Pocket Listings...They impact Appraisal values. Don't do it!

By
Real Estate Appraiser with Lanier Appraisal Service CR004373

I am sure most Realtors know what Pocket OR Private Listings are...If not Google it. 

 

If you get these potential new listings and sell them within your office or Sphere before they even hit the market, you think great....Great for you, Great for the Seller..Right? Not so fast.  

 

Appraisers will likely NOT be using these sales, which could be great ones for an Appraisal they may be working on for YOUR next sale. Appraisers will never know about these off market sales except when they search courthouse records for them. But the Reality is Appraisers will first use and need to use FMLS/MLS sales or sales that they can get all the data they need from a party to the transaction and it has to be confirmed by a second source. This is per FANNIE MAE.

 

If the Appraiser does not have more than one source to confirm sales information they cannot use it. Also if the home is not exposed in the open market for a reasonable period (for that market) such as in FMLS/MLS they cannot be used as they are not considered typical sales

Appraisers need FMLS/MLS Data, Realtor information or another party to the transaction, such as buyer or seller in order to confirm the data they need, such as quality and condition of the home (which is known when the home is listed in FMLS/MLS via photos and comments). Appraisers need to know about seller concessions, they need to know if there were any other special stips involved with the sale or personal property that may have been included in the sale (as we cannot include such property in the appraisal). 

 

So if you have several sales in your Company that have closed without being exposed on the market in FMLS, you may be shooting yourself in the foot if Appraisers are not using those sales due to the above reasons. 

 

THANK YOU! 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Sandy Padula and Norm Padula, JD, GRI 07/01/2017 02:28 PM
  2. Eric Kodner 07/04/2017 02:11 PM
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pocket listings impact appraisal values
pocket listings cannot be used by appraisers
pocket listings are not good for the appraisal process
pocket listings are not good for sellers as they are not exposed on the market

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Rainmaker
1,566,419
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

I think things have either changed, or some MLS systems are better than others. I let my license go more than 10 years ago, so things may havbe changed. I don't recall ever seeing information about seller concessions, etc. in the MLS Sold data.

I do recall a local appraiser who called me asking for information with regularity. Then one day I called him and asked for advice on a CMA I was doing. He said "The information I give you will be worth what you pay me for it." After that I didn't take or return his calls.

Jul 03, 2017 08:17 PM #11
Rainer
23,308
Terry Hunter
Hunter-Broker - Newport Coast, CA
MS Economics

The effect on appraisals is the SMALLEST dimension of the problem with pocket listings.

Fiduciary problems:

I consider Pocket Listings to be a breach of fiduciary unless the likely damage to the seller's bottom line is fully disclosed to the seller and UNDERSTOOD by the seller. 

My local MLS (CRMLS in Southern California) has many data integrity problems, but at least they mandate a pretty thorough disclosure of the likely lower price when properties are not fully exposed to the market. Non listed properties sold are required to be entered into the MLS.

Appraisal problems:

As to the reliability of appraisals in general, my take is that appraisers have greater power than their capability warrants.  No disrespect to appraisers is intended, but I am dismayed by the simplemindedness of clients who think that appraisers receive the "true value" of a property from sources on high.

The more distinctive the property, the LESS likely an appraiser is to be able to magically compute the "true value".

For example, I ended up with 3 appraisals on a property in Mission Viejo for $906,500 (pre-sale), 1,016,500 (sale price), 1,017,000("appraiser code" for "I would have appraised higher if the contract price had been higher").  To some buyers, the back yard was a distraction to be torn out at significant cost.  To the final buyer, it was, as he put it "Disneyland in the backyard for my daughters". How can an appraiser possibly "appraise" this property.  If the answer is "average", then I am reminded of the old saw about a man with one foot on a hot stove and the other in a bucket of ice water being at a comfortable temperature on the average.  

In another case, a property in a dense condo neighborhood backed to an external street.  However, the street had ONLY a dozen or so churches on the entire street (no homes & no businesses, and the streets was not a service street to other destinations... it was abandoned except for 3 hours on Sunday).  The seller bought it for this reason (ie some relief from the dense lack of privacy of the internal units).  The buyer liked it for this reason, ditto the buyer agent, ditto me.  The appraiser, however, DEDUCTED $10,000 (instead of adding $10,000 for this amenity, a MINIMUM $20,000 error).  She was likely obligated to do so for some arcane reason in her "appraiser instruction booklet", I suppose (or else she just didn't "get it"). 

