The number of homes listed for sale today is lower than it’s been in a decade. Home buyers are scouring Web sites for property listings and when they find a home they like, they often find themselves in an expensive, stressful bidding war. What they don’t know is that they’re not seeing as many as 15 to 20 percent of the homes for sale in their markets.
This is a critical time for buyers. Mortgage rates may never be so low again in our lifetimes. Though home prices have risen ten percent or so over the past year, they are far from the peak levels of 2007 and relatively affordable. Like mortgage rates, home prices have only one direction to go: up.
However, inventories or home for sale are down 40 percent or more from two years ago. Selections of homes, especially homes in the mid-range or entry-level price brackets. Even foreclosures are experiencing price increases.
You might do all that you can to find out about homes for sale in your price range. You can sign up to be notified by email when new listings come on stream. What you don’t know is that you aren’t looking at all the homes for sale. You are still going to miss one out of seven homes for sale.
That’s because almost all listing sites rely primarily on one source for their information: the nation’s 900 multiple listing services. Multiple listing services are databases of homes for sale. Most are owned and controlled by local Realtor organizations and only members of MLSs can list properties on them. The first MLSs were established 125 years ago and they have become more powerful with the emergence of real estate listings sites that have made it possible for consumers to see their listings. Despite the dominance of the MLS system, tens of thousands of homes are sold each year outside of it.
There are four kinds of homes for sale that don’t make it onto the MLS: pocket listings, for sale by owners, closely held transactions and expired listings.
Pocket Listings. Homes for sale by real estate agencies that are not placed on the MLS are called pocket listings. Instead, the listing broker keeps them in his “hip pocket” and markets them outside the MLS. Some real estate brokers encourage them because if they don’t list a property on the MLS, they are not obligated to share the commission with the buyer’s agent. Sellers opt to keep their homes off the MLS for one of two reasons. Many wealthier sellers, including celebrities, don’t want their asking price and photos of their homes spread across tabloids and celebrity TV shows. Other sellers like to test the waters for their properties and gauge reaction to the asking price in a controlled environment. If they don’t get the offer they are looking for, they then list on the MLS and the MLS considers them to be new listings. Pocket listings are increasingly popular as more luxury homes come onto the market. See Pricey Pocket Listings Put a Dent in MLS Dominance.
If you are in the market for a home priced at $500,000 or above you should definitely be searching for pocket listings. Finding pocket listings takes a little detective work. Some brokers specialize in pocket listings have extensive social media and the Internet market programs. Others, usually local independent brokerages, only handle occasional off-market listings and they will mention them on their Web site. Begin by searching for “pocket listings” in your county or state. Search the luxury brokers in your market. When you find some who advertise pocket listings, you will be asked to register. You will receive email newsletters about new properties for sale. In many markets, brokers have set up Web sites to show off their pocket listings (these generally have just one photo, a long short of the house.) Another resource is your real estate agent; many pocket listing marketers prefer to work through agents rather than buyers. Ask your agent to make inquiries with leading luxury and independent brokerages.
FSBOs. “For sale by owner” is a tried and true option but they’ve suffered during the housing depression. Last year only 9 percent of homes were sold by owners without the assistance of a professional, down from a high of 14 percent during the housing boom in 2004. That’s because it’s a lot easier to sell a home in strong sellers’ market than in times when homes are lingering on the market more than a year, as in the past seven years. With the housing recover underway, local markets are making the switchover from buyers’ to sellers’ markets and FSBOs are coming back. See The Cost of Recovery: FSBOs are BAAAACK.
At least ten percent of home sold today are FSBOs. Just like pocket listings, their owners are eager to sell; they just don’t want to pay a commission to a real estate broker, and one of the services they sacrifice is being listed on an MLS. That’s one reason FSBOs sell for about $40,000, or 18.6 percent, less than homes sold by agents, who might charge a 6 percent commission.
Finding FSBOs is not hard. Just drive the neighborhoods where you want to live on a weekend and look for yard signs. Next to yard signs, the Internet is the most popular marketing channel for FSBO sellers. A number of Web sites are dedicated to listing them (forsalebyowner.com, owners.com). Several national sites carry FSBO listings, notably Zillow, Trulia and Yahoo, which carries listings from a FSBO site, owners.com). Be sure to check out local FSBO sites, which may produce a richer harvest that national ones. Bear in mind that the accuracy and currency of FSBO listings are not likely to be as good as listing on the MLS. Other good sources for finding FSBOS are newspaper ads, Craig’s List and word of mouth.
Closely Held Transactions. A final category of home sales that you won’t see on the multiple listing services are closely held or arm’s length transactions between parties that know each other: relatives, friends and neighbors. About 3 percent of all homes sold last year were arm’s length transactions.
Keep your eye out for opportunities that can turn into a closely held transaction. The death of a relative or neighbor, a divorce or a neighbor or relative’s decision to move all create opportunities for you to contact the owner and make an offer that will save both parties the commission and marketing costs that most transactions incur.
Expired Listings. When a contract between a real estate agency and a seller expires, the property is kicked out of the MLS. Tens of thousands of listings expire every year, most to return to the market. Owners are usually frustrated and angry, but most still want to sell. In many cases, the house was not priced appropriately for the market and owners are willing to considering a price reduction. Reaching an owner of recently expired listing with an offer to buy might be perfect timing to get a good property at a good price.
However, keep in mind there is always a reason a listing expired. In addition to being priced wrong, it may have serious structural problems or need significant rehabilitation. In today’s sellers’ markets, with inventories so low, expired listings are fewer and well-worked over.
Expired listings are easy to find but you will need the help of your real estate agent. Expired listings are shown everyday on the MLS, but only on the version of the MLS accessible to brokers and agents, not the version the public sees. There are usually a few very heavy days in each month. The end of the month is usually one of the heaviest times for expired listings; up to 25 percent of the expired listings for the month may come up on a heavy day. Ask your agent for information on expired listings as they leave the MLS.
They want to sell: The expired listings were on the market at one time, unlike many other types of clients you want to contact. The clients had a plan laid out to sell and move. Their plan did not work out, and in most cases they wish it had. There will be some expired listings which were listed by clients who are now tired of the process, but the majority of them still want to sell.
Digging up listings that can’t be found on the real estate listing Web sites that everyone else uses can take some work and may produce mixed results-after all, just about every seller wants to reach the largest possible number of buyers and that means listing on the MLS. However, there are alternatives out there and your dream house may be among them.