Recently an investment property sold in our area that never hit the market. I came to learn that it was not listed on any databases and that is the reason I never knew about it. At the same time, we had a 1031 exchange client looking for the exact same property. I never understand the reasoning a Seller would choose to have their agent do a pocket listing. I would say that a lot of times a Commercial Real Estate Seller is not even aware this is happening to their listing.
So why do I have an issue with pocket listings? The best example I have heard regarding pocket listings is to imagine you are a Media Company and have breaking news you want to share. Instead of posting on Facebook, Twitter or posting on your website that anyone can see, you send direct messages to a few select people! Pocket listings are just like that.
So why would you want pocket listings on your CRE Investment? The best answer I can think of is to make your Commercial Real Estate agent more money! After all, with fewer agents and buyers knowing about a listing, it makes it easier to sell the property to your own personal database of buyers who are very likely not to be represented by another agent. That means the entire commission is going to only be payable to one company and likely one agent. I am not saying all agents that use a pocket listing approach are motivated by this, but I guarantee the vast majority are. Pocket listings are frowned upon so highly that the National Association of Realtors (NAR) adopted a policy known as the Clear Cooperation Policy. The main takeaway from this policy was to avoid the use of limited marketing tactics aka “Pocket Listing” because they view this as only being in the interest of the real estate agent.
When a property isn’t listed on the national databases the only way to find a buyer is through your own private network. That means there is a very high likelihood the agent already knows the buyer and you will now have Dual Agency. While some agents may reduce their commission for dual agency, the minimal savings this has on the Seller does not really offset what proceeds you may have gotten from a listing that was broadcast to millions worldwide.
Are there instances in which a pocket listing might be of benefit to you as a Seller? The only time this is the case is if you want the listing private. One reason for privacy with listings is that your property is assessed at a much lower value than the asking price thereby potentially increasing the tax liability from the local government. Another reason is that you could have a lease expiring soon and don’t want to scare your current tenant and potentially have them relocate. Outside of these reasons, I cannot see any other good reason for a pocket listing.
For all the reasons mentioned above, unless otherwise requested, here at Latitude Commercial we have an office policy against pocket listings. It’s simple Economics 101 – more demand for a product creates higher pricing. We maximize the number of Buyers for your property by posting all of our listings on national databases, send out national email blasts, use professional offering memorandums, and devote cold calls to likely buyers thereby maximizing your profit. We recommend not trusting agents calling you out of nowhere claiming to have a Buyer just to get you to sign a listing agreement. By only showing the property to their Buyer(s) they are most likely causing it to sell for a lower price or worst case hindering your ability to sell the property at all. Stop making your broker more money and start making yourself more!
Latitude Commercial provides commercial real estate services such as purchasing, leasing, landlord representation, tenant representation, and property management throughout Northwest Indiana and the Chicago Suburbs. To find out how we can help you, call us today at (219) 864-0200.