Additionally, where, within the rather broad market range,  a property will sell is a function of a lot of things that the appraiser cannot even take note of:  For example, the relative negotiating capability of the listing agent & buyer agent, preparation / presentation of the property, including staging & professional photography, etc.  Further there may be a temporary "hole in the market" that the property uniquely fills, leading to a premium price.

Solution:

I am of the opinion that sales should be somewhat "de-coupled" from appraisals.  Specifically, an agreement that an appraisal value of 95% (98% in lower price ranges), with the buyer obligated to make up the difference in cash makes sense to me.  Naturally, this doesn't fly for FHA/VA.  

I would be curious to see what others think about this, especially in view of the way we now (don't) select appraisers, but rather rely on AMC's to do it. 

Jul 03, 2017 10:14 PM #12
Rainer
16,744
Web Tech SEO and Social Media Marketing
Web Teach SEO - Santa Rosa Beach, FL
Internet marketing and Social Media

In our MLS – Emerald Coast Association of Realtors – which is Destin Florida Area we input any pocket listing sales to the MLS after closing. There will be photos and all of the information as well as notes stating that this is being entered for future appraisals and comps. Our market here seems to get a lot of pocket listings. It does not seem to ever cause a problem. I also understand that every area has it own rules. The way we are permitted to handle a pocket listing within the MLS here seems to work out very well.

Jul 04, 2017 04:20 AM #13
Rainer
18,907
Peter ReJune
United Realty Group - Palm Beach Gardens, FL
Trusted for Service, Respected for Results

Interesting article but really not relevant to making a sale for the owner. If the seller understands the potential draw backs to Pocket Listings,( which you can even put in writing for the seller to sign) and still wants to proceed then there is no harm for an agent to work with the seller same for FSBO. All the discussions about appraisal problems real or not dont make a lick of difference to the agent who sells it and collects their brokers commission and the seller who is happy to pay it. In my experience with pocket listings Ive had they either end up sold, or eventually get listed or not, typical business. Realtors that sell Pocket Listing and FSBO with broker commission agreement dont care about what gets into the public record or not because they know they work for the seller not the property appraisers office.  These types of sales right now represent a tiny percentage of our business and our industry, but it will become more relevant in the years tro come.  As it relates to formal appraisals, there is not one Realtor who doesn't get sick waiting for the appraised value, fingers crossed that it appraises because if it doesn't we no longer have any recourse, we are not able to talk with the appraiser as in days gone by because their word on value is final. While there is the ability to request an appraisal re evaluation its seldom done and in my experience even when clearly evident a mistake was made it doesn't result in a change of value. Look at Pocket Listings like FSBO, sellers that will formally list but they just dont know it yet!

Jul 04, 2017 06:20 AM #14
Rainmaker
394,452
Donna & Larry Johnson
Keller Williams Real Estate - West Chester, PA
Chester & Delaware County

I also agree that pocket listings is a disservice to the seller and also the neighbors.

Jul 04, 2017 09:11 AM #15
Rainmaker
3,431,599
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hi Mary -- I came via the reblog by Sandy Padula and Norm Padula, JD, GRI NMLS#1483386  .  This is an interesting aspect of an often discussed topic in ActiveRain.   Thank you for sharing your inside knowledge of the subject.   

Jul 04, 2017 09:11 AM #16
Rainmaker
204,468
Margaret Mitchell
Coldwell Banker Yorke Realty - York, ME
Seacoast Maine & NH Real Estate

While most listings should go on the MLS, it sometimes makes sense to do a pcoket listing.  I had two recently, where the Seller explicitly asked me to keep it off the MLS.  One was a multi-family.  Seller was concerned that as soon as they knew it was for sale, the tenants would stop paying rent and deny access. (That was in fact what happened once they were informed of the pending sale.)  Another was a rooming house and the seller was concerned that if the property went on the MLS, the boarders would leave and it would affect the value.

These sales can go in after it closes as a comp. But I represent the Seller. And on the rare occasion that it is warranted, I will do a pocket listing if it is in the best interest of the Seller

Jul 04, 2017 10:01 AM #17
Rainer
506,404
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Mary,

Generally, you can achieve the highest sales price & bragging rights by putting the house out to as many people as possible. Occasionally, someone does not want their boss to know, that they got a better job elsewhere, so you have to respect that.

