Fair market value is that price a qualified, reasonably knowledgeable buyer will pay to a seller (who is not under duress), after the property has been fully exposed to the market.
What was once an unusual way to market homes – outside of the local Association of Realtors Multiple Listing Service (MLS) – has become, with the heating up of the market, much more common. The question is: does this make sense for most sellers?
There are basically three reasons for trying to sell your home as what is variously called a pocket listing, an off-market sale or an off-MLS listing:
- Your highest priority and primary concern is confidentiality and privacy: you absolutely do not wish it to be public knowledge that you are selling your property and that any public marketing is performed or public showings be held.
- You don’t want to prepare your home for showings, have open houses or really make any effort at all in the process of selling the property. Perhaps you don’t even need to sell, but if someone is willing to pay you a certain price that you've already decided on, taking the property as-is, then you will be completely satisfied selling at that price.
- You believe that marketing and selling your home this way achieves the highest sales price, because buyers who do learn of it believe they’re getting a special inside shot at buying and step up aggressively.
Those are all valid reasons, but you should be aware of the potential trade-off you’re making.
What typically achieves the highest possible sales price?
One thing has become very clear in the current red-hot market: it is not uncommon for one, specific buyer to be willing to pay significantly more than anyone else, when they’re in competition with other buyers
. The reason behind comprehensive marketing, including listing the property in the Multiple Listing Service – which is probably the single best way of getting the word out to buyers and their agents – is firstly, to reach that highest paying buyer (in the overall effort to reach every
possible buyer), and secondly, to orchestrate as big a competitive bidding situation as possible – or at least the fear of impending competition in that buyer’s mind.
Without comprehensive marketing, it is much less likely that this "best" buyer will hear of your home being for sale in the first place, as well as being much less likely that a dynamic competitive bidding situation can be orchestrated. In either or both of those cases, it is quite possible you will sell your home for less, and perhaps significantly less, than you could have.
It might seem like an excellent price:
If you do sell your home “off-MLS” in this market, it’s quite conceivable that you’ll find a buyer who will pay what appears to be a very good price
. But there is simply no way to tell if you are getting the best
price achievable, or even, by definition, current fair market value. This is especially true in a rapidly appreciating market. Might there have been somebody else, who, if they knew about the opportunity, would have paid more?
Obviously, it's not possible to sell the same property, at the exact same point in time, both through MLS and through an off-MLS "pocket listing" sale, and then compare the results. However, Matt Fuller and Britton Jackson of JacksonFuller, completed a recent analysis* of all residential property transfers reported to the San Francisco Assessor- Recorder in 2013: They concluded that approximately 89% of 2013 SF home sales occurred through MLS and 11% occurred off-MLS, which generally gibes with research we've performed here at Paragon. They then found that homes sold off-MLS averaged sales prices 9% to 17% less, depending on property type, than MLS-marketed properties. Now, this doesn't constitute "proof" because each transaction has unique circumstances, but it is an indication
of what a seller might be sacrificing in sales price. Even if the difference is actually closer to 5%, with a median San Francisco home price of over $1,000,000, that's more than $50,000 lost.
Beware of agents making self-serving recommendations:
So, there are valid reasons to make the conscious decision to go the pocket-listing/ off-market/ off-MLS route, as long as you realize that you might not get as high a price as you could have otherwise.
What are not valid reasons
are your agent or broker desiring, by not publicizing the listing to other agents, to “double-end” the sale (i.e. represent both you and the buyer) and thus earn twice the commission, or your agent preferring not to spend the time, effort and money to comprehensively market and show your home to get you the best price and terms. In both those scenarios, your agent is putting their
interests above your
interests – which, by the way, is a violation of their legal, fiduciary duty – and you should find another agent to represent you in the sale of your home.
The quality of the agent working on your behalf—his or her competence, integrity,
work ethic and commitment to your interests—can make an enormous difference
in the outcome of your home purchase or sale: in money, stress, time, future happiness.