The idea of selling a home without ever listing it can be appealing to many. Similarly, ringing the doorbell on the “perfect home” and finding an owner willing to sell can put a broad smile on a buyer’s face.

The risks however, routinely make buying and selling “pocket listings” dangerous to a person’s financial well-being — particularly for sellers.

The term pocket listing typically refers to an agreement between a seller and real estate broker that allows the broker to market the property outside of the multiple listing service.

The property is advertised through the broker’s “network” and a buyer is targeted by what amounts to “word of mouth.”

There are a number of caution points for any seller contemplating a pocket listing:

• The home might sell for less than market value. How is the sale price being established? Is the seller depending on the agent to stipulate price? Don’t rely solely on a prelisting appraisal; there are many buyer and seller variables that cannot be accounted for by an appraiser. If the home isn’t exposed to the maximum number of potential buyers (usually accomplished via the MLS) how can the seller be confident that the best price was received? When a shortage of quality listings exist, multiple offers and bidding wars might be seen – which doesn’t happen without adequate exposure.
• What are the motivations for a seller to consider a pocket listing? If the idea is to save on agent commissions, the expectation is often different than the reality. A 4 percent commission might be 1 or 2 percent less than market and appear like a bargain, but a seller should look at the big picture. Agents soliciting pocket listings typically already have a buyer lined up so the conventional agent split doesn’t apply. So while the total fee might be less than market, it’s more for the agent since they keep it all. It’s also not uncommon for pocket listings to have clauses that address fees due in the event a buyer’s agent is involved. It’s not uncommon for the end result to be a commission that approaches the norm and a selling price below market.
• There is simply no suitable substitute for the exposure obtained by the MLS. A pocket listing – like homes offered for sale by owner – simply cannot compete with a traditionally listed home. The major public real estate sites pull information from the MLS. Facebook, Twitter, and Pinterest might get someone interested in a home, but home buyers look where the homes are. It’s worth noting that an estimated 45 percent  of home buyers in 2013 found the home they bought on the Internet, not through their agent.
• Sellers make have to make unnecessary repairs or concessions. Potential issues that plague a “normal” sale will be present with pocket listings as well. However, a competitive environment provides options to a seller. Repair issues, appraisal problems or other challenges can better be negotiated or ignored when there are multiple interested buyers.

– See more at: http://www.inman.com/2014/04/09/pitfalls-of-pocket-listings-for-buyers-and-sellers-outweigh-potential-upsides/?utm_source=20140409&utm_medium=email&utm_campaign=dailyheadlinesam#sthash.MCWOFdHE.dpuf