The Private Listing Gambit

Who Benefits From Private Listings?

Most people do not realize that the processes involved with selling and buying homes involves risks. The first, and most significant risk is usually related to the selection of one’s real estate agent and their broker. This is a significant risk because all future decisions are related to, and often dependent upon, the information and advice provided by their agent.

In her thought-provoking essay, It’s Time for Trust, Truth, and Transparency real estate coach Teresa Howe explained “the ongoing shenanigans in residential real estate.” As the larger real estate brokerages consolidate through mergers and acquisitions, the promotion of “private listings” by real estate brokerages is becoming more prevalent.

As the real estate industry evolved the government introduced agencies and regulations to govern the various processes involved with residential real estate transactions. All of these changes were introduced for the benefit and protection of the consumer, and as risk management protocols for all stakeholders.

Traditionally, when a real estate agent listed a property for sale, the details of that property must be uploaded to the MLS database within 24 hours or so. In this way the property becomes immediately visible to all MLS members. However, a seller may restrict the public display of information to MLS member agents only (not Zillow et. al.) The real estate industry’s Clear Cooperation Policy is intended to force listing agents to cooperate with all MLS-member agents.

The concept of private listing in residential real estate has been a closely guarded secret in the luxury real estate market for more than a century. Once known as “pocket listing” or “off-market listing,” a private listing is a property that is not made available to the public on the Multiple Listing Service (MLS). Hence, the property is also not available for viewing on websites like Zillow, Redfin, Realtor.com, Homes.com and others. Instead, the real estate agent selectively markets the property to small group of prospective buyers within their personal network and agents within their brokerage.

Key Aspects of Private Listings

It is obvious to most consumers that the primary goal of marketing a property would be to attract the largest number of potential homebuyers to submit competing offers on the property. This supports the ultimate goal of most home sellers – sell the property for the highest price, under the most favorable terms, in the shortest period of time on the market. Assuming this goal is reasonable, why would a homeowner opt for the private listing approach?

• Purpose: Some prospective sellers value privacy over maximum exposure. Celebrities, corporate executives, and households involved in divorce or other emotional turmoil wish to minimize attention and speculation regarding possible reasons for sale. Although it is not necessarily a good marketing strategy, sellers may use the private listing strategy to test an “aspirational listing price” while preventing the accumulation of the days on market.

• Marketing: The seller’s desire for privacy forces the real estate agent to design a targeted, “in-house” marketing strategy that is limited to the agents within their brokerage. Therefore, agents who are affiliated with a larger brokerage will be able to expose the property to a larger pool of prospective homebuyers. One advantage of this approach is that all agents within the brokerage are obligated to protect the seller’s confidential information.

• Benefits: The actual benefit to sellers is limited. The strategy hides the “days on market” counts from prospective buyers, which potentially enhances the sellers negotiating position. The private listing strategy also eliminates public access to photographs of the property. The hosting open houses is not required for public listings, so private showings of the property can be limited to qualified (financially pre-approved) homebuyers. The primary beneficiary of private listings is the real estate brokerage because the private listing broker collects the fees on both sides of the transaction.

• Risks: Reduced exposure to the public usually correlates with fewer offers and a potentially lower sale price. One study found that comparable properties listed on MLS sold for 17.5% more than private listings. Other data indicates a 5% lower sale price. The large real estate brokers will dispute this with data that shows their privately listed homes sold for more than the listing price. However, when the broker is controlling both sides of the transaction, they also control the information provided to the respective parties in the transaction, as well as the data related to the transaction.

Private listings differ from “private sales.” A private sale commonly relates to a homeowner selling their property to a homebuyer without the involvement of real estate agents or brokers. These transactions typically involve relatives, friends, and neighbors.  Anyone can represent themselves in the sale or purchase of a home, they just can’t represent another person without an active real estate license.

Although some prospective sellers with unique personal preferences or circumstances benefit from a quick, low-stress and private sale of their property, off-market listings also benefit investors seeking profitable deals and buyers who are eager to avoid competition (bidding war) with other qualified buyers. Since investors often represent themselves, they avoid the compensation for a buyer’s agent.

Office Exclusive Listings

Lisa Sturtevant, chief economist at a multiple listing service covering the Mid-Atlantic region, examined data on more than 100,000 home sales in six different states. The conclusion from the data was that private listings often take more days on market to sell; and the homes seldom reap the seller a higher than market price.

After being confronted with this type of data across the country, the large real estate brokerages introduced the “office exclusive” to describe their private listing strategy. The phrase may sound enticing to prospective home sellers, but “exclusive” actually refers to something restricted to a specific person, group, or purpose – that shuts out others! 

