Do Pocket Listings Hurt the Neighborhood?

 In The Philosophy

A couple weeks ago we pointed out the sales price of a 2-bedroom Inman Park condominium had remained flat over the last 4 years. The easy part is pointing this out. The trickier part is trying to figure out why this is happening and then to develop a course of action to help resolve it.

One explanation for this slowdown could be the market for this type of living unit has simply gone flat. Hot for a few years, then not so. However, a quick review of DOM (Days on Market) shoots huge holes in that theory. From 2014 to 2016, the average days on market for a 2-bedroom condo was; 23.6 days. The 6, 2-bedroom units that have sold in 2017’s first quarter had a DOM of 10. Given this, one can easily make the case, interest in this type of dwelling is actually at an all-time high, especially in Inman Park.

So why are prices flat? Let’s look at the process. To have an average DOM of 10, that means there were properties with 0, 1 or 2 days on market. How does that happen? Inman Park has long been rumored to be a place where “pocket listings” are prevalent. In these situations, Listing agents keep Listings in their “pocket”, until they can shop it around to their friends and network before making it generally available to the public. It’s a practice that, isn’t encouraged, but happens all the time. With a DOM or 1 or 2 days, chances are there was a contract on the property well before it was ever published in the MLS. One of the only reasons properties with a 1 DOM even show up at all is because many chain-store Brokerages have rules requiring MLS publication.

The reason folks do this, is to help their friends, but also to potentially lower the overall cost paid by the seller. By keeping control, Listings agents have the opportunity to easily manipulate the share a Buyer’s agent will take away from their client. But, unfortunately this strategy doesn’t happen, as all the units sold in Inman Park over the last several years have all paid the Buyer’s agent the full 3% commission.

So why are homeowners opting to settle on a price before the general public has had a chance? Are they really saying; “I don’t even want to try to make more money.” Surely, ease of sale, is the main attraction. And, painlessly moving through the process quickly does offer huge benefits and cost savings. A lot less work for Agents, for sure. And, a lot less hassle for home sellers as well. But, at what cost?

When you settle on a price, many would argue, the seller is cutting themselves off from testing the upper bounds of where the price could go? For example, let’s say recent sales history points to a comparable high price of $590K. And, by all accounts, something in that neighborhood would seem to be a fair price. But, that has nothing to do with what a foreign investor may pay, or what a couple trying to chase their dream are willing to do. Did the seller walk away from a potential listing at $635K-$640K because it was the “easy” thing to do? When Sellers agree to a Pocket Listing, they are putting a huge amount of faith in one person; their Listing Agent. That may work out. Then again, it may not.

With a DOM of 10, are “pocket listings” stunting growth? Are home values rising slower as a result of so many properties NOT being sold on the market competitively. Inman Park is a very hot market; where could have prices gone in an open and competitive environment?

There are only two reasons a person would opt for selling their home through a pocket listing: 1) they want to help a friend or family member get a really great deal or, 2) they perceive themselves as getting a really great deal. And where does that perception come from; a commissioned salesman perhaps?

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