We’ve been writing a bit about how investors are beginning to retreat from the market, with mega-investors’ bulk-buying sprees on the decline and a larger portion of cash sales being attributed to individual home buyers. (You’ll want to check out the upcoming September/October issue of REALTOR® Magazine to find out how that’s affecting sales around the country.)
Here’s the thing: That may be true — on the books. But off the MLS, there may still be a healthy number of investment purchases that never get reported to the public.
When we had our guest editor, Vernice Ross, GRI, PMN, owner of Ross & Ross Realty in San Diego, in town for a visit last week, she told us that in her market, pocket listings — those that are not advertised on the MLS — are becoming very prevalent. But not all the off-MLS transactions are for high-end properties: More and more pocket listings are distressed properties under $300,000 or $500,000, a price range that is still attractive to investors, Ross said.
“Investors are buying their product a different way now,” she added.
As pocket listings become more popular in certain areas of the country — particularly in California — they have been thought of as primarily a facet of the luxury market. High-end property owners have tended to make up a larger portion of pocket listings because they have an interest in reducing the buyer foot traffic through their homes for privacy reasons or to cut down on looky-loos who aren’t serious about buying.
But more distressed owners who are underwater on their mortgages and in danger of foreclosure are choosing to go the pocket-listing route, Ross said.
“Somebody who is losing their property and they have a notice of default, they may not want all their peers to know,” she said. “They could be embarrassed about the sale. So they may be choosing not to put their home on the MLS for that reason.”
Though Ross said she chooses not to get involved with pocket listings herself, she’s had experience with clients who don’t want their distressed sale to be public knowledge. She represented a seller once who was about to lose her house and was going through a short sale. The home was advertised on the MLS and was eventually listed on Auction.com, garnering 50 offers. But the owner refused to put a for-sale sign in her front yard because she didn’t want her neighbors to know about her situation.
With more lower-priced homes that are attractive to investors being sold off the MLS, that translates to investor activity that is flying under the radar. So while it may outwardly appear that investor activity has been on the decline, that may not really be the reality in some markets like San Diego, Ross said. She added that some agents may have investor clients that they bring directly to a distressed home owner, encouraging a sale without publicly marketing the home.
Of course, all this means more unrest in the real estate community, Ross said. Pocket listings have been very controversial because if the property is not marketed to the widest audience possible, it can be difficult to judge whether the seller is getting the best price possible. Agents who do pocket listings run the risk of not serving their clients as best as they could if they put the listings on the MLS.
“As a REALTOR®, when I see a pocket listing, I immediately think [the agent] is double-ending the deal,” Ross said.
Pocket listings have become so pervasive in Ross’s state that the California Association of REALTORS® added a disclosure form to listing agreements that requires sellers requesting pocket listings to sign off saying that their agent explained the risks of marketing off the MLS.