One of the best ways to sell a house is either via the Multiple Listing Service (MLS) or through a pocket listing. I wouldn't go the self-listing route, unless you are a licensed real estate agent, a real estate attorney, or already have a buyer lined up. There's too much at stake, especially now.
In normal times, the MLS is the regular way most people sell their homes. Listing on the MLS gets the most amount of eyeballs on your property, which should give you the highest chance of getting the highest price. But we are certainly not living in normal times. Therefore, it may be wise for sellers to consider selling through a pocket listing first.
A pocket listing is a type of real estate listing that is retained by a listing broker and not made public on the multiple listing service.
The listing broker will privately market the listing to his or her network of other brokers and potential buyers.
Pocket Listing Headwinds
A pocket listing was common place until on November 11, 2019, the National Association of Realtors (NAR) board of directors voted 729-70 to ban the practice of pocket listings, also known as private listings.
Starting in May 1, 2020, pocket listings were no longer allowed if you are an agent who belongs to the NAR. This banning of pocket listings was absurd. The NAR does not have the right to regulate sellers – just agents who belong to the association. Out of the roughly two million licensed agents in the U.S., about 70% are Realtors who belong to NAR.
According to the NAR, if you want to sell a property, you must “within one business day of marketing a property to the public, submit the listing to the MLS for cooperation with other MLS participants.” Talk about wanting monopoly-control! Maybe the NAR will start telling us how we should remodel our homes too.
The MLS is the largest public database of properties for sale in America. Once your home is on the MLS, the whole world can see what you're up to. Good luck to the NAR for trying to enforce people to not privately try and test the waters first with their own property.
Like many industries, the real estate industry is hurting. Volume is down due to shelter-in-place and the desire for sellers to hold onto a stable asset in an uncertain world.
To help with volume, the NAR board could vote to allow pocket listings again and decrease commissions. Doing these two things should help boost business. But old ways die hard. As a result, even less realtors will probably get paid.
The Best Way To Sell A House
In 2017, I thought about going through the MLS again, but I had had a bad experience the first time I tried in 2012.
Let me share my experiences trying to sell via the MLS and via a pocket listing.
If the practice of pocket listing is reinstated by the NAR, you'll be better prepared to make a better decision. At least some local MLS markets are still allowing agents to market listings internally first before doing a public listing. In other words, pocket listings are still going on in some form or another.
My Experience Selling Via The MLS
In 2012, through the MLS, I failed to get ANY offers at my $1.7 million asking price. I thought the price was reasonable given it was just 12% more after 7 years of ownership.
We had just gone through a terrible recession and buyers were still quite hesitant. Every buyer balked at the location. They gave feedback that the location was too noisy, too busy, and not great for kids.
After four weeks on the MLS, the vultures started circling. I got a couple of low ball whisper offers for between $1.5 – $1.6 million. Nobody even bothered to make a written offer.
Such being the case, after some thought, I decided it would be better to hold on to the property rather than sell for a loss after commissions. It costs a lot to sell a house. Further, once your home has been on the MLS for more than 30 days in San Francisco, it starts getting stale. Therefore, we took the house off the market on the 29th day.
Listing my home on the MLS didn't help me like I thought it would. However, the biggest negative factor was likely market conditions.
Selling Via A Pocket Listing
By 2017, I had been renting out the house I tried to sell for three years and decided I had had enough. Earlier, in 2014, I had bought a fixer in a wonderful neighborhood on a quiet street and moved to Golden Gate Heights. Having moved, I decided to rent out my old house.
Renting out the house for three years was not a pleasant experience. Although I wanted to rent to a stable family, all I could find were a group of 4-5 tech guys to rent to. These tenants 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. Instead of going the MLS route, I decided to try selling via a pocket listing instead. I hired an agent who was in the Top Agent Network. She also agreed to lower her commission to 4%.
