THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN APRIL OF 2016
By Daniel Smith[dropcap]I[/dropcap]s the MLS on the way O-U-T?
It’s a question Bay Area real estate professionals may soon be asking in the wake of a new tech startup that has documented nearly a quarter of San Francisco home sales are sold without being listed—and reportedly for higher prices.
The market for these so-called pocket listings holds the promise to buyers of undiscovered gems, and to sellers of quietly and quickly closed sales.
“We’re just trying to organize the information for our buyers,” says Tom MacLeod, CEO of PocketList (pocketlist.co), a free app that sends data to subscribers’ phones about available Bay Area properties not yet on a multiple listing service (MLS). “Privately, we’ve learned that it could be a big threat to the MLS.”
PocketList launched in October after MacLeod moved back to the Bay Area and was shown the Lafayette home that he eventually bought without it ever appearing on listing services for the East Bay.
“There’s a growing trend of properties being offered outside the MLS,” MacLeod observed of the condition that prompted creation of PocketList, the fourth tech startup he has worked on in his career. He said that although MLS providers claim maximum exposure for listed properties, in fact, “the evidence might show that some agents either feel differently or are going in a nontraditional route to create exposure for the properties.”
To document the unlisted portion of the market, PocketList used data from the San Francisco city assessor’s office and the San Francisco Association of Realtors (SFAR) for 2014 and 2015. They found a previously undocumented $2 billion market of private sales of homes conducted off the Association’s MLS, amounting to 24 percent of total sales in 2014 and 23 percent in 2015.
Furthermore, the study found a mean price of $1,336,001 for off-list sales in 2014 compared to $1,241,433 for homes on the MLS, a margin of 7.6 percent. Both figures were in the $1.4 million range for 2015, with off-list trending 1.5 percent higher.
“I’m not seeing that,” responded Walt Baczkowski, SFAR’s CEO since 2012. “When you’re in a pre-market situation…you’re not going to get the same exposure so you’re not going to get as much money.”
Baczkowski agreed with the study’s finding that between a fifth and a quarter of all sales are occurring off-market, especially where “the seller hasn’t had time to tie up all the loose ends” of a property. He noted a current shortage of available homes in conceding, “The pre-marketing, when you’re in this kind of a marketing situation, works.”
Although sites like Redfin, Zillow and Trulia are useful tools for buyers, MacLeod and his team want to bring “an efficiency to the industry that doesn’t exist currently.” He said agents and sellers both end up wasting a lot of time on inquiries by people who are looking, but in fact are not really potential buyers for their particular property.
A short pre-marketing period has advantages for the majority of sellers who will later list on the MLS, namely, exploring buyer interest and price discovery before exposing the home to the wider market. MacLeod said, “Once the MLS listing is active, the date on the ‘market clock’ starts ticking, and the longer it goes, the more stale a listing can seem.”
“We don’t position ourselves as an alternative [to MLS], we position ourselves as pre-marketplace,” said MacLeod of PocketList, which is currently just in the Bay Area but hopes to expand this year to Los Angeles. “We’re proponents of the MLS. The majority of our properties go to the MLS. It’s the most democratic way to do things.”
PocketList works with a network of agents throughout the Bay Area who give the service property details for a brief period before listing a property, he explained. Subscribers to PocketList get this information before the homes hit the market—but only after meeting the company’s requirements of selecting a professional agent and getting pre-qualified for financing or a cash purchase.
“What we’re trying to do is create a tremendous incentive for home buyers to get qualified,” said the MacLeod.
“We ask them to narrow it down to three locations,” MacLeod said of the requirement that subscribers name three cities or neighborhoods of preference. If a party does not already have an agent, “we refer all our buyers to top agents,” he adds.
“We very much believe that the agent has a role in the search process. They can do things that Redfin and Zillow can never do,” he said, conceding that the Internet allows much more research by buyers than previously possible. “We’re a complementary search to a primary search tool, which might be Redfin or whatever.”
MacLeod suggested that one of the areas of inefficiency in the current multiple listing market is that there are too many listing services, with more than 800 in existence. He said some consolidation may be in order as well as adding the type of pre-market service that PocketList provides. The SFAR in fact launched a pre-market feature in October called RealTime MLS that is available by subscription to its 4,600 member agents and brokers.