So, an office exclusive listing would be just like limiting the sale of one’s home to members of their country club. Would a prudent seller want that exclusive club to have a few members or a large number of members?

Recently, one national real estate brokerage has been encouraging its agents to promote the concept of “private exclusive listings” to their listing clients. Obviously, the exclusive group in this case is limited to home buyer clients of other agents in the brokerage. 

In this manner it appears that the large brokerage is employing a seemingly opaque practice to manage listing prices, selective use of properties for comparative market analysis, offering prices, brokerage fees and compensation – primarily at the expense of sellers and buyers. 

One of the opaque features of this “off-market” strategy is hiding the days on market data from prospective buyers. In this circumstance, prospective buyers are deprived of important data when negotiating a fair sale price for a property that may be languishing on the market.

Days on Market Conundrum

Prospective homebuyers often use the days on market count as a factor when they are preparing an offer to purchase a property. Current market data will indicate the average days on market (DOM) for homes within a geographic area. It is generally assumed that sellers will more eager to accept a lower offer when the days on market for their property exceeds the average. This threshold is often prompts the seller’s agent to suggest a reduction in the listing price.

Certainly, a listing agent is obligated to be a strong advocate for their client. Nevertheless, licensed real estate agents are bound by a Code of Ethics that require them to be fair and honest with all consumers, not just their clients. So, when Teresa Howe advanced the importance of trust, truth, and transparency she exposed the conundrum faced by real estate professionals – balancing advocacy for their client against the need for fairness and honesty with other agents and their clients.

The days on market conundrum usually occurs when a seller insists on an original listing price that is unreasonably high based upon their agent’s Comparative Market Analysis (CMA). In other words, the seller’s “aspirational price” will most likely lead to excessive days on market and the need for subsequent “adjustments” in the listing price to attract prospective buyers. 

The ethical approach would be for the listing agent to host a private open house for a selected number of agents affiliated with their brokerage and obtain feedback regarding the seller’s listing price. This valuable information could motivate the seller to adjust their aspirational listing price to something more reasonable before the property is listed on MLS.

Advantages of Public Listings

Until 2006, the access to residential real estate information was relatively closed to the public. Then former Expedia executives Rich Barton and Lloyd Frink launched Zillow, a website that was created to bring transparency to the real estate market. Twenty years later, 85% of prospective homebuyers search Zillow or similar public syndicates to identify properties that fit their profile, and then call a trusted real estate agent to schedule private showings. The integrated “Zillow estimate” immediately suggests whether a specific property listed on MLS is priced too high and often suggests a price that has a high degree of acceptance by the seller.

The entire real estate industry benefits from public (MLS) listings because they increase the amount of data available to all parties in a real estate transaction. Open Access is a new concept in residential real estate that strives to eliminate the traditional closed process in which the agents and brokers manage the access to information, and empower consumers to make informed decisions regarding selection of a real estate agent / brokerage, understanding and customization of the agent / broker’s compensation, and complete financial clarity before executing all agreements and contracts. The five components of Open Access include:

• Assure access to equal information
• Complete financial transparency
• Avoidance of high-pressure sales tactics
• Adherence to standards for communication
• Provide advocacy beyond the transaction

Public real estate listings via MLS and related syndicates (Zillow, Redfin, Realtor.com, Homes.com, etc.) benefit sellers and buyers. Sellers benefit through maximum exposure, competition, and potentially higher sale prices. Buyers benefit by having access to all properties available in the current market and transparent data for objective comparisons. 

Five STARS Approach^SM

Our motto at Wessberg Luxury Real Estate Southlake – Steadfast Trust; Reliable Results – assures prospective clients that we advocate exclusively for them; not a cooperating agent, not a real estate brokerage, and not the real estate industry. To assure prospective clients that we place them and their interests above all others, we introduced our Five STARS Approach^SM

• Strategic Thinking: Going beyond simple market analysis to develop a sophisticated, goal-oriented plan tailored precisely to your unique objectives.

• Trustworthy Advice: Providing clear, candid, and confidential guidance, built on integrity and deep market knowledge, so you can make informed decisions with confidence.

• Attentive Listening: Dedicating ourselves to truly understanding your vision, preferences, and long-term aspirations, before ever making a recommendation.

• Resourceful Negotiation: Leveraging a vast network and sharp intellect to secure the most favorable outcomes; handling complexity with grace and expertise.

• Stellar Service: Delivering an elevated, seamless, and proactive client experience that anticipates your needs and exceeds every expectation, from our first conversation to closing and beyond.

Consumers who are looking for an alternative to the “industry standards” that promote private exclusive listings and non-negotiable compensation, George embraces the changes occurring in the luxury real estate market that empower consumers to make informed decisions throughout their real estate journey, and pay fair and reasonable compensation for the personalized services provided.