Wall Street traders aren’t the only ones who like to circumvent the conventional marketplace. Real estate agents are increasingly pitching sellers on their version of secretive dark pool trading: Skip the multiple listing service (MLS) and let the agent market the home privately.
Privately can mean everything from an agent bringing in a buyer and collecting the entire commission (typically 6 percent) rather than splitting it with a buyer’s agent. Or it can mean posting a Coming Soon sign on a property before listing it on the MLS. Then there’s the growing number of private agent clubs, closed networks of agents who deal among themselves, often using "pocket listings," or homes they have yet to -- and may never -- post to the MLS.
No national data exist on the percentage of residential transactions happening off the MLS. Two small surveys that looked at transactions in a few counties -- one focused on California, one multi-state -- put it at more than 20 percent of sales. Steve Murray, president of RealTrends, a real estate consulting and data company, says he sees more private agent networks popping up, and expects them to become a bigger presence.
"Twenty percent of agents do 80 percent of the business, so why wouldn't the big agents want to work just amongst themselves?" he asks.
That's the pitch for Top Agent Network, which accepts only agents who are among their region's top 10 percent in revenue generation. It runs 30 chapters of private agent-to-agent online communities in seven states, including California, Massachusetts and Illinois. Members are part of a closed email loop and have access to online listings and a database on which only they can post and search. Founder David Faudman says he has 4,300 members and expects steep growth as the trend grows. He says the networks are a complement to the wider net of the MLS.
Real estate website Zillow.com recently entered the game in a way that could help buyers see more of what's out there -- assuming the homes would otherwise vanish into a private network. It began allowing agents to post virtual Coming Soon signs on listings. That helps them generate buzz and see if the pricing is right before the listing hits the MLS, Zillow says. Agents must certify that they’re in compliance with the pre-marketing regulations of local and state regulators, the MLS and their brokerage. In some cities, like Seattle, the MLS doesn't allow pre-marketing, so the feature can't be used. In others, including Chicago, Zillow says, pre-marketing is common and getting a lot of interest.
Zillow requires agents to list a home on the MLS within 60 days of posting it as Coming Soon. In today's market, many homes would be snapped up by then.
“You can bet your boots that in this market where a listing is as good as cash, some agents are looking to use that as a way to double their income,” says Murray.
Limited Buyer Pool
With pocket listings, sellers sign on to a marketing plan that by design limits the pool of potential buyers, whereas the MLS doesn't. Sellers may think they've gotten a good price, says Doug Miller, executive director of Consumer Advocates in American Real Estate. "But economic theory dictates they'd likely have done far better by not limiting demand."
Faudman notes that for higher-priced homes, particularly where the market is tight, there can be ample demand without an MLS blast.
"Do you really want a lot of people walking through your home at an open house who may not even be qualified leads?" he says. "Or do you want 15 or 20 serious buyers to see the property?"
The National Association of Realtors (NAR) hasn't taken a position on pocket listings. But when Zillow launched its Coming Soon feature the NAR's chief legal counsel, Katherine Johnson, penned a note to members reminding them of the group's code of ethics. "For most sellers, getting the highest price possible on the best terms is their 'best interest,' " she wrote. "And maximizing exposure of their property to potential buyers advances that interest."
Colorado's real estate commission has also stepped into the fray. It reminded brokers that sellers must be clearly told, in writing, of the risks of going off MLS.
Buyers, too, face a new risk. In markets where pocket listings, private agent networks and Coming Soon signs crop up, they need to make sure their agent is part of this expanding parallel universe. If some 20 percent of the inventory may never make it into the MLS, then a buyer who's on the outside won't see a large chunk of the market. Aside from finding plugged-in agents by simple word of mouth, buyers can check Top Agent Networks' listing for different markets.
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