I was in Orange County yesterday and saw this in a local publication:
The off-market craze is just getting started.
We’ve already been hearing the hucksters at open houses who lead with their only pitch:
“I operate in the off-market space.”
“Does your agent offer you off-market deals?”
“Would you like me to alert you to our off-market listings?”
“Ok, great – sign my buyer-broker agreement right here.”
When the inventory of superior homes being so tight, it is inevitable that buyers will be lured into thinking that there might be something they’re missing.
But the real benefit to the off-market action is that realtors regain control of the market.
The industry loved it during the frenzy when the MLS/search portals were publishing sales that closed several hundred thousand dollars over the list price in the first few days on the market.
But now, the MLS/search portals are the enemy.
They publish the number of days-on-market, and the price reductions….ouch. If you are a listing agent of one of those listings, you are begging for ways to hide those facts. The agents who ‘refresh’ their listings have been thwarted now because the MLS also publishes the CDOM, or combined-days-on-market to highlight when a listing was just cancelled and re-inputted:
This is one of the main reasons why the Clear Cooperation Policy will be attacked by the brokerages.
Operating in the off-market space avoids racking up days on the market, and public changes in price. Think about the commercial brokers – you have no idea how long they have been sitting on that listing, or what the price was an hour ago, let alone tomorrow.
When the market is great, then the truth is our friend.
Nowadays? Not so much.
Potential home buyers must think that the real estate gods have it out for them. Rates and prices went through the roof and never came back (yet), the bidding process is a disaster, and now they are forced to pay for their own agent (maybe). In spite of the internet, the real truth about the market has never been so well disguised. They can’t get a break!
Sellers just want their money.
Compass needs a partner. If we split from the pack over the CCP then we will be labeled the sole renegade. But if eXp, Realogy, KW, or Berkshire joins us then the rest will fall in line (the eXp CEO said so). We can quit the MLS, and make Zillow/Homes.com publish our listings the way we want them published.
In the meantime, we can expect the off-market craze to thrive.
The off-market sales are an attractive option for big shots like John above who prefer to protect their privacy, blah, blah. What about the regular folk? Is there a bulk of sales happening off-market?
How many off-market sales are there in the general marketplace?
Lance has been doing a great job documenting the natonal real estate market. He found a company that did a study and they said that there have been 1,200,000 off-market sales in the county this year, including 60,000+ in California:
Of course, realtors can’t brag enough about their off-market conquests, and getting tipped to their pocket listings will be one of the primary pitches you will be hearing from aggressive agents at open houses. Braggadocio like this:
I checked the most recent 196 single-family sales in Encinitas, Rancho Santa Fe, and Carmel Valley in all price ranges. I reviewed the tax records and the MLS and found 19 homes that were sold off-market.
The 19 off-market sales break down like this:
10 were entered onto the MLS with zero days on market.
4 agents sold their own home off-market (?).
4 were flippers (2 buys and 2 sells)
One agent bought an expired listing off-market.
People are going to sell their home off-market for whatever reason. But realtors have a fiduciary duty to their sellers, so there must have been special circumstances with the ten sales (like I had earlier this year when I did one).
If there were 25% or more of the total sales being sold off-market, it would be a big deal – and it might come to that some day. But with only ten (5%) of the recent sales being sold off-market by realtors, it’s a nothing-burger for now.
I spoke to a few agents on the broker preview yesterday about business this year, and the common theme was that agents are have big trouble finding people who want to sell their home. It suggests that the inventory of quality homes will be extremely low this year.
What happens, when that happens?
It means that when listing agents get a hot new property to sell, they will be tempted to find their own buyer first, and/or spoon it to a select few of their agent friends, and then maybe expose it to their office mates before putting it on the MLS/open market.
The extinction of buyer-agents is well underway.
As the market tightens further, more listing agents will be tempted to sandbag their listing and not put it on the open market. Look what happened to the agent this week who received 20+ offers (they told me the final count was 30 offers). After the listing was put on the open market, the flood of offers caused regrets about the workload, so they just grabbed one and shut it down.
