Off-Market Transactions Hurt Sellers By Shutting Out Buyers Who Might Pay More

The sale of homes without listing them on the MLS frustrates would-be buyers who are waiting for just such a home. Those frustrated buyers might have paid more than the actual buyer, in which case it’s fair to say that both buyers and sellers have been harmed.

This is an update of a column with the same headline published exactly a year ago. On March 22, 2018, I wrote that in January and February of that year 4.4% of the sold listings were only entered on the MLS after closing. It’s even worse this January and February, when the percentage of Denver sales showing zero days on market rose to 6.3%. Another 2% sold in one day, which is still not enough time to expose a listing to all potential buyers.

I have determined that with proper exposure, 4 days is the “sweet spot” for listing a home and getting the highest possible price for it. That is office policy at Golden Real Estate, violated only when the seller insists on selling sooner for one reason or another, such as to a friend.

Analyzing the 101 Denver sales in January and February, the median sale was for full price, which makes sense. However, half the 86 Denver homes which sold after 4 days on the market garnered from 1% to as much as 10% above their listing price. That can amount to a lot of money “left on the table” by sellers who chose (or were convinced by their agent) to sell without exposing the home to more buyers via the MLS..  

It’s reasonable to ask how listing agents may have profited (at their seller’s expense) from keeping listings off the MLS. An analysis of the Denver listings that were entered as sold with zero days on market this January and February reveals that 20.8% of them were double-ended, meaning that the listing agent kept the entire commission instead of sharing it with a buyer’s agent. Not one of the homes that sold after 4 days on the MLS was double-ended. It seems obvious to me that many listing agents are convincing their clients to sell without putting their home on the MLS so they can increase the chance of doubling their commission. Putting their self-interest ahead of their clients’ is a serious violation of both ethics and law.

This is not to say that zero days on the market is never in the best interests of the seller. For example, the seller and buyer might know one another, or otherwise found each other, and simply asked an agent to handle the transaction without seeking other buyers.  Or perhaps it was a for-sale-by-owner property where an agent brought the buyer and entered the sale on the MLS after closing as a courtesy to other agents and to appraisers. Or a seller might ask to keep the home off the MLS because he/she does not like the idea of opening their home to lots of strangers.

One would hope, however (and sellers should expect), that when a broker double-ends a transaction, he or she would at least give the seller a break on the commission, rather than keeping the portion (typically 2.8%) that would have been paid to a buyer’s agent. This practice is referred to as a “variable commission” and is office policy at Golden Real Estate. Unfortunately, however, only two of the 21 listings that was double-ended and sold without being put on the MLS offered their sellers this discount. The other 19 enjoyed the windfall of keeping the full commission to themselves, without sharing that windfall with their sellers.

Some agents put listings on Zillow as “coming soon” while holding them off the MLS as a technique for attracting a buyer before other agents know about the listing. The Real Estate Commission addressed this practice in a 2014 position statement, stating that “if the property is being marketed as ‘coming soon’ in an effort for the listing broker to acquire a buyer and ‘double end’ the transaction, this would be a violation of the license law because the broker is not exercising reasonable skill and care.”  Further, the commission stated, “a broker who places the importance of his commission above his duties, responsibilities or obligations to the consumer who has engaged him is practicing business in a manner that endangers the interest of the public.” 

Sadly, that is still happening.

Even if You’re a Sophisticated Buyer or Seller, You Need Us — And Here’s Why…

Perhaps you’ve heard the expression, “A lawyer who represents himself has a fool for a client.” Most lawyers respect that truism, which is why you see lawyers hiring other lawyers when they are sued or criminally charged..

The same truism can be applied to real estate. Just this week I received a contract to buy one of my listings from a couple who are both real estate agents, but the offer was written by another agent.  (I suspect he will share his 2.8% co-op commission with the buyers.)

There are also many buyers and sellers who aren’t agents but who are sufficiently experienced at buying and selling real estate to be considered “sophisticated” buyers or sellers. These persons may understandably think that they don’t need professional representation, saving themselves (if they’re selling) 3% or so on a listing commission. If they are buying without representation, they may think they can negotiate a lower purchase price by sparing the seller the 2.8% co-op commission typically paid to a buyer’s agent.

Let me debunk some misconceptions about each scenario separately — first for buyers.

