Article By: Neil O’Donnell
What we’ve noticed is that one of the things that doesn’t get talked about is the Exclusive listing. Today, we’ll uncover the truth about what an exclusive listing is and discuss the good, the bad and the ugly of an exclusive listing.
To do that we need to start with what is an MLS or Multiple Listing Service.
In short, an MLS is a way for agents to cooperate and help sell and buy properties. It is the cleanest form of cooperation between competitors – you help me sell my listings, and I’ll help you sell yours.
Today, there are thousands of MLS listings across the world. In Canada, there is only one main MLS and in Southern Ontario it’s shared by over 80,000 real estate agents.
The MLS does work. Most properties are advertised on the MLS and sold with the help of 2 agents – one who represents the Seller and one who represents the Buyer.
The other option to listing your home for sale is called an Exclusive listing.
An Exclusive listing is when a Seller enters into a listing agreement with a brokerage, but the listing does not appear on the MLS. The listing agent (and everyone in their brokerage) has the exclusive right to find the Buyer. Some people refer to exclusive listings as “pocket listings”.
Here’s the deal, there are times when listing a home for sale exclusively makes sense:
1 – Privacy – Some Sellers don’t want their neighbours to know their house is for sale. They may be getting divorced, they may be changing jobs and their resignation hasn’t been announced yet, or they may be famous. Yes, famous people need to sell their houses too, but they don’t necessarily want us all traipsing through their homes. Go figure.
2 – Speed is more important than price. Sometimes, the length of time it would take a home to be prepared, staged and marketed is too long, and a Seller has reasons to want to sell quickly (as noted above). An exclusive listing can bypass the prep time – of course, this only works well if the agent hired to sell the house exclusively already has potential buyers for the home.
3 – The Seller and their agent want to test the market. Sometimes to determine if a property could demand a much higher price than other homes in the area an agent will sign an exclusive listing so they can test the market. Normally this is done when the Sellers have just bought the property and want to re-sell it right away – a quick flip, or when the market is slow.
4 – One of the best reasons is that the Seller and the agent want to pre-market a home while it’s getting ready for sale. Having a signed exclusive listing agreement allows the listing agent to legally pre-market a home online and with a Coming-Soon sign. It’s an opportunity to let Buyers know that a house is coming up for sale even though it isn’t ready to be shown yet.
5 – The Seller wants to restrict showing access. As soon as a property is listed on the MLS, it must be available to be shown to prospective Buyers. Sellers who need to restrict access (to complete renovations, while they are away on vacation or while someone in the home is sick) can still have their property ‘for sale’ without daily visits from would-be Buyers.
But listing a home exclusively also has some really significant downsides:
1 – True market value is only determined when a home has been marketed and exposed to as many potential Buyers as possible. This can only be done when we post the listing on MLS. Market value is the result of your property being exposed on the open market and potential Buyers deciding what it’s worth. Think about it. You’ve seen or at least heard about Buyers bidding up the price of an in-demand house in ‘bidding wars’, and you’ve also seen homes sitting on the market because they’re perceived as overpriced. The highest price almost always comes as a result of exposing the property to as many Buyers as possible.
2 – Often the biggest winner in the sale of an exclusive listing is the real estate agent. Exclusive listings reduce the chances of cooperation(where one agent represents the Buyer, and another represents the Seller). If the agent is working for both the Buyer and Seller, then the agent stands to make a greater commission. But did the exclusive listing really bring in the highest price for the Seller? That’s the tricky part.
3 – Who works for who? Is the listing agent working for the Seller, the Buyer or both the Seller and the Buyer? Did the Seller get the highest price? Did the Buyer overpay? Are there things about the home and neighbourhood that an agent working for the Buyer (and not the Seller, or both) might discover? Trust me, this can get messy.
Except in very specific situations, (which we’ve encountered and expertly handled) it’s almost always beneficial to the Seller to list their home on the open market. Wondering what you should do in your situation? We’d be happy to discuss!
Any thoughts or questions? Share them with me at [email protected]