Last night I popped off in the comment section about how the business gets shadier every year.
Here’s proof – not every listing with zero days on market was sandbagged, but let’s face it. If you mark your listing pending within a few hours of it going live on the MLS, you didn’t get full exposure.
NSDCC Annual Closed Sales With Zero Days On Market
Year
Annual Detached-Home Sales, Total
# With Zero Days on Market
Percentage
2016
3,107
84
2.6%
2017
3,084
99
3.2%
2018
2,799
84
3.0%
2019
2,834
100
3.5%
2020
3,190
116
3.6%
2021
3,184
173
5.4%
2022
1,939
124
6.4%
When agents see other agents touting their off-market business, they think it must be ok, so they do it too. It feeds on itself, especially when the allure of double-ending the commission is so strong in a tight-inventory environment.
This disease among agents is everywhere. You will notice it at every open house you attend – the agents conducting the open house can’t wait to tell you about their off-market opportunities to get you to sign up. You’ll see it mentioned on social media daily – agents don’t think there is anything wrong with promoting off-market deals. Heck, everyone is doing it!
I regularly ask the agents who have a quality home for sale how they will handle multiple offers, and the answer is always the same: “I don’t know”, before they stumble and mumble something about the seller will decide (oh, thanks for that!) so the agents don’t get blamed for the end result. It’s embarrassing that they don’t have any strategy, and want to leave the door open for shenanigans later. No wonder they want to do an off-market deal, with no scrutiny.
Because no one is doing anything to intervene, the off-market deals will continue to be an accepted practice, and exacerbate the trend towards single agency (and the extinction of buyer-agents). Within the next year or two, every buyer will just go to the listing agent and take their beating.
This was the Private Exclusive off-market listing that hit our intra-office website late in the afternoon and literally the next day most of the top Compass agents and me rushed over there to check it out.
Both buyer and seller take a gamble on price when transacting off-market. Since this was filmed, two sales on Rancho Encinitas Drive have closed for over $4,000,000, so this buyer should be happy with their $3,230,000 purchase price here (which was $405,000 over the list price).
One sign isn’t going to change the world, but it’s an example of how home sales will be changing in the future. If/when homes are sold in-house (not exposed to outside brokers and buyers) like commercial properties, Compass should extend its dominance in San Diego County – especially north coastal.
I can’t control how this turns out; I can only roll with it!
Hat tip to Rob Dawg who sent in this article that suggests Salinas ranks higher than San Diego and Ventura! I cannot find the 60 metro areas on the luxury list they talk about here so not sure about the overall rankings.
Coastal California has seen a surge of interest as buyers continue to expand out from urban hubs in Silicon Valley, San Francisco and Los Angeles.
Four Golden State beach spots jumped into the top 10 on the luxury segment of the second Wall Street Journal/realtor.com Emerging Housing Markets Index, released Tuesday.
They include Santa Maria and Santa Barbara, California, in the No. 1 spot; San Luis Obispo, Paso Robles and Arroyo Grande, California, at No. 5; and Oxnard, Thousand Oaks and Ventura, California, taking the ninth slot on the ranking, the data showed. Salinas, whose greater metro area includes the highly affluent Monterey area, also made the top 10, ranking No. 8 on the index.
These regions, all north of Los Angeles, offer space for affluent families to continue working and schooling from home without having to entirely pull up roots from California.
“In general, there’s a trend toward areas with less density,” Danielle Hale, chief economist for realtor.com, told Mansion Global. “Buyers are looking for places that are less crowded, where they can spread out and have privacy.”
The index, based on June housing data, uses a slate of indicators to assess the prosperity of emerging housing markets. Those include growth in housing supply and demand; median listing prices; unemployment; wages; a cost of living measure; small businesses; amenities and the share of foreign-born residents—who contribute to the vitality and diversity of the area. In its second edition, local real estate taxes have also been considered.