Jul 04, 2017 01:13 PM #18
Rainmaker
565,940
Eric Kodner
Madeline Island Realty - La Pointe, WI
CRS, Madeline Island Realty, LaPointe, WI 54850 -

Our local market is awash in pocket listings, particularly from one agent. Thank you for posting this. I'm reblogging, of course.

Jul 04, 2017 01:38 PM #19
Ambassador
4,073,862
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Hi Mary

Thanks for the thoughts you shared as well as the excellent conversation that resulted. We see "sold before processing" listings, once sold, all the time in our MLS, among others that without stating it, were pocket listings. I wonder how many sellers really DO understand?!

Jeff

Jul 04, 2017 05:24 PM #20
Rainmaker
3,304,783
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

In our thinventory market...Pocket listings are very very rare since every Seller is sure they will get "over asking" opening the listing to the public.

Jul 05, 2017 03:19 AM #21
Rainmaker
109,925
Mary Thompson
Lanier Appraisal Service - Flowery Branch, GA
Lake Lanier Appraiser in North Georgia

For those that have stated they place these in MLS after the contract or after the sale, please do NOT state 1 day on the market. I suspect that those 1 day on the market listings many times are these pocket sales. Appraisers also analyze days on market as part of the overall process and this skews what is really happening in the market. So please count from the date you take that listing to the date you go under a binding contract as your Days on Market. DOM. Thank you.....

Jul 05, 2017 04:52 AM #22
Rainmaker
401,323
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

Mary, thanks for posting a stimulating discussion topic.

It would seem to me that agents who "farm" a specific area would be the most negatively affected by adverse effect from the appraisal not having full data because of a pocket listing.

My concern is for the consumer. The Seller of the pocket listing may not have full benefit of a broader marketing effort. And the potential seller in that same area who may find they are not able to get the most value from the sale of their home.

Jul 05, 2017 05:34 AM #23
Rainmaker
1,052,646
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

I just ran into a private sale that really could have helped with my appraisal and the appraiser wouldn't use it as they had no way of knowing the circumstances behind the sale.

Jul 05, 2017 06:17 AM #24
Rainmaker
204,468
Margaret Mitchell
Coldwell Banker Yorke Realty - York, ME
Seacoast Maine & NH Real Estate

Hi Mary,

You raise a good point about days on market and the need for accuracy.  In many cases, we take a listing and work with the Seller getting the property show ready. In that case, the relevant date is when the property was marketed and offered for sale, rather than listed.

 

Jul 05, 2017 08:23 AM #25
Rainmaker
345,881
Dana Basiliere
Rossi & Riina Real Estate - Williston, VT
Making deals "Happen"

Hello again Mary,

I also feel that it is not looking for highest and best if an agent does a pocket. If it is that desirable perhaps the open market could have derived a higher price and better terms.  I would always say "put it on the open market and let the pocketed buyers compete. They can promptly make an offer but so can the general public.

My opinion.  Dana

 

Jul 05, 2017 03:28 PM #26
Rainmaker
982,263
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Good to know.  That explains why I couldn't use 2 comps in a recent sale.  A bulk of condos was sold by one onsite manager to an investor overseas investor group.  Thanks for sharing! 

Jul 06, 2017 11:09 AM #27
Rainmaker
1,515,970
Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

I came by way of Sandy and Norm's reblog...

Our MLS rules state that if an agent is involved in the sale it must be reported into the MLS... it will say "sold before listed, data entered for statistical purposes."  We all need that info!

Jul 16, 2017 10:16 PM #28
Rainmaker
1,274,587
Sheri Sperry - MCNE®
Coldwell Banker Residential Brokerage - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Our listings have to be placed in the MLS to get sales credit. Another area that skews DoM is cancelling a listing and creating a new listing.  

Jul 26, 2017 07:34 AM #29
Rainmaker
525,764
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Sometimes the "off MLS listings" are justified when the seller demands it. Always have the seller sign the appropriate form emphasizing the disadvantages of reduced exposure.

Nov 25, 2017 09:27 AM #30
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Rainmaker
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Mary Thompson

Lake Lanier Appraiser in North Georgia
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