Deciding to sell real estate publicly via the Multiple Listing Service (MLS) or privately through a pocket listing is a dilemma many homeowners face. The most popular route is the MLS way, however, I went the pocket listing route. This post will debate MLS or pocket listing.
For 12 years, I owned a single family house in San Francisco. It was on a busy street next to the busiest street in all the city (Highway 101). The busiest street consisted of three lanes going both directions plus space for cars to park.
I was able to buy the property for $1.52M, a 20% discount in 2005, because of its suboptimal location. Yes, $1.52M is still a lot of money. However, comparable 4 bedroom, 3 bathroom homes in the Marina District were selling for $1.8 – $2M at the time. To be able to buy a single family home in San Francisco was a challenge.
MLS Or Pocket Listing? Selling Is Hard
When I tried to sell the house in 2012 after retiring, I failed to get ANY offers at my $1.7M list price. I had publicly displayed my listing on the Multiple Listing Service (MLS). I thought the price was reasonable given it was just 12% more after 7 years. However, every buyer balked at the location – too noisy, too busy, not great for kids etc.
After four weeks of being publicly listed on the MLS, the VULTURES started circling. I got a couple low ball offers for $1.6M before we decided to take the house off the market.
But given I bought the house, I knew there must be other buyers out there who would also appreciate what I appreciated. My taste wasn’t that bad. The house had amazing Art Deco detail, a wonderful layout with three bedrooms on the top floor, and a nice garden and deck off the kitchen.
My goal was to simply sell at a 20% discount or smaller with the new market price to win out in the end.
Tried Selling Again And Succeeding
By 2017, I decided I had enough of being a landlord for three years. I had bought a fixer in a wonderful neighborhood on a quiet street in Golden Gate Heights in 2014. I moved and decided to rent out my Marina house.
For three years, all I could find were a group of 4-5 tech bro guys to rent to. They threw parties, trashed the house, and often paid rent late. As a new father in 2017, I decided to simplify life and try and sell again.
This time, instead of going the public MLS route, I went the pocket listing route. I went with a “top agent” in SF.
There is a Top Agent Network where you have to be in a certain top 1% – 10% in volume to join. Once the agent is in, s/he can privately shop your client’s home around for the asking price you want.
The great thing about going the pocket listing route was that I could test an aspirational price without getting pounded by the market if I failed to get a buyer. Doing a pocket listing is great in this way. There is this real taint a property gets once 30 days passes with no offer. After 30 days, everybody starts wondering what’s wrong with the property.
My aspirational price in 2017 was $2,600,000 after my agent and I both did a lot of market research. When we got an offer for exactly $2,600,000, we were thrilled. But since I didn’t have to sell and I was dealing off the MLS, I countered at an even higher aspirational price of $2,788,000. I had nothing to lose. Worst case, I would earn at least $7,500 a month in rent from the property and hire a property manager.
After a 45 day negotiation and closing period, we finally settled for $2,740,000. This price was $1,040,000 more than my asking price in 2012! You can read about my whole ordeal of selling my house in this post:
A Pocket Listing Is A Low Risk Way To Go
If I didn’t got the private market route through a pocket listing, I probably would have listed the house for $2,299,000 – $2,499,000 in hopes to attract buyers. Then I would pray I wouldn’t have egg on my face 2–3 weeks later with no offers or low ball offers.
Every single time you list, it becomes public record online (Zillow, Redfin, etc all see it). My failure to sell in 2012 still shows up on Zillow, but I don’t care anymore since I don’t own the place.
By going the private listing route, I had supreme confidence to ask for the moon and not care about getting rejected because nobody else would know. Further, I had NO OTHER OFFERS. But of course, the private buyer didn’t know this. You only need one offer to make a successful transaction.
I highly recommend sellers go the private pocket listing route as well. You have nothing to lose because you pay nothing if there is no sale. And if you fail, nobody will ever know.
Selling a property is at least 3X more stressful than buying a property. If you lose out on buying a property, you will be disappointed. However, there are plenty of other properties to choose from.
If your property sale fails, you could lose out on a lot of money or get stuck. You’ll also face a lot of embarrassment.
Of course, if you sell via the Multiple Listing Service, you get to maximize your exposure of potential buyers.
Bottom line: It’s worth trying to pocket list first and then go via the MLS route. However, on November 11, 2019, the National Association of Realtors board absurdly voted against allowing for pocket listings. If the NAR want to hurt their business, that’s fine. But I’m pretty sure the NAR will be reversing their decision as volume is down ~30% in 2020+.
The NAR wants to control everything. They are also shooting themselves in the foot. Nobody can dictate what you can do with your property in private.
Reinvesting The Proceeds Wisely
After selling my home, I used $800,000 of my $1,788,000 in home proceeds to buy much cheaper real estate in the heartland of America. I did so via real estate crowdfunding.
The net rental yields are 10% in places like Austin, Houston, Omaha, and Salt Lake City vs. 2.5% in SF. Further, I now feel a huge relief to no longer have to manage physical real estate anymore. Paying $23,000+ a year in property tax was also a big burden.
I really think the rise of real estate crowdfunding is going to accelerate the arbitrage and investment flow in lower valuation real estate around the country.
Due to technology, there’s no need to live in expensive places like San Francisco, New York, LA, and Seattle anymore. If Google is spending $13 billion starting in 2019 to buy heartland real estate, we probably should too. Follow the money and go where the jobs are!
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
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