The 60 metropolitan areas reviewed within the luxury segment of the Emerging Housing Markets Index are ranked based on housing data for the top 1% of each market and the weighted sum of those metrics to determine which have the hottest high-end markets.
California has a mix of densities, from big cities to small towns, Ms. Hale continued, which gives affluent buyers options when they are looking for a new residence. That bodes well for markets in what have traditionally been second-home destinations, such as Santa Barbara’s extremely affluent Montecito and Malibu, but also attractive under-the-radar coastal locales like Oxnard.
“The top markets in the mainstream ranking tend to be not necessarily vacation-oriented spots,” Ms. Hale said of the overall, non-luxury rankings, of which Billings, Montana, came in No. 1 this time around. “That’s not true for luxury.”
The influx from more dense areas like Los Angeles is certainly evident in Santa Barbara, according to Billy Rose, co-founder and vice-chairman of The Agency.
“There are bidding wars on nearly every property,” he said. “Homes are being resold not very long after they were purchased for high premiums and agents are peddling pocket listings more than ever.”
The Journal touched on pocket listings yesterday – excerpts:
Real-estate agents are selling more homes to select customers while bypassing the public market, a move that squeezes supply tighter for many buyers when inventory is already near record lows.
In the vast majority of transactions, an agent lists a home for sale on a local database and markets the property widely to drum up interest and get the best price. But in certain cases, a broker will show an unlisted property to a small circle of potential buyers more exclusively, often in hope of getting a deal done quickly.
These private sales are known as pocket listings, or whisper listings. They have been around for many years. But they are on the rise now even though the National Association of Realtors adopted a rule last year aimed at discouraging their use following complaints from some of its members.
Pocket listings persist in part because they benefit big brokerages, which can shop listings in-house and advertise to potential clients that they have properties that aren’t available anywhere else.
On brokerage Compass Inc.’s website, a search for active listings or those coming soon in San Francisco pulled up 1,320 online listings as of midday Tuesday. The website also said 105 listings in the city weren’t publicly available but were available through a Compass agent.
Compass is known for the in-house Private Exclusives program, and it was one of the main reasons I joined. If any big brokerage were to mount a strong in-house campaign, they could commandeer the market – especially if they had the #1 market share. I wouldn’t recommend it for my sellers, but it could be a boost for my buyers.
Last year I did four off-market sales with my buyers, and only one was with a Compass listing agent. But I haven’t even sniffed an opportunity this year. Why? Because in 2021 every seller and listing agent wants to go on the open market to see if they can get bid up. They’ve heard the stories of sales going for hundreds of thousands over list, and they want their chance at glory.
We still have a Private Exclusives section, but every time I contact a listing agent who has a home listed there, they say they are going on the open market (there is some confusion on what the PE program is supposed to be). I’m sure there are off-market deals happening, but I don’t think they are any more than normal – and they have been around since the beginning of time.
In Northern California, the Compass presence is huge, and I’ve been told that management there is really pushing the Private Exclusives. But in the WSJ article, they mentioned that only 8% of the listings were Exclusives, and my guess is that many of those are heading for the open market.
Another unintended consequence of the frenzy? Slowing down the off-market sales!
The home-selling business is known for being the Wild, Wild West.
There are a few rules and ethics filed away in a drawer somewhere but there is no enforcement unless you do something really bad, like this guy – who only lost his real estate license a couple of months AFTER he was convicted and sentenced to three years in jail.
So when the Clear Cooperation Policy went into effect in May that stipulated an agent could input a listing into the MLS as ‘Coming Soon’, as long as they didn’t show it to anyone until it was marked as an active listing, many of us scoffed.
But apparently for our local association, this is the hill to die on:
During the short-sale era, agents defrauded banks out of millions of dollars, and all the association did was to produce a video of realtors talking about how to do short sales properly.
Bidding wars are regularly abused by listing agents who tilt the table in favor of themselves or a favored realtor, and the association doesn’t offer any solutions.