Buyers typically pay nothing for professional representation, since buyers’ agents are universally compensated by the listing agent at a rate spelled out in the multi-list service (or “MLS”) to which all agents belong. Our Denver metro MLS is called REcolorado. Its website is www.REcolorado.com, which has both a consumer-facing and agent-facing side.

If you’re a buyer, you can go to that website and see all the listings which are currently available for purchase, and you can click on a link to email or call the agent for each listing. After that listing agent has determined that you don’t have an agency agreement with another agent, he or she will be delighted to help you buy his (or her) listing because he won’t have to give away half his commission to another agent. And he’ll probably ask you to hire him as a buyer’s agent if his own listing is not what you choose to buy, in which case he could earn 2.8% on that purchase.

If you, as a buyer, work with the listing agent, he or she will not, by law, be working in your best interest. At best, he’ll be a transaction broker, advising neither you nor his seller in the transaction. He won’t be able to advise you on the true value of the home or what you should offer, or how to respond to a counterproposal from the seller. He also won’t be able to advise you on inspection or other issues that arise during the transaction.  You’re on your own — literally helpless.

Moreover, the chances are that you’re not saving the seller any money by being unrepresented, since the listing agent gets to keep the entire commission when he doesn’t have to share it with a buyer’s agent.  My own research has shown that only 15% of listing agreements have a provision in which the commission is reduced if the agent doesn’t have to share his commission with a buyer’s agent. I know this to be true, because the MLS requires listing agents to disclose the existence of a “variable commission” in their listings. That’s one of the fields that is not displayed on the consumer-facing side of the MLS.

There are additional reasons why a buyer (in my opinion) should hire an agent instead of working directly with a listing agent — except when it’s a Golden Real Estate listing, as I’ll explain below. The most important reason is that a buyer’s agent, in addition to being your advocate in a transaction, has more access to information about listings than you have as a consumer.

For starters, agents have valuation software not available to consumers and can create a spreadsheet of comparable sales, so you’ll know whether a home’s listing price is reasonable. Zillow’s famed “zestimates,” by themselves, are not a dependable indicator of a property’s value.

Second, agents can do searches using any field on the MLS, not just the fields that are available to you as a consumer. Do you require a main-floor master? A second master suite? A fenced yard for your dog? An unfinished (or finished) basement? An agent can set up MLS searches on virtually any criterion that is important to you, and the system will notify you and your agent within 15 minutes of a new listing matching your specific search criteria.

As a buyer working with Golden Real Estate, you’ll enjoy added advantages to having representation, up to totally free moving using our own moving trucks, boxes and packing materials. With our focus on sustainability, one of my favorite closing gifts to buyers is a free energy audit of your new home — a $350 value. And if you have a home to sell, we reduce our commission on selling your current home. These benefits also apply when you’re buying one of our listings without your own agent. Call us for details.

Now let’s look at why sellers need to have professional representation.

Understandably, sellers have a huge incentive not to use an agent — they pay the commission for both agents in a transaction, which they assume (wrongly) is fixed at 6%. That would be a violation of federal antitrust laws. All commissions are negotiable. My personal rate is 5.6%, which I reduce to 4.6% if I don’t have to give 2.8% to a buyer’s agent. And I reduce those figures by another 1% if I earn a commission on the purchase of your replacement home. Because of federal laws against price fixing, I can’t dictate (or even discuss) what our other agents charge.

That’s still a lot of money, so you need to know what you’re getting for it.

At Golden Real Estate, sellers enjoy a free staging consultation, magazine quality still photos and professional quality narrated video tours which are posted on YouTube, the MLS, consumer real estate websites and on the custom website which we create for each listing. (Visit www.GRElistings.com to see the custom websites for our current active listings.)

We also provide free use of our moving trucks and moving boxes both to our sellers and to whoever buys our listings, even if their agent is with another brokerage. And, of course, all listings are featured in this column, which appears in eight editions of newspapers throughout both Denver and Jefferson counties.

We also have a proven track record of getting the highest possible prices for our sellers because of our skill at negotiating with buyers and their agents. Most agents will not reveal the offers they have in hand when they get multiple offers. We treat that situation like an auction, where everyone knows the highest current offer, and we regularly bid up the purchase price for our sellers — and the buyers and their agents appreciate not losing out in a blind bidding situation.