The Top Agent Network (TAN) is a network for agents who are in the top 10% in terms of volume sold for the trailing 12 months. As part of the TAN, you get access to the most connected agents in your city who seem to always have a buyer in mind.
Shooting For The Stars
The great thing about doing a pocket listing is that you can test out an aspirational price without getting egg on your face. If you fail to get an aspirational price, you can simply lower your price without the whole world knowing.
Before marketing the pocket listing, I told my agent that if I could get over $2,500,000, I would be very happy. After all, five years earlier, I couldn't get a written offer for $1,700,000. She agreed it was a good price for a home that needed updating. The home was also on a busy street next to one of the busiest streets in all of San Francisco.
Without a listing price, she sent out details about my home with some pictures to the Top Agent Network and other agents she personally knew.
On the sixth day, she had an interested buyer. Wow! That was quick. My agent got to chatting with the buyer's agent. She set up a private tour since I requested we not have any open houses.
The buyers loved the home and made a written offer for $2,600,000. Score! Not only was the offer $100,000 higher than my aspirational price, the prospective buyers also wrote a great real estate love letter.
The prospective buyer said they were from Virginia, where I went to high school and college. Go William & Mary!
He said our home, with its brick facade, reminded him of the colonial home he grew up in. Further, he had a three-year-old son who was attending a language immersion preschool close by.
I am a sucker for people who take the time to care. We had owned the home for 12 years and hoped to one day raise children in the home. We had found the perfect buyer.
Going For Broke
After the excitement of getting a written offer had subsided, I went back into Financial Samurai mode. My goal was to sell for as high a price as possible in order to better take care of my family.
Given they loved the home so much, I decided to counter. Of course, I would counter in the most respectful way possible with a real estate love letter of my own, to not scare off the buyer. Again, we had never put down a list price on our pocket listing.
With a pocket listing, we had little downside if the buyers rejected us. We would simply take our sweet time and find other buyers. We could also eventually list on the MLS with a fresh start.
I countered at $2,850,000 because I had nothing to lose. The realistic worst-case scenario was that they stayed firm on their $2,600,000 offer. We got down to $2,788,000. Then they asked for a $43,000 concession after doing their inspection. They found there were leaky windows and dry rot in all the back windows. Fair enough.
In the end, we agreed upon $2,745,000, which was $245,000 above my original aspirational price. I attribute this win partially to a pocket listing. A pocket listing gave me the confidence to go for glory.
And no, my agent didn’t double end the commission. Half went to the buyer’s agent and brokerage for bringing my one and only buyer.
The Benefits Of A Pocket Listing
Listing a property during the middle of a coronavirus pandemic is bad timing. If you can wait until there is a vaccine or until there is herd immunity, you will likely get a higher price. There are plenty of people like me looking to get a deal.
But as we all know, life happens. Maybe you have to relocate for a job. Perhaps you got a divorce and need to split the assets. Or maybe you were blessed with another child and need more space. Nobody plans to list during a pandemic.
If you must list your home during an inopportune time, then I recommend trying the pocket listing route first. Here are the reasons why a pocket listing is best way to sell a house:
- You will have greater confidence asking for an aggressive price because there's little downside.
- There won't be a public record online (MLS, Zillow, Redfin, etc) that shows when and at what price you listed the home. This is important because buyers will use this information to their advantage. The longer the home was or is on the market, the more the buyer will attempt to low ball you.
- A high Days On Market (DOM) count is one of the seller's worst enemies. A pocket listing keeps your DOM at zero.
- You protect your privacy. Today, the vast majority of real estate searches are done online. With a pocket listing, your friends, colleagues, pesky neighbors, and extended family won't know you've listed your home. This privacy gives you more flexibility for Stealth Wealth practitioners.
- You won't feel as embarrassed or embarrassed at all if you don't sell. There's a lot of emotion involved when selling a home.
- Given public open houses are not allowed yet in many parts of the country, the benefit of listing on the MLS to drum up buyer Fear Of Missing Out (FOMO) isn't as great.