And the Clear Cooperation Policy still allows off-market listings to be sold within the same brokerage – and never offered to outside agents or the public.
There are plenty of more egregious violations of the consumers faith and trust, so why is the association selecting this rule to be the one to enforce, and issue heavy fines? They are dependent upon other agents ratting out the violators, so it’s not like there will be a MLS police, but will they start enforcing any other rules – and issuing heavy fines – while they are at it? The agents who get convicted of other violations only get a letter in their file for six months.
If agents want to show their Coming Soons, they can always join the San Diego Association of Realtors instead, where the fines are limited to $500. Or if the purpose of your Coming Soon is to test the market, just enter your new listing as Active instead and answer your phone for a couple of days and you will have ample evidence of how the market feels about it.
Here’s another tepid response to an issue that bugs consumers and agents alike:
Just when we thought there was a set policy on Coming Soon listings, they change it again.
The IDX is the agreement among realtors to share each others’ listings on our own personal websites, which was a great idea before search portals. But IDX was written off as a waste of time because now consumers have found better options like Zillow.
Are they going to change to their realtor’s inferior website, just to see the Coming Soons?
Wasn’t the idea of Coming-Soon-listings-on-the-MLS supposed to give realtors the distinct advantage of controlling the distribution? Oh well, maybe that was just me who saw that advantage, because it sure wasn’t considered in this decision. They are all going to be out in the open now, and we might as well let Zillow have them too.
The water is already muddied by Zillow allowing the Premier Agents to do their own Coming Soon listings separate from the MLS, and by agents ignoring the rules on social media. Who knows if agents are flagrantly abusing the rules or just forgot them already (more probable) but I see the old standard Coming-Soon pitches on social media now that are supposed to be inputted into the MLS by the next day – but they show up a week or two later, just like before.
Here are the new/updated rules for those who care:
No mention of Private Exclusives – which are allowed by N.A.R.’s Clear Cooperation Policy – where any agent in the same brokerage can sell an in-house listing without any MLS or public exposure.
I don’t get the No Showings policy either. Do they really think an agent is going to deny showing their Coming-Soon listing to a buyer who contacts them directly and promises to pay full-price cash? I’ve already showed Coming Soons listed by other agents to my buyers, and the listers didn’t think twice about it. If they had a chance to double-end the commission, wouldn’t they just pay the fine and be on their way? The max fine is only $2,500.
This whole topic was a mess, and now giving buyers direct access to the list is not only going to tempt them to go directly to the listing agent (which is opposite to NAR’s intent) but consumers will also get a better look at how disorganized and unruly we are.
Our MLS has been publishing the Coming Soon listings for almost two months now, and agents are using the feature. The list above has 17 out of 59 (27%) of the new listings marked as Coming Soon – the most I’ve seen in one day.
They show up as a ‘new listing’ on the agent hotsheets on the day they are inputted onto the MLS, but the homes are not allowed to be shown until they are ‘active’. Usually the remarks and photos are brief too, which is understandable – they aren’t ready yet. They are coming soon.
The day the listing goes active is determined in advance, and the MLS automatically changes the status on that day. These hot new listings that haven’t been seen yet are now full of photos, videos, and descriptive remarks, but they appear at the top of our hotsheets as a ‘Misc. Change’, which isn’t the same as being on the New list. The only indication that these are fresh listings are the days-on-market being zero:
The strategy is still a bit murky for me. The intent is to build anticipation among agents only, but if the photos & remarks are brief and I can’t show & sell it until some day in the future, it’s not that interesting. But it does give agents a unique advantage to receive advance notice on new inventory before the search portals get it.
Will private websites get a hold of the Coming Soons and publish them for consumers? Yes, and it’s already happening.
Will listing agents be tempted to show their Coming Soon listing prior to it being marked an active listing? Probably, so buyer-agents should call the listing agents every time they see a contender, which will make the listing agent wonder why they are bothering with Coming Soon when they keep getting requests to show it early.
