Consider the perils of off-MLS listings when selling your home

By Chris Anderson

As the California real estate market changes, so does the vocabulary of real estate.

Once common phrases from the real estate recession such as distressed property, short sale, and shadow inventory are fast being replaced as the real estate market improves with new phrases such as equity sale, multiple offers, and “off-MLS” or “pocket” listings.

While not a new concept, pocket listings are growing in number. As many as 10 to 15 percent of homes offered for sale today are “off-MLS” listings, according to one Multiple Listing Service (MLS).

Simply stated, a pocket listing is a property that is marketed without the benefit of being listed for sale on the MLS (i.e., “hidden” in an agent’s pocket).

A property that is listed on the MLS has the advantage of being actively marketed to every real estate agent who belongs to that MLS and, through those agents, to their vast network of potential buyers looking to make an offer to purchase the property. Active marketing on the MLS usually includes open houses, broker tours and inclusion of seller’s property in the MLS’s download to various real estate Internet sites commonly used to search for properties.

On the other hand, as the term implies, a pocket listing generally is marketed by a single agent to one or a select few potential buyers. The marketing pool can be so small that in some cases other agents within the same brokerage or brokerage office may not even be aware that a fellow agent has a pocket listing.

Pocket listings are not illegal if the listing agent fully discloses the pros and cons to the home seller and follows rules that are designed to protect consumers. Nevertheless, many real estate professionals believe that off-MLS listings may not be in the best interest of the seller — particularly if a client does not know about the benefits of marketing his or her property through the MLS.

To keep a listing off the MLS, a listing agent who is a participant of an MLS is required, under the rules of most California MLSs, to obtain a signed certification from the seller that he or she does not wish to sell the property via the MLS.

If a property is exposed to fewer potential buyers with a pocket listing, why would a home seller agree to one? Pocket listings sometimes are requested by celebrities, judges, prosecutors, or others who wish to maintain their privacy.

The downsides to pocket listings may outweigh the advantages of pocket listings, though. Primarily, the pool of agents and potential home buyers who will know the property is for sale and make an offer to purchase may be limited. That could significantly reduce the potential for multiple offers above the asking price, which is a frequent occurrence in today’s competitive market. With fewer offers, sellers may not be getting the best possible price for their home.

How can consumers protect their interests if their listing agent suggests an off-MLS listing?

• Home sellers should ask their agent about the pros and cons of selling their home off-MLS. The pros are that the listing remains private if sellers wish to maintain privacy. The cons are that their home is unlikely to be exposed to the full population of potential buyers, which likely may decrease the chance a seller will obtain the highest and best price for his or her property.

• A listing agent may ask his or her seller to sign a standard seller exclusion form (Seller Instruction to Exclude Listing from the MLS or C.A.R.’s SEL form). Sellers should be sure they fully understand what they are signing and the possible adverse consequences outlined in the form of not listing their property on the MLS.

• Sellers should ask their agent to show their home and present all offers from both inside and outside his or her network. That may increase the chances of obtaining a more accurate selling price and could help avoid any potential for violations of fair housing laws.

Finally, working with a knowledgeable REALTOR® is always a good idea anytime you are considering buying or selling a home. So is being an informed real estate consumer.