than not, they will be selecting a buyer that meets all of their terms as well, such as their desired closing date.
However, if the house is not marketed, and multiple buyers do not have a chance to make offers, a bidding war is guaranteed not to happen.
Dual agency is likely – which never benefits clients.
If the listing agent is not only serving the seller by listing the house but also helping the buyer as well, then the situation is known as dual agency.
As I mentioned earlier, an agent cannot serve the best interests of a buyer and a seller at the same time. It just isn’t possible. That means that both clients lose out, and the agent is the only one that benefits – which is why many states have made dual agency illegal. Even where it is legal, it is usually required to be disclosed to the clients before any transaction can take place.
Whether you are a seller or a buyer, you don’t want an agent that is representing you and the other party. Why put yourself in such an undesirable situation, when you could easily find a real estate agent who would happily serve your interests exclusively for a split commission with an agent serving the other party?
Most consumers hire a real estate agent for their guidance and expertise. When you allow dual agency, you don’t get any unless the agent provides it illegally!
In-house home sales disrupt the market.
It can seem strange to think that a single home sale could disrupt something as big as the real estate market, but an in-house deal can do just that. Granted, it may not be a massive disruption, depending on the size of your local market, but it is still a disruption.
An in-house sale causes problems with the real estate market is because current home sale prices are based on recent home sale prices. When a real estate appraiser appraises a home, they look at comparable sales in the same area to determine the price – homes that are similar to the one they are estimating.
It is all interconnected. Buyers, sellers, and real estate agents all use the same systems – particularly the MLS – to ensure transparency in the marketplace. It is this transparency that provides that market values are accurate.
When a home is sold without going to market, that information is not available in the same way as other homes that are listed as usual. It creates an information gap that is not helpful to anyone. Further, if the house sells for under market value because it wasn’t appropriately exposed, future home sellers suffer.There are significant disadvantages to selling your house as a pocket listing!Click To Tweet
Buyers don’t know if they are paying a fair price or not.
Often buyers who are pulled into a pocket listing deal are given the idea that they are special and getting the home for cheaper than they would otherwise. But there is no guarantee that the price they pay is actually a good deal.
Sure, the home may be priced below market value. But it also may be priced above market value. The fact is, actual market value can only be determined by putting a home for sale on the market, not hidden away as a pocket listing.
Avoiding competition can seem like a great way to save money, but it may lead you to pay more for a property than you should. You may only find out that you paid too much later on when you try to sell the home.
Keep in mind if you don’t have a buyer’s agent advising you, there is no way to know for sure if you are overpaying or not. The seller’s agent certainly won’t be advising you.
Things You Should Know About Avoiding In-House Home Sales
You could have a reason to engage in an in-house sale, but chances are you would be better served by buying or selling through the standard channels. To help you avoid a pocket listing, here are a few tips:
Interview real estate agents before you hire them.
A reputable real estate agent will be happy to answer your questions and go through an interview process. You can ask pointed questions, like how many sales the agent has been involved in this year, how many price reductions were needed, the average time on market for their listings, etc.
If you don’t like what you hear, feel free to walk away. There is always another agent you can hire. Never discount the importance of going through multiple interviews.
Consumers should be aware that there are differences between a real estate agent and a Realtor. Realtors are held to a much higher standard. They are required to follow the code of ethics and put the interests of their clients ahead of their own.
It is vital to hire an agent who has an exceptional reputation. Someone who is well respected locally for going above and beyond for their clients. Not someone who thinks through their wallet. Trust me, there are tons of real estate agents out there who put the all mighty dollar before everything else.
You are the final word.
You hire the real estate agent, not the other way around. If you feel like your agent is pressuring you to sell a property in-house or you feel like your agent is trying to get you to buy a property in-house, you can say no. You know the adage – always walk away when something seems too good to be true.
Final Thoughts on Pocket Listings
Not thoroughly discussing the pros and cons of a pocket or in-house listing is not acting in a client’s best interests. Agents can be violating state real estate license laws, MLS policies, and the Realtor Code of Ethics. This kind of behavior gives real estate agents a bad reputation, along with the industry as a whole.
Every client should be well informed of the pros and cons when it comes to any real estate marketing strategy. More often than not, a pocket listing may not lead to the best results for a seller.
About the author: The above Real Estate information on the pros and cons of an in-house home sale or pocket listing was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 33+ years.
Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.