The Biggest Benefit Of The MLS
Most believe the best way to sell a house is via the MLS. Not in my experience, which is why I'd love more people to share their experience with the MLS.
The biggest benefit of listing on the MLS is getting the most amount of public exposure possible. The more exposure your listing has, the greater the chance you will find a buyer. The more potential buyers you attract, the greater your chance of getting a higher sales price.
Buyer real estate FOMO is real. Most people going through an open house are just tire kickers. However, just the fact that you see other potential buyers will naturally make you want to buy the house or pay more.
It only takes one other interested buyer to create a bidding war. Listing on the MLS increases your chance of finding multiple interested parties.
Just know that 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's always another property that comes along.
If your property fails to sell, not only will you feel embarrassed and dejected, you will have wasted a lot of time. Further, you may lose money because you may have spent money staging the property and fixing it up. The stakes are much higher when you are the seller.
Pocket Listing Workaround
Although the NAR has banned pocket listing, that doesn't mean pocket listings aren't still going on.
The easiest workaround from the NAR's decision is to internally market a property to your brokerage. For example, Compass real estate brokerage has a 40% market share in my hometown of San Francisco. A Compass real estate agent can simply market his or her listing within the firm and keep it off the MLS and public view.
Therefore, sellers of real estate may want to try a pocket listing with a large real estate brokerage firm first.
Brokers also use this “Coming soon” feature to create buzz without actually going on the MLS. This way, many wealthier homeowners maintain their privacy and don't feel as embarrassed if their house failed to sell.
Pocket Listing Or MLS?
When pocket listings are voted back in full force, I recommend you first try a pocket listing fist before going to the MLS. There’s little downside in trying.
It may take more time to sell your home if the pocket listing attempt is unsuccessful. However, by doing so, you won't be negatively impacted by a high Days On Market count if your expectations are not met. Further, you will have gathered vital market intelligence. After a 30-day period, if you feel you need more exposure, then you can list on the MLS.
The reality is, you can still privately market your home anyway you want. There's no rule that says you can't post feelers out to your network. Agents can still check within their offices first as well before going public. If you have a more expensive home, like privacy, and are not 100% certain you can get your aspirational price or want to sell your home, a pocket listing makes sense.
It is my bet that the National Association Of Realtors will vote to reverse their unwise decision and allow for pocket listings once more. They should if they want their industry to survive. There is no stopping technology.
The “coming soon” feature you see on Redfin and Zillow is already a hybrid way to do a pocket listing.
Reinvesting The Proceeds Wisely
Once you've decided the best way to sell a house is through the MLS or a pocket listing, you've got to decide how to best reinvest the proceeds.
With large windfalls, I recommend sitting on the proceeds for at least a month before spending or investing it. Having a lot of cash sometimes triggers a tendency to go nuts.
You've basically got several options with your home sale proceeds:
- Keep everything in cash
- Buy another home down the road, or more immediately through a 1031 Exchange
- Invest in stocks, bonds, and alternative investments
- Use the money to improve yourself
- Invest in your own business
- Give the proceeds away
- Invest in online real estate, such as with platforms like Fundrise and CrowdStreet. I've personally invested $810,000 in online real estate after selling my physical rental property.
Most people will do a combination of the above.
Because I sold an investment property, I decided to reinvest 100% of the proceeds into stocks, bonds, and real estate crowdfunding in one-third increments.
Home prices around the median price for your city and lower are likely still strong. However, if your home is 50% or higher than the median home price, you will likely find weakness. I'd try the private route first before going full MLS. It may save you a lot of stress, embarrassment, and money.
Readers, I'd love to know if any of you have successfully sold a home via a pocket listing? If you have done both, which is the best way to sell a house? What are additional positives of selling via the MLS we should be aware of? Deciding between a pocket listing and listing on the MLS is tough. I recommend trying a pocket listing first and then spreading out